Interpretation of the new proposal ACP-77: How to unlock Avalanche L1?

Original Title: “Research Unlock: Unlocking Avalanche Layer 1s with ACP-77”

Author: Eden Au, The Block

Compiled by: Felix, PANews

Key Points:

• ACP-77 is a community proposal that will change the validator dynamics of Avalanche L1 (formerly known as subnets).
• Avalanche L1 validators will no longer need to validate the main network and stake at least 2,000 AVAX. Instead, they will follow the requirements set by the sovereign Avalanche L1.
• Avalanche L1 validators will pay ongoing dynamic fees to register information on the P-Chain.
• This proposal benefits both institutional and retail Avalanche L1s, as it enables regulatory compliance and lowers the entry barriers for validators.

Avalanche has long been an advocate for horizontal scaling using "subnets," which are now renamed as Avalanche Layer 1 (L1). Avalanche L1 is a sovereign, often application-specific blockchain that can be customized to meet the specific needs of different use cases.

This infrastructure has attracted many crypto-native and institutional clients to host their Web3 platforms on Avalanche L1, including the NFT platform of Japanese gaming giant Konami and Intain's secure tokenization platform.

Over the years, Avalanche L1 has undergone multiple upgrades to enhance its capabilities. For example, the Banff upgrade enabled cross-subnet communication through Avalanche Warp Messaging (AWM). Meanwhile, Evergreen introduced a framework for enterprises to launch privacy-preserving and regulatory-compliant permissioned Avalanche L1s.

Despite this, the existing validator requirements for Avalanche L1 still present a high barrier to entry. Current Avalanche L1 validators are required to validate the main network, including the Contract Chain (C-Chain), Platform Chain (P-Chain), and Exchange Chain (X-Chain).

For reference, main network validators must allocate at least 8 AWS vCPUs, 16 GB of RAM, and 1 TB of storage for network validation. They also need to stake a minimum of 2,000 AVAX.

At the inception of the network, this staking requirement was not high. However, due to the appreciation of the token over the years, it reached over $250,000 during previous market peaks, which now equates to approximately $41,000. This high overall operational cost hinders the decentralization of the Avalanche L1 validator set and could impede the reliability and adoption of the Avalanche ecosystem in the long run.

Cost of staking AVAX (in USD)

ACP-77

ACP-77 is a community proposal that will fundamentally reform the creation and management design of Avalanche L1s, bringing more flexibility and autonomy to Avalanche L1 validators.

Sovereignty

According to the proposal, Avalanche L1 validators will no longer be required to validate the main network simultaneously. They will only need to synchronize with the P-Chain, which tracks changes in their own set of Avalanche L1 validators and handles cross-L1 communication through AWM. This change significantly reduces the operational and staking costs of participating in Avalanche L1 validation.

This separation will also allow regulated entities to validate only their permitted Avalanche L1s, as they can now choose not to validate the unpermissioned main network, which may contain transactions that are potentially high-risk or non-compliant from their perspective.

Furthermore, Avalanche L1s can establish and implement their own validation rules and staking requirements, while the P-Chain will no longer support the distribution of staking rewards for Avalanche L1s. In other words, the sovereignty of Avalanche L1 returns from the P-Chain to the L1 itself, marking a milestone in achieving horizontal scalability with multiple sovereign blockchains operating simultaneously.

Dynamic Fees

On the other hand, the proposal transforms the fee mechanism of the P-Chain from a fixed transaction fee to a dynamic fee structure that aligns more with user payment principles. This change aims to ensure the long-term economic sustainability of the network after the removal of the aforementioned 2,000 AVAX staking requirement.

The new dynamic fee mechanism involves ongoing payments from Avalanche L1 validators based on several factors (such as the total number of Avalanche L1 validators registered on the P-Chain). Fees will be adjusted according to network utilization. When the total number of Avalanche L1 validators exceeds the target utilization, fees will increase, and vice versa.

The underlying principle is that each additional Avalanche L1 validator adds load to the P-Chain. The P-Chain is responsible for storing the attributes of Avalanche L1 validators in memory, such as IP addresses, BLS keys, etc.

In practice, the balance of Avalanche L1 validators on the P-Chain will continuously deplete, requiring regular replenishment to maintain uninterrupted operation. This approach lowers the entry barrier by reducing upfront staking and hardware costs while ensuring ongoing contributions to the network's economic sustainability.

Conclusion

In summary, ACP-77 aims to redesign the relationship between Avalanche L1s and the main network. Specifically, Avalanche L1s will gain greater flexibility and sovereignty, as Avalanche L1 validators will no longer be required to adhere to the stringent requirements imposed on main network validators, such as the minimum staking requirement of 2,000 AVAX, significantly reducing the operational costs for Avalanche L1 validators.

Avalanche L1 validators will pay dynamic fees to the P-Chain to continuously store important metadata for communication purposes. This ensures that the main network receives fair compensation for the critical work it provides for each Avalanche L1 validator, Avalanche L1, and cross-L1 communication.

The proposal will make it easier for institutional L1s to achieve regulatory compliance, while retail-focused L1s can benefit from a more decentralized validator pool. These advantages will foster a larger and more diverse Avalanche ecosystem and scale the blockchain ecosystem.