Analyze the causes of the second outbreak of Avalanche from a fundamental perspective

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Avalanche’s underlying technology, ecological incentives, and its own iteration have laid the groundwork for its second outbreak in this round of new public chain craze.

Original title: “The sudden change of the public chain warfare, why is Avalanche breaking the siege? 》
Author: up

The public chain once again attracted the attention of the entire market.

From Ethereum in the era of deflation, to Solana, which has an increasingly complete ecosystem, to Avalanche and Fantom, which launched a huge ecological incentive plan, the major projects of the public chain track have been in the past nearly one month. With successive efforts from within, while advancing the pace of its own development, it has also achieved price breakthroughs in the secondary market one after another.

Among the public chain projects, the performance of Avalanche is particularly eye-catching. Since the official announcement of the “Avalanche Rush” liquidity mining incentive plan with a total value of 180 million US dollars on August 18, the avalanche protocol token AVAX has risen strongly at around 23 US dollars. %, AVAX has also achieved a rapid recovery after a round of sharp adjustments in the market. As of 13:40 on September 10, AVAX was quoted at US$44.15, which is still 92% higher than the price on the 18th.

The more amazing data is reflected in the total value of ecological lock-up (TVL). Fomocraft data shows that the total value of Avalanche ecological lock-up achieved a rapid growth of 1066% in August, and the growth rate over the same period has greatly exceeded the continuous highlight of Solana. And Fantom, which also launched a huge flow incentive plan.

Analyze the cause of the second outbreak of Avalanche from a fundamental perspective

A closer look at Avalanche’s booming fundamentals

If one word is used to describe the current fundamentals of Avalanche, “prosperity” seems to be the best choice.

Project quality is often an important basis for the market to judge a certain ecological development status. In the past period of time, Aave, Curve, SushiSwap and other leading projects have successively announced cooperation agreements with Avalanche, which will be integrated into Avalanche in the near future, and will distribute US$20 million and US$7 million to liquidity providers based on Avalanche Rush. , 15 million US dollars of AVAX incentives.

Analyze the cause of the second outbreak of Avalanche from a fundamental perspective

For DeFi users, the choice of the leading project is the best vane. Affected by its banner effect, a large number of new users have begun to try Avalanche. According to Ava Labs data, the number of active addresses in Avalanche in August has significantly refreshed its historical record, which is more than four times the data in July. The trend in September is even more ideal. Although only more than a week has passed, the number of active addresses in this month has been The number has exceeded 60,000, and there is a trend of continuing to set a new high. There are many giant whales among these new users. Community investigations pointed out that an address suspected of belonging to SBF has allocated $170 million in funds on Avalanche.

Analyze the cause of the second outbreak of Avalanche from a fundamental perspective

The continuous inflow of users and funds has brought a steady stream of living water to Avalanche, and has also nourished the original projects within the ecology. Markr data shows that as of 13:35 on September 10th, the total lock-up volume in the Avalanche ecosystem has reached 2.64 billion U.S. dollars. Among them, the algorithmic liquidity market agreement BENQI, which was just launched on August 19, contributed most of the lock-up data. With the incentives of Avalanche Rush, the agreement took about three weeks to accumulate USD 1.7 billion. Liquidity has become the absolute main force in this round of Avalanche ecological data soaring. In addition, many Avalanche native projects such as Pangolin, Trader Joe, Penguin, Avalaunch, etc. have significantly improved their business data performance in the past period of time.

What did Avalanche do right?

Since the growth rate of BSC and Polygon (strictly speaking, they are attached to the side chain of Ethereum, but the operating mechanism is closer to the public chain, let’s compare them together), the competition of emerging public chains has entered a relative The static phase. Although the major projects have never stopped the pace of infrastructure construction and application expansion, in the past for a long period of time, no public chain has shown an explosive growth trend that is completely different from other projects.

Objectively speaking, although the current ecological volume of Avalanche is not yet capable of “outstanding among the crowd” in the emerging public chain, in terms of the growth trend, the recent strong fundamentals of the ecology have shown some “breaking out of the big forces and leading the way.” Track” trend.

So, what did Avalanche do right? Compared with other competitors, what are the advantages of this public chain? Why did it break out of the public chain? Combining the basic situation of the project and recent developments, Odaily Planet Daily concluded that the current round of Avalanche’s outbreak can be attributed to four factors.

Factor 1: bottom-level advantage

For public chains, the quality of the underlying network is the foundation of all stories.

Compared with other public chains, the biggest feature of Avalanche is its consensus mechanism. Under the leadership of Cornell University professor Emin Gün Sirer, Avalanche designed a new consensus mechanism based on random sampling and metastable decision-making. This consensus takes into account the “classical Byzantine consensus protocol” that relies on communication transmission and the proof of work. Creates the advantages of the “Satoshi Nakamoto Consensus Protocol” with a chain structure, and at the same time solves the problems of the “Classic Byzantine Consensus Protocol” with weak scalability and weak robustness and the “Satoshi Nakamoto Consensus” with high latency, low throughput, and excessive resource consumption. problem.

Analyze the causes of the second outbreak of Avalanche from a fundamental perspective

The advantages of this consensus mechanism can be reflected in Avalanche’s unique transaction confirmation method. When a transaction is broadcast to the Avalanche network, if the transaction is valid, the verifier will go through a process of “repeated random sampling”, that is, a part of the system verifiers are randomly selected to participate in block verification. If most nodes have the same description of the event, then it is judged to be true. If most nodes give different answers, then switch the content of the event and repeat sampling until the end.

Based on this consensus model, Avalanche can support thousands of nodes to participate in transaction verification at the same time, without giving up network performance (collective verification of the entire network), nor the degree of decentralization (super node mechanism). Decentralized balance. Compared with PoA-type chains such as BSC and side chain solutions such as Polygon, the Avalanche network can achieve a higher level of security while providing excellent performance.

Analyze the cause of the second outbreak of Avalanche from a fundamental perspective

From the architectural point of view, Avalanche adopts a three-chain structure of X chain, C chain, and P chain. X chain is a transaction chain, which mainly deals with point-to-point asset creation and transaction transactions between individuals; C chain is an EVM-compatible smart contract chain. All DeFi projects mentioned above are built on the C chain; P chain is a platform chain, Mainly responsible for token pledge, coordination of network verifiers, and creation of custom subnets. The three chains perform their duties, but they complement each other, further liberating Avalanche’s network performance.

Performance advantage means a better user experience. For developers and ordinary users, there is no high chain operation cost on Avalanche, and there is no slow transaction confirmation time. The cost and time of deploying or using DeFi applications will be greatly reduced.

In contrast, the main battlefield of current DeFi activities-Ethereum. Although in the period after 519, the gas price of the Ethereum mainnet had a period of low, but after the recent EIP-1559 upgrade, the gas price of Ethereum did not drop but increased instead, a normal on-chain Transactions often require tens or even hundreds of dollars in gas fees, and the poor on-chain experience makes developers and users have to turn their heads to find other soil. This is also a major prerequisite for the rise of Avalanche and other emerging public chains.

Factor 2: Ecological incentives

“To engage in ecology, you have to be willing to spend money.”

This is a word that has been circulating in the public chain track for a long time. Although the words are rough but not unreasonable, funds are always profit-seeking, and the DeFi world is naturally no exception.

The main reason for Avalanche’s current ecological outbreak is the launch of the “Avalanche Rush” incentive plan. It can be clearly seen from the chart of Debank below that the skyrocketing of Avalanche’s ecological TVL started on August 18, which is the plan official. The day of proclaim. Not to mention whether there has been a change in concept after users entered, the vast majority of new users who have only recently entered the Avalanche ecosystem must have been motivated by 180 million US dollars (according to the current market price, it may have reached 400 million US dollars).

Analyze the causes of the second outbreak of Avalanche from a fundamental perspective

This reminds me of the previous outbreak of Polygon. Similar to Avalanche, Polygon also ushered in a surge in users and capital after launching a $100 million liquidity incentive fund. Coincidentally, the first batch of incentive fund cooperation applications on Polygon are Aave, Cvure, Sushiswap, which coincides with the situation of “Avalanche Rush”. The slight difference is that the incentives given by Avalanche this time are stronger. Although the actual amount of incentives will change with the currency price fluctuations in the secondary market, the initial investment of US$180 million is enough to show Avalanche’s official determination. Its firmness.

For ordinary users, the way to share the 180 million US dollars is quite simple. They only need to provide liquidity in the official cooperation projects (the three leading players are not online yet, currently only BENQI and Pangolin), and Avalanche will follow the corresponding The rules distribute token rewards to all liquidity providers in the form of AVAX.

Factor 3: Cross-chain bridge upgrade

The upgrade of the cross-chain bridge is another key reason for the current round of Avalanche’s ecological outbreak.

In February of this year, Avalanche launched the first-generation cross-chain bridge Avalanche-Ethereum Bridge (AEB), but as the first-generation product, the bridge still has a lot of room for improvement in terms of security, cross-chain speed, and cost. After half a year, Avalanche released a new generation of cross-chain bridge product Avalanche Bridge (AB) on July 29 after extensively listening to user suggestions.

AB is built on Intel SGX technology. Unlike the more mainstream contract-custodial cross-chain bridges currently on the market, AB does not use smart contracts to manage cross-chain funds. Instead, it generates two ordinary Ethereum and Avalanche addresses in the trusted environment of Intel SGX. Management and casting of cross-chain funds. The specific cross-chain process is shown in the following figure:

Analyze the cause of the second outbreak of Avalanche from a fundamental perspective

AB’s idea is similar to Celer’s previously launched cBridge. Both of them abandon the contract-based cross-chain fund custody scheme where security incidents frequently occur, and instead choose ordinary addresses to directly handle cross-chain requirements. The difference lies in the verification mechanism of cross-chain transactions. cBridge uses an additional transaction to unlock the hash lock corresponding to a specific transaction, while AB uses the Master Secret to generate the address private key directly inside Intel SGX. The external guardian (Warden ) The Master Secret can be reconstructed from the fragments shared by Intel SGX in reverse.

From a security point of view, AB’s solution largely gets rid of the security risks of the contract itself, but the feasibility of the entire cross-chain system will largely depend on Warden’s integrity, but for now Look, Avalanche has disclosed the true identities of the four initial Wardens-Fulgur Lab, BWareLabs, Halborn, and Ava Labs, so there is no need to worry too much about the integrity for the time being.

From the perspective of cross-chain execution speed and related costs, AB has also significantly improved compared with AEB. Currently, a complete transaction across Ethereum-Avalanche takes about 6-9 minutes. As for fees, because AB’s cross-chain mechanism uses ordinary addresses, the complexity of transactions will be much lower than contract-type transactions, and the specific fee level will be closer to conventional transfer transaction fees.

Analyze the cause of the second outbreak of Avalanche from a fundamental perspective

The upgrade of the cross-chain bridge successfully opened the channel from the Ethereum ecosystem to the Avalanche ecosystem. Avascan data shows that as of the end of August, the total value of assets bridged by AB has exceeded US$1.5 billion, which is basically in line with the recent increase in the total lock-up volume of the Avalanche ecosystem.

Factor 4: “Exchange-C chain” path gets through

If the cross-chain bridge AB opens the entrance of the DeFi world to the Avalanche ecology, then the “Exchange-C chain” path opens up the entrance of CeFi to the Avalanche ecology.

As mentioned earlier, in order to further liberate network performance, Avalanche uses a three-chain structure of X chain, C chain, and P chain. Although this structure has achieved ideal results, it also brings greater learning costs to users.

Previously, because the C chain ecosystem was not yet complete, the withdrawal from the centralized exchange to the Avalanche network (AVAX) would by default go to the X chain (transaction chain). If users want to transfer funds between these three chains, they need to It is executed through the relevant interface of the official website, and sometimes the address format changes between different chains are involved, and the overall process is more complicated.

Analyze the causes of the second outbreak of Avalanche from a fundamental perspective

In response to this situation, Avalanche is gradually opening up channels for major exchanges to directly withdraw cash to the C chain to meet those users who are accustomed to depositing funds in centralized exchanges but are gradually interested in DeFi. As of the posting, this withdrawal path for many exchanges such as Binance, OKEx, Gate.io, and Matcha has been successfully opened up.

Analyze the causes of the second outbreak of Avalanche from a fundamental perspective

Is this explosive growth sustainable?

When Avalanche’s fundamentals are bursting, there are also some doubts about whether its growth is sustainable, especially after the news of SBF admission, some users are beginning to worry about whether the inertial “digging, selling, and withdrawal” operations of large households will accelerate Avalanche. The life cycle of ecological minerals.

Analyze the causes of the second outbreak of Avalanche from a fundamental perspective

To answer this question, we need to first recognize which stage Avalanche’s ecological growth has reached. Continuing to use Polygon as a comparison target, DeFinance Capital analyst Bailey posted a set of statistics on Twitter. Since Polygon officially announced the ecological plan, the total number of active addresses in the ecosystem has increased by 29 times. In contrast, Avalanche has been active recently. The number of address growth is only 4 times.

From a funding point of view, Aave, Cvure, and Sushiswap, which were previously the main growth forces of Polygon’s ecological data, have not yet been launched yet. At the peak of the Aave Polygon version of the business, the total lock-up value of this application alone was as high as tens of dollars, which exceeded the total amount of Avalanche’s current ecological lock-up.

Although the timing of the launch of the two major ecosystems and the corresponding market environment are not the same, we still tend to predict that Avalanche still has a lot of room for growth from the comparison of specific user data and total funds. Looking back at this point in time, perhaps the current so-called “burst” is just a small period of acceleration in its general growth trend.

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