Avalanche Q1 Ecosystem Development Report: How are the underlying technologies and ecosystem advancements?
In addition to technical features and ecological support, the "Social Volume" growth of Avalanche last year also contributed to ecological development. This stems from the collaboration between institutions and ecosystems within Avalanche, resulting in community growth, media discussions, and the expansion of the ecosystem.Author: Cabin VC
At the beginning of 2022, the cryptocurrency market experienced a downward trend, with the market capitalization and ecological development of mainstream public chains constrained by the macro environment. Since January, the L1 public chain Avalanche has consistently shown good performance in on-chain ecological data, with an early recovery trend in market capitalization.
Looking back at the public chain market in the second half of last year, Avalanche saw localized hotspots in DeFi, NFT, GameFi, and Web 3.0. The progress of institutional collaborations and subnet partnerships has brought new expectations, leading to various discussions in the public chain ecosystem, crypto community, and social media. This "Social Volume" has shown a certain correlation with Avalanche's price movements.
This report mainly organizes recent developments in the Avalanche ecosystem, on-chain data progress, and financing information, analyzing Avalanche's data growth, narrative angles, and development trends for reference.
I. Underlying Technology Progress
The Avalanche protocol was initiated in 2018 and launched its mainnet in September 2020, with a performance target of 4500 TPS. In its early stages, Avalanche did not directly benchmark Ethereum; it positioned itself as a "commercialized decentralized finance platform," providing customizable blockchain services for both C-end and B-end users. This has been reflected in Avalanche's active collaborations with enterprises.
Currently, Avalanche ranks 10th in total market capitalization in the crypto market, and in the public chain category, it ranks in the top 5%, only behind Ethereum, Cardano, Solana, and Terra. From Q4 2021 to Q1 2022, Avalanche's return on investment showed a recovery trend, primarily based on the relatively stable on-chain data growth and ecological collaborations.
(Data source: https://cryptorank.io/)
1. Technical Progress
Avalanche features a three-chain architecture, which has formed a high level of technical recognition. Avalanche has built the X-Chain (transaction chain), C-Chain (contract chain), and P-Chain (platform chain), each serving different functions and being interoperable, belonging to a heterogeneous network architecture, and optimizing the PoS consensus mechanism using a DAG (Directed Acyclic Graph) data structure.
(In Avalanche's three-chain architecture, the X-Chain is used for creating and trading on-chain assets, the P-Chain is used for coordinating validation nodes and creating and tracking subnets, and the C-Chain is used for creating and executing EVM smart contracts and building DApps, similar to Avalanche's application layer.)
Compared to Ethereum, Avalanche's structure enhances the composability of the blockchain under different demands, characterized by low latency, high throughput, and a theoretical security threshold of 80%. Currently, its C-Chain has observed a maximum TPS of 869. In terms of public chain throughput, statistics show that Trader Joe on Avalanche processes 31.65 transactions per second, with an average confirmation time of 3.75 seconds.
Avalanche has had a very high code update speed over the past 12 months. According to cryptomiso, compared to other ecosystems in the same track, Avalanche's code update speed ranks just below Solana. Its update frequency peaked in June and July last year but gradually slowed down in the following months. A total of 59 contributors submitted 3047 updates.
(Data source: github; ranking statistics: cryptomiso.com)
In Q4 2021, Avalanche underwent the Blueberry upgrade, which supports developers in creating custom virtual machines and independent blockchains with their own rules, a key aspect of the subnet architecture.
The subnet architecture of Avalanche's P-Chain is a unique horizontal blockchain scaling method. It achieves some performance of the "parallel chain" concept, allowing asset transfers between subnets (though this differs from the blockchain subnet terminology in Internet Computer). The P-Chain has a strong To B nature, is customizable, and has a high correlation with Avalanche's B-end collaborations, allowing Avalanche's iconic narrative to continue to expand. The narrative of modular blockchains is expected to gain market attention in the near future.
2. Development Environment
According to official data, the Avalanche ecosystem has developed 428 projects. The number of development activities in Avalanche peaked in January this year, and the account activity level remained stable:
(Data source: santiment)
Additionally, according to incomplete statistics, the number of developers in Avalanche grew approximately threefold in 2021, with the growth rates of developers in Avalanche exceeding those of Polkadot, Solana, NEAR, BSC, and Terra.
3. Network / Platform Activity
Avalanche currently has a rich ecosystem. According to official statistics, as of February 2022, there are over 1200 validation nodes on the Avalanche mainnet, and approximately 428 projects have been developed within the Avalanche ecosystem. These applications mainly include infrastructure, development tools, cultural categories (including DAO/NFT/Gaming), DeFi, enterprise institutions, and wealth management.
In recent months, DeFi, NFT, and GameFi have been the main drivers of ecological data growth within the Avalanche ecosystem.
In February last year, Avalanche launched a bi-directional cross-chain bridge (AEB) with Ethereum, which directly boosted its DeFi locked value in August last year and stimulated the development of other third-party cross-chain bridges to some extent. According to Dune Analytics, compared to other Ethereum bridges of the same type, Avalanche's Ethereum bridge has a total TVL of $5.958 billion, ranking first:
(Data source: Dune Analytics https://dune.xyz/nadimchamoun/Avalanche-Bridge)
At the same time, the official announcement of the "Avalanche Rush" liquidity mining reward program worth $180 million accelerated this trend. In August last year, Avalanche's monthly TVL surged from $220 million to $2.01 billion, showing strong performance. In the following December, Avalanche's TVL surpassed Solana, ranking 4th among public chains.
Due to constraints from the macro market environment, the improvement in DeFi ecological data has a certain lag effect on Avalanche's market capitalization performance. This trend was evident in Q4 2021 and Q1 2022, where, in a relatively weak market environment, Avalanche's active addresses, trading volume, TVL, and market capitalization all reached historical highs in the last quarter.
In the past three months, the total number of addresses on Avalanche's C-Chain has reached 2.154 million, with active addresses peaking at 800,000 in January, and TVL showing a recovery trend; as of March, the total trading volume on Avalanche's C-Chain exceeded 100 million.
II. Ecological Progress
Reviewing the data growth of the Avalanche ecosystem mentioned above, we believe that data growth, in addition to technical characteristics and ecological support, is also attributed to the "Social Volume" growth of Avalanche last year, stemming from collaborations between institutions and ecosystems, which brought community increments, media discussions, and ecological expansions.
In April 2021, SushiSwap was the first to decide to expand into the Avalanche ecosystem. In August of the same year, Avalanche was positively impacted by the "DeFi for the People" inclusive finance initiative announced by leading DeFi protocols such as Aave and Curve. The expansion of Aave and Sushiswap into the Avalanche ecosystem also drove the data growth of Avalanche's native DeFi blue-chip projects like Pangolin, Trader Joe, and BenQI.
Wonderland Finance (TIME) is one of the most influential and talked-about representative DeFi projects in the Avalanche ecosystem. Wonderland was forked from Olympus DAO on Avalanche and once disrupted the market capitalization of OHM.
In this case, Avalanche's low fees combined with community marketing and media dissemination have had a significant impact. Notably, Olympus DAO and its founder Daniele Sestagalli have gained community discussions, including on TikTok, attracting attention and discussions from users outside the crypto community.
NFT + GameFi carried the heat of the Avalanche ecosystem towards the end of the year, with localized hotspots emerging. Popular NFT and GameFi projects such as the "2021 MLB Series 2 Baseball NFT series," Cradaba, and DeFi Kingdoms appeared one after another.
During the peak of these hot projects, the market discussion level of the Avalanche ecosystem, or "Social Volume," reached several highs. In the overall market trend of public chains in 2021, the "Solunavax" concept proposed by overseas communities also showcased the meme properties brought by "Social Volume," representing Solana, Terra, and Avalanche, reflecting the crypto community's strong sentiment towards these three Ethereum competitive chains.
Website traffic can also demonstrate this point; from January to March, Avalanche's total visits reached 1.228 million, slightly lower than Solana's 1.566 million visits; among the sources of visits, Avalanche accounted for 31.33% and 14.8% from Reddit and YouTube, respectively, indicating a strong community atmosphere.
(Data source: similarweb)
(Data source: similarweb)
In relation to the peak period of media and community topic discussions, "Social Volume" and Avalanche's price performance show a certain correlation, albeit with some lag. Considering a lag period of 2-3 months, it is expected that the positive impact of Avalanche's on-chain data and ecological collaborations will continue to support its market capitalization recovery.
(Data source: Santiment)
Currently, the growth of on-chain data in Avalanche mainly comes from the C-Chain. At the same time, the data performance of the C-Chain also influences market expectations for the P-Chain (platform chain). In March 2022, the Avalanche Foundation announced the launch of a subnet incentive program, directly pushing the staking rate of the Avalanche network to 50.65%.
In this context, it is expected that institutional collaborations in Avalanche will become a focal point for market observation in 2022. The subnet structure and modular blockchain narrative can further drive the growth of Social Volume data.
1. Ecological Overview and Representative Samples
(1) DeFi
Avalanche currently has a TVL of $11.3 billion, down about 18% from the historical high of $13.79 billion in December 2021.
The Avalanche ecosystem currently supports 174 DeFi projects. The top ten projects by TVL are: AAVE, Trader Joe, Curve, BenQI, Platypus Finance, Multichain, Alpha Finance, Wonderland, Yield Yak, and Beefy Finance. Among these, AAVE accounts for 29.52%, and Avalanche's native projects account for over 40%.
(Data source: Defillama)
The Avalanche ecosystem is relatively rich, with official native projects or those supported by official ecological funds receiving good resources, having generally secured millions of dollars in support during the seed round. The representative samples are organized as follows:
Platypus
https://platypus.finance/
Avalanche's native stablecoin swap protocol. Platypus pools all stablecoins into a single liquidity pool, allowing liquidity to be interchanged for lower trading slippage.
Platypus raised $3.36 million in private funding and $1.05 million in public funding, in addition to receiving $114,000 in funding from the Avalanche Foundation.
Defrost
Defrost is Avalanche's native algorithmic stablecoin protocol and a strong competitor to the DeFi project Abracadabra.
Defrost raised $3.3 million in funding, led by Three Arrows Capital and Defiance, with participation from Avalaunch, CMS Holdings, Hailstone, and others.
Pangolin
Avalanche's first native DEX, comparable to Uniswap's automated market maker (AMM), which improves trading speed and reduces trading costs through Avalanche's underlying performance.
Pangolin currently has a TVL of $220 million and a market capitalization of approximately $25 million.
Trader Joe
Trader Joe is a competitor to Pangolin, which saw a 195% increase in users in November last year, gradually becoming the preferred platform on the Avalanche chain. It has integrated with projects such as Snowball and Penguin Finance.
Trader Joe currently has a TVL of $1.52 billion and a market capitalization of approximately $20 million, making it a competitor to Pangolin. The latest round of strategic financing amounts to $5 million.
Snowball
Avalanche's first stablecoin AMM, it is a compound mining, IDO, and stablecoin liquidity pool. It can be seen as a native Curve protocol for additional yield farming products. Currently, its diluted market capitalization is around $4.3 million.
(2) Lending
BenQI
BenQI is a lending product on Avalanche. BENQI raised $6 million in strategic financing, led by Ascensive Assets.
BenQI Finance raised approximately $6 million in private financing in April 2021.
(3) NFT
Kalao
An NFT trading platform on the Avalanche chain that aggregates all available NFTs on the Avalanche C-Chain. The platform incorporates VR technology and the concept of the metaverse for virtual live streaming.
Kalao has raised approximately $3.3 million in two rounds of financing.
ToppsNFTs https://toppsnfts.com/
In Q4 2022, the global diversified consumer goods company and American sports card collectibles platform Topps launched the 2021 MLB Series 2 Baseball NFT on Avalanche. The company's sports entertainment products include Major League Baseball, Major League Soccer, UEFA Champions League, Bundesliga, etc., with strong industry influence.
This NFT series was previously issued on the WAX blockchain and later migrated to Avalanche, making it quite representative.
(4) Gaming
Crabada
Crabada is a Play to Earn game. Similar to the Axie Infinity model, players hold hermit crabs to participate in the game and earn CRA.
In its early stages, Crabada received support from within the ecosystem, with strategic private financing of $600,000, with investors including Avalanche and Avalaunch (Avalanche's IDO platform).
Imperium Empires https://imperiumempires.com/
A highly popular GameFi and metaverse concept project within the Avalanche ecosystem, it is one of the AAA games benchmarked against StarAltas. Imperium Empires raised $2.1 million in seed round financing in December 2021. Currently, its market capitalization is around $8 million.
Ascenders
Ascenders is a sci-fi, open-world RPG AAA ecological chain game. This project is one of the new batch of projects in the Avalanche ecosystem that has received financing, completing a $6.4 million private round of financing in March, led by Paramount Capital, Three Arrows Capital, Sino Global Capital, and Merit Circle.
(5) Insurance
Degis
Degis is the first decentralized aggregation insurance protocol based on the Avalanche ecosystem. In February 2021, Degis completed $3 million in angel and seed round financing.
(6) Incubator
Colony colonylab.io
Colony is a DAO-based community-driven fund aimed at promoting the development of the Avalanche ecosystem. In October 2021, the Avalanche ecosystem project incubator Colony completed $1 million in seed round financing and later secured $18.5 million in financing led by GBV Capital, Foresight Ventures, and the Avalanche Foundation.
2. Ecological Support Directions
Avalanche has relatively ample funds. In the first half of 2021, it established the Asian industry fund AVATAR, providing $20 million for building the Avalanche ecosystem, including DeFi, NFT, and industry infrastructure projects. The joint investment funds include blockchain funds such as A&T Capital, SNZ, and NGC Ventures.
In November 2021, the Avalanche Foundation launched an incentive program called Blizzard, worth over $220 million. The incentive program will focus on developers of DeFi, enterprise applications, NFTs, and cultural products. The funds for the Blizzard Fund mainly come from the Avalanche Foundation, Ava Labs, Polychain Capital, Three Arrows Capital, Dragonfly Capital, and others.
From December 2021 to early March 2022, the Avalanche Foundation, in collaboration with the Web3.0 development platform Moralis, conducted its largest-scale hackathon aimed at accelerating the development of DApps, Web3 applications, and DeFi projects within the ecosystem.
From the official award list, among the awarded projects (including various bounty recipients), there are 8 DeFi concepts, 5 Web3.0 concepts, 3 metaverse concepts, 3 investment management, 3 NFTs, 2 GameFi, 2 tools and infrastructure, 2 DAO projects, and others covering decentralized storage, stablecoins, data analysis platforms, and ecological service platforms.
Compared to other public chains, the range of hot topics supported by the Avalanche ecosystem is broader. In addition to hot tracks like DeFi and NFTs, Avalanche also emphasizes enterprise-level applications and Web3.0 applications. The increase in the number of projects in these tracks can further enhance the recognition of the Avalanche ecosystem.
In March 2022, the Avalanche Foundation announced the launch of the "Avalanche Multiverse" incentive program, providing approximately $290 million worth of 4 million AVAX Tokens to promote the increase of subnets. At the same time, one of Avalanche's core developers, Ava Labs, is also providing assistance and support for subnet development.
3. Inter-Institutional Collaboration
Avalanche has resource advantages in enterprise-level collaborations due to the influence and narrative brought by inter-institutional cooperation. It is expected that non-blockchain-native enterprise institutions will adopt AVAX subnets as their blockchain development network, which may become the next narrative focus for Avalanche.
Currently, some key inter-institutional collaboration cases include:
(1) NFT:
Avalanche's collaboration with the trading card and memorabilia company Topps has brought strong influence. Topps is one of the oldest collectible companies in the United States and has now been acquired by Fanatics, the parent company of the sports NFT platform Candy Digital.
(2) ILO:
In 2020, the Avalanche development team collaborated with the American law firm Roche Cyrulnik Freedman LLP and the consulting firm Republic Advisory Services to propose the first Initial Litigation Offering (ILO) concept, a blockchain-based litigation financing product open to all investors, aimed at providing partial funding for civil litigation.
(3) STO (Security Token Offering):
In December 2020, Avalanche integrated with Securitize. Securitize is a leading institution in the field of digital securities issuance (STO) in the United States and holds an ATS license. After integration, Securitize can use the Avalanche blockchain for the issuance and management of private securities. Due to Avalanche's flexible three-chain architecture, it can embed compliance conditions at the network layer to support digital securities issuance.
(4) Payments:
In March this year, the digital payment platform Wirex announced the integration of Avalanche to receive, send, store, and exchange AVAX Tokens through the Avalanche network. This payment platform has 4.5 million users in traditional sectors.
(5) Other Enterprises and Collaborations:
In November 2021, Avalanche announced a collaboration with Deloitte. Deloitte decided to use the Avalanche platform for its "Close as You Go (CAYG)" disaster relief platform to improve efficiency and reduce costs through blockchain technology. This collaboration provides a good case for traditional enterprises entering Web3.0.
(6) Subnet Progress
In early March, the high-profile GameFi game Crabada team launched a blockchain specifically for gaming called Swimmer Network, which is Avalanche's latest subnet. Crabada is a game that uses a mechanism similar to Axie Infinity, with game contracts achieving over 20 million transactions.
The DFK Chain, led by the NFT game project DeFi Kingdoms, is one of the upcoming subnets. In the aforementioned "subnet incentive" program, Avalanche has reserved $15 million in rewards for DeFi Kingdoms.
III. Financing Scale, Investment Institutions, and Ecological Connectivity
The main financing rounds information for Avalanche is organized as follows:
Avalanche's early investment institutions mainly include: a16z, Polychain, Bitmain, NGC Ventures, Dragonfly Capital, Fundamental Labs, Galaxy Digital, NGC Ventures, Dragongly Capital, SNZ, IOSG Venture, and others.
In July 2020, IOSG Ventures made a strategic investment in Avalanche, supporting its strategic layout and market planning in certain regions of the crypto market.
Benefiting from the optimism of investment institutions towards Ethereum competitive chains, Avalanche's latest round of financing, exceeding $230 million, is its largest investment to date. This round of financing was participated in by leading institutions such as Polychain and Three Arrows Capital.
Among them, Polychain and Three Arrows Capital have rich investment experience in the public chain track. Polychain is one of the earliest native crypto hedge funds and has invested in projects such as Nervos, Cosmos, and Tezos, and has increased its stakes in Solana and Avalanche last year; Three Arrows Capital has also led investments in NEAR Protocol and Luna Foundation Guard (LFG) in the same track.
In terms of investment layout, according to incomplete statistics, public chain projects accounted for as much as 36.8% of the sectors Polychain invested in last year, while DeFi accounted for about 42.1%; Three Arrows Capital's investment projects had 82% of their shares focused on DeFi projects, followed by investments in underlying technologies. Both leading investment institutions have extensive experience in public chain investments and have invested widely in DeFi projects, continuously providing resources for the development of public chain ecosystems.
Additionally, in terms of the financing scale of projects within the Avalanche ecosystem, most native projects and collaborative projects have received support from the Avalanche ecological fund, with early seed round financing generally ranging from $2 million to $5 million, and subsequent rounds often valued at over $10 million, indicating strong financial support for projects within the ecosystem.
IV. Trends and Summary
Avalanche's start was relatively late compared to Solana in the same track, but it has already formed a network effect, enhancing its voice in the market. Its technical development and market promotion progress are relatively strong, with a greater number of native products, and expectations for inter-institutional subnet collaborations are strengthening, making the diversity of the ecosystem more apparent.
Ava Labs (the core developer for Avalanche clients) will build the next subnet designed for institutional DeFi, featuring native KYC functionality, in collaboration with institutions such as Golden Tree Asset Management, Wintermute, Jump Crypto, Valkyrie, and Securitize. The "institutional DeFi adoption" narrative has good topicality, driving Social Volume growth.
It is expected that under the premise of healthy data growth on the C-Chain, the construction of Avalanche subnets will align with market expectations for the Web3.0 era, with one of Avalanche's development directions being: enterprise-level institutions building the infrastructure for Web3.0.
However, it is still necessary to pay attention to the following related risk points:
High traffic influx may expose some performance issues. Avalanche previously triggered cross-chain functionality errors due to high load on the DEX Pangolin, causing some short-term panic within the community.
The current number of subnets is relatively small, making it difficult to accurately predict the progress of subnet construction.
There are many early projects within the Avalanche ecosystem, leading to competitive relationships within the ecosystem.
In a multi-chain ecological environment, the Avalanche ecosystem will face long-term competition with other leading cross-chain ecosystems.
