DeFi Decrypted: Avalanche and AVAX Explained
Recently we have published comprehensive analysis pieces on both Solana and Cardano. Both of these projects are layer-one blockchain ecosystems, competitors of the most popular L1 solution- Ethereum. In this article, we will be examining Avalanche, another L1 blockchain looking to challenge Ethereum.
What is Avalanche?
Avalanche is an L1 blockchain looking to solve the blockchain trilemma. The blockchain trilemma is the main roadblock preventing the mass adoption of cryptocurrencies worldwide. According to the Avalanche website, Avalanche is "blazingly fast, low-cost & eco-friendly”.
Like Ethereum, Avalanche is an open programmable smart contract platform that allows for the creation of decentralized applications. On Avalanche, users can launch both private and public customized blockchains. Additionally, the Avalanche blockchain has low fees and high performance. Fees on the Avalanche blockchain are paid with the platform's native token AVAX.
What is AVAX?
AVAX is the native token of the Avalanche platform. It is a utility token used to pay transaction fees, secure the Avalanche network, and more.
AVAX is one of the largest cryptocurrencies by market capitalization. At the time of writing, AVAX is the 16th largest cryptocurrency, with a market capitalization of $13.5 billion USD.
AVAX Price History
In July 2020, AVAX had its Initial Coin Offering (ICO). The ICO successfully raised $42,000,000 USD and is one of the largest ICOs in cryptocurrency history. Users were able to purchase 1 AVAX for 0.5 USD. Since the 2020 ICO, AVAX has increased approximately 11,000%. The cryptocurrency currently sits at $60.3 USD, as shown below.
Long-Term AVAX Technical Analysis
AVAX / ETH
Currently, AVAX is forming a potential H&S formation on the AVAX / ETH chart. Should the neckline break, it appears likely that AVAX will lose significant value (-33%) against Ethereum. However, AVAX looks bullish in the long term and has a +88% long-term target level set.
For more in-depth technical analysis, be sure to visit the AAX YouTube channel.
Why has AVAX drastically increased in price?
There are four primary reasons why AVAX has increased so dramatically in price.
Demand for new Layer-One Solutions
Between 2017 - 2020, none of the original `Ethereum killers` have been able to solve the blockchain trilemma.
The largest market capitalization L1s from 2017 have seen slow development. During the three years since the last bull run, all old school ‘Ethereum killer’ L1 solutions remain either worse or no better than Ethereum.
- Lack of projects built on L1
- Poor performance
- Lack of projects built on L1
- Extremely slow development
- Smart contracts were only just released
- Caused major community rift with STEEM fiasco
- Has failed to deliver on potential
Other projects such as NEM, LSK, BCN, DGB, DRGN and WTC have also failed to come even close to what Ethereum is. Many cryptocurrency investors were doubtful of promises made by new L1 blockchain projects that appeared overvalued. This decrease in confidence can be seen with the fall of numerous ‘Ethereum killers’ below. Additionally, this chart excludes previously major coins such as DRGN and NAS. That is because they have declined so much in value that they are no longer deemed as viable ‘Ethereum killers.’
Since the decline of old ‘Ethereum killers,’investors have turned towards new Layer-one solutions such as Solana (SOL), Binance Coin (BNB), Polkadot (DOT), Kusama (KSM), Terra (LUNA), Hathor (HTR) and of course Avalanche (AVAX). This inflow of capital from old Layer-1 solutions towards new protocols, compounded with current improved market conditions compared to late 2018-2019, has resulted in significant price growth for various projects.
Macro Market Conditions
As stated earlier, the AVAX ICO was in July 2020. This was the perfect time to launch a cryptocurrency ICO. The crypto market had for the most part recovered from economic crisis wrecked by COVID-19 and was back to pre-pandemic levels in terms of total market capitalization.
After the ICO, AVAX proceeded to launch on other major exchanges such as Huobi and Binance in September 2020, just before the early 2021 altcoin season, which was from January to May.
Figure - cryptocurrency market capitalization change over time
Favourable market conditions have helped AVAX grow immeasurably.
Favourable market conditions help a cryptocurrency project with the following:
- To grow a community
- Increase cryptocurrency exposure to new market entrants
- To grow social media channels
- To raise token price
- Increased likelihood of token listed on centralized exchanges (CEXes) (through community and increased funding with a higher budget due to increased token price)
- Increased budget for development
- To hire quality employees
- To increase rate of updates
- To hire quality employees
Favourable market conditions can create a positive cycle of community and social sentiment, as shown in the figure below.
Figure - positive cycle of community and social generation
Avalanche has deployed an extremely successful marketing strategy, successfully generating high engagement rates from advertisements, collaborative content with other cryptocurrency organisations, and more. Avalanche has also successfully managed to escape the strict corporate feel many organisations naively attempt to bring to the cryptocurrency community. Avalanche has demonstrated a clear understanding of who their audience is and what they want to see, all while managing to maintain an undertone of seriousness regarding their operations.
One small but excellent example of Avalanche understanding and fitting in with their community is their Twitter banner, as shown below.
Avalanche regularly creates attractive content which engages with all members of their community, even attracting those from outside the current Avalanche community. This content subsequently drives positive engagement, satisfying users. Subsequently, this had led to both new and old community members promoting Avalanche content.
Figure - Positive Avalanche Growth
Standing out from other blockchain projects
Aside from its successful social media campaigns, Avalanche has also recently signed a partnership with Andretti Autosport for the upcoming 2022 Formula E season. The partnership will see the Avalanche logo plastered all over the Andretti car, race suits, merchandise, etc.
Fitting in with their environmentally-friendly blockchain marketing push, this is a partnership that should serve Avalanche well.
Figure - The new Avalanche Andretti Autosport entrant for 2022
The Avalanche blockchain is a high-performance blockchain.
In terms of TPS, Avalanche outperforms the following cryptocurrencies:
Avalanche has a TPS of 4,500. In the figure below is the TPS of Avalanche in comparison with other cryptocurrencies.
The performance of Avalanche is overshadowed only by Solana, NEO, and Cosmos. As shown in the figure below, Avalanche ranks 3 / 14 in terms of overall blockchain performance, when compared to other high market capitalization blockchains.
|Cryptocurrency||TPS||Transaction Time||TPS / Transaction Time||Rank|
Additional BVAX Benefits
Another benefit of Avalanche is that it uses Solidarity as its programming language. Solidarity is the same programming language used by Ethereum and Polygon. Therefore, developers can easily transfer their skills and knowledge from Ethereum to Avalanche.
Conclusion on Avalanche
Currently, Avalanche does not have the performance of ATOM or Solana. However, Ava Labs are taking all the right steps to ensure the positive development of the Avalanche blockchain. With significant grants encouraging developers to build on Avalanche, with successful marketing and with positive partnerships, the future looks bright for Avalanche. However, only time will tell whether Avalanche can truly outrank Ethereum in terms of market dominance.
To trade AVAX and other cryptocurrencies, please head over to the AAX exchange.
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