$1 billion flowed into the locked-up amount in 3 days. What did the Avalanche protocol do right?
Analyze the reasons behind the dazzling performance of the avalanche.Written by: Qiu Xiangyu, 8BTC
At a time when the entire circle's attention is almost monopolized by NFT Summer, the dazzling performance of Avalanche adds weight to the re-enactment of DeFi Summer in 2021.
On August 22, the Total Value Locked (TVL) of the Avalanche protocol first broke the $1 billion mark, reaching a new milestone. On August 25, the TVL first reached $2 billion. The market capitalization of the Avalanche token (AVAX) grew from $1.7 billion to $8.8 billion in just over a month, briefly entering the global top 20 in crypto market capitalization.
Currently, there are over 100 ecological projects on Avalanche, including Storage and Computing (3), Cross-chain (18), DeFi (34), NFT (11), AVAX native ecological projects (9), Layer 2 (2), Basic Tools (7), Oracles (1), Wallets (9), and Others (8), with the ecological categories basically complete.
So, how can ordinary users share in the growth dividends of Avalanche? Why has Avalanche dominated the narrative of new public chains at this time? Compared to BSC and MATIC, is Avalanche's current valuation reasonable?
（https://twitter.com/jayks17/status/1429789793764978692）
### 1. Entering Avalanche
Avalanche's chain is quite peculiar, consisting of three built-in blockchains: the Exchange Chain (X-Chain), the Platform Chain (P-Chain), and the Contract Chain (C-Chain).
（Image source: https://docs.avax.network/learn/platform-overview）
When transferring external ecological and Avalanche ecological assets, such as withdrawing AVAX from an exchange to the Avalanche protocol, the X-Chain is used. The X-Chain has a certain level of anonymity, automatically generating new addresses after each asset change, although the original address can still be used.
X-Chain Explorer: https://avascan.info/
When participating in DeFi projects on Avalanche, the C-Chain is used.
C-Chain Explorer: https://cchain.explorer.avax.network/
When staking AVAX, the P-Chain is used.
AVAX from the three chains can be freely converted within the Avalanche wallet.
Although Avalanche supports EVM, when setting up a wallet, you still need to use the Avalanche wallet to generate an address; addresses generated directly by Metamask are not usable.
The commonly used Avalanche wallet is the Avalanche Wallet (https://wallet.avax.network). After generating the wallet, make sure to securely save the mnemonic phrase. Click on "Manage Keys" on the left side of the dashboard to import the C-Chain private key into Metamask, and then customize and add the Avalanche RPC.
Avalanche RPC settings:
- Network Name: Avalanche Network
- New RPC URL: https://api.avax.network/ext/bc/C/rpc
- ChainID: 0xa86a or 43114
- Symbol: AVAX
- Explorer: https://cchain.explorer.avax.network/
Transfer assets from exchanges or through the Avalanche Bridge (AB Cross-chain Bridge, https://bridge.avax.network) to the Avalanche protocol, and you can use "MetaMask" to participate in various DeFi projects.
Note: Most exchanges default to X-Chain addresses. After transferring, you need to enter the Avalanche wallet and use the "Cross Chain" option on the left side of the dashboard to transfer to the C-Chain. The AB Cross-chain Bridge currently only supports cross-chain transfers from Ethereum, allowing ERC20 tokens to be transferred from Ethereum to Avalanche's C-Chain. All assets transferred will automatically convert to assets with the ".e" identifier (e.g., LINK.e, WBTC.e, USDT.e).
### 2. Leading DeFi Projects
DeFi projects on Avalanche can be found at the following URLs:
- Ecosystem Overview: https://www.avax.network/ecosystem
- Pool Overview: https://markr.io/#/pools
- TVL: https://defillama.com/chain/Avalanche
Lending and DEX are the two cornerstones of DeFi development, as seen with Ethereum, BSC, and Avalanche.
According to data from defillama.com, Avalanche's largest lending protocol, Benqi, currently has a locked amount of $1 billion, ranking first in TVL and is the only project with a TVL exceeding $1 billion. The DEX project Pangolin ranks second, with a TVL of approximately $380 million.
Benqi launched on August 19 and, to stimulate new users, partnered with the Avalanche Foundation to introduce a 90-day liquidity mining incentive program. Users can earn both AVAX and Benqi tokens (Qi) while lending on the platform, with a total value of $3 million.
If we compare lending protocols based on the FDV/TVL ratio, projects like AAVE, Compound, and Maker on Ethereum generally have values around 0.4, which is quite uniform, while Venus on BSC has a value of 0.24, which is half that of the previous projects. This may be related to the inherent high premium of Ethereum ecological projects.
Currently, BENQI's value is 1.41, indicating a potential overvaluation in the short term. Of course, this is related to the liquidity mining rewards of BENQI.
Pangolin, nicknamed "Pangolin," is the largest DEX on Avalanche, launched on February 10. Unfortunately, this coincided with the peak of the BSC ecosystem, and not many people noticed Pangolin's existence.
In April, Pangolin initiated on-chain governance and received attention from Avalanche founder Professor Emin Gün Sirer.
In May, Pangolin's TVL first broke $300 million. However, it subsequently declined, continuing until mid-July when the TVL fell to $100 million, a drop of nearly 70%.
On July 29, Avalanche launched a new cross-chain bridge, Avalanche Bridge (AB), replacing the old cross-chain bridge, Avalanche-Ethereum Bridge (AEB), which was launched in February.
The new cross-chain bridge is built using Intel SGX Enclave technology, significantly enhancing security and improving performance by five times compared to the original.
Professor Emin Gün Sirer stated at the time: The new Avalanche Bridge is a leap in bridging technology and will become the growth engine for Avalanche's next phase of growth.
（https://twitter.com/avalancheavax/status/1420746276228849666）
Indeed, Pangolin's TVL has significantly increased with the launch of the cross-chain bridge and recently returned to $300 million.
Similarly, when comparing DEX projects based on the FDV/TVL ratio, leading DEXs like Sushiswap, Pancakeswap, Quickswap, and MDEX maintain values between 0.6 and 1, while Uniswap reaches as high as 3.26. This may be related to the leading projects on Ethereum being able to enjoy a higher premium. Pangolin's value is 4.8, exceeding that of Uniswap, indicating a risk of overvaluation.
In addition, the one-stop comprehensive trading application Trader Joe and the yield farming pool Yield Yak (YAK) are also two protocols exceeding $100 million in TVL. The remaining protocols have low locked amounts, and their future development needs further observation.
### 3. Why Did Avalanche Dominate Last Week's Narrative?
This question was raised by Psyops Capital CEO tuba@0xtuba, and it is likely a question on many people's minds.
From the perspective of the founders, Avalanche lacks a leader like SBF, who is both wealthy and capable of stirring things up. SBF propelled Solana to great heights. Although Solana does not support EVM and is not friendly to the Ethereum ecosystem, this does not seem to be a significant issue now. Funds continue to flow into Solana, with more than five projects currently exceeding $100 million in TVL.
Avalanche is more academic; its paper was published as early as 2015, but the project did not go live on the mainnet until September 2020, which can be considered quite slow. Moreover, Avalanche's chain is strange, divided into three chains, making it awkward for ordinary users to use.
The successful development of a technology often requires the right timing, location, and people to come together.
Larry Cermak, the research director at The Block, provided the following answers:
- Three Arrows Capital, a16z, and Polychain purchased AVAX at $14
- Announcement of a large ecosystem fund ($180 million)
- The synergistic influence of trader Hsaka and Three Arrows Capital founder Su Zhu
- The new cross-chain bridge is indeed very smooth
- The value gap of low market cap public chains
- Cool projects in preparation
- Meme factors
Additionally, the explosion of BSC in February and the explosion of Polygon (MATIC) in May stimulated people to search for the next BSC and Polygon, with Avalanche carrying this narrative.
However, compared to BNB, MATIC, and AVAX, the fully diluted market cap/chain TVL ratio of the first two is around 3-4, while AVAX's is nearly 17. Currently, Avalanche's fully diluted market cap ($32.8 billion) has surpassed MATIC's ($14.4 billion), while the locked funds on Avalanche ($1.94 billion) are less than MATIC's ($4.8 billion).
From a comparative valuation perspective, Avalanche seems to be overvalued. If the upcoming $180 million incentive plan does not quickly attract liquidity, risks need to be managed promptly.
