Blockchain will completely revolutionize most industries and even the internet itself. We get an incredible opportunity to invest in early stage projects that have the potential to become the next Apple, Microsoft, Amazon and Google. While there are many great projects out there (and many bad ones too), only a small number of them have the right tokenomics.
Why does Avalanche (AVAX) have the potential to be an amazing store of value?
A brief overview of the Avalanche ecosystem can be gained by watching the video below. Below the article, you’ll find a list of useful links to learn a little more about AVAX.
AVAX token distribution
At the time of launch, 360 million AVAX were minted. The remaining 360 million will be used as staking rewards. For tokens that have already been minted, there are different vesting periods from 1 year to 10 years:
Seed Sale – 2.5% of tokens were set aside for seed sale participants. The price per token was $0.33 and had an annual vesting schedule where 10% of their allocation was issued at launch on the mainnet and then 22.5% every 3 months over the course of the year.
Private Sale – 3.5% of tokens. The price per token was $0.5 and had an annual vesting schedule where 10% of their allocation was issued at launch on the mainnet and then 22.5% every 3 months during the year.
Public Sale Option A1 – 1% tokens. The price per token was $0.5 and the maximum allocation per user was $25,000. The tokens had an annual vesting schedule where 10% of their allocation was issued at the time of mainnet launch and then 22.5% released every 3 months during the year.
A2 Public Sale Option – 8.3% of the tokens. The price per token was $0.5 and the maximum allocation per user was $2.5 million. The tokens gained a 1.5 year vesting schedule where 10% of their allocation was released at the launch of mainnet and then 15% was set aside for release every 3 months over 18 months.
Public Put Option B – 0.67% of tokens. The price per token was $0.85 and there was no vesting period.
Foundation – 9.26% of the tokens were allocated to the Foundation. These tokens are used for various ecosystem building initiatives including marketing, rewards, incentive programs and more. They have a 10-year vesting period.
Development and Community Donations – 7% of tokens. These tokens are allocated to individuals and groups who develop the core tools and infrastructure at Avalanche, as well as support Avalanche through community building and grassroots marketing. For example, these may include Avalanche Hub, Avalanche Ambassadors, Avalanche-X Scholars, and others. Any grants awarded have a one-year vesting period from the date the grant is awarded.
Testnet Incentive Program – 0.27% Tokens. These tokens are allocated to participants who have validated themselves in Avalanche’s testnet programs. Participants were able to complete challenges to earn up to 2000 AVAX. These tokens are locked for an entire year.
Strategic Partners – 5% of tokens are allocated to strategic partners. These tokens are allocated with a specific mandate to distribute to groups, organizations and businesses that companies are building using Avalanche’s technology and network. These could be, for example, entrepreneurs who want to build a business that makes fast international remittances using Avalanche or financial institutions that want to tokenize assets in Avalanche through their own subnets. They have a 4-year vesting period.
Airdrops – 2.5% of tokens. These tokens are allocated with a specific distribution mandate to various communities in order to bring more people into the Avalanche community. For example, these can be airdrops to various cryptocurrency communities, Reddit communities, communities on developer forums, and even drops for user swaps. These have a 4-year vesting period.
Team – 10% tokens. These have been allocated to members of AVA Labs. They have a 4-year vesting period, and team members, including founders who purchased tokens prior to the mainnet launch, voluntarily re-lock all tokens for four years.
Utility of Avalanche
To be a good store of value, the rarity of an asset alone is not enough, you need strong demand. Gold has a limited supply combined with a wide range of uses such as jewelry, electronics and coins. Bitcoin has <a href=”https://bithub.co.uk/articles/21-000-000-000-btc-i.e.-the-secret-supply-of-bitcoin/” target=”_blank” rel=”noopener”>limited supply combined with use as a means of payment. Avalanche offers incredible utility not only in the consumer space, but also in businesses.
Bitcoin is a decentralized peer-to-peer payment network, but its adoption has been limited as it is only able to process ~7 transactions per second, reaches transaction finality within 1 hour, and has relatively high transaction fees compared to other cryptocurrencies. While Avalanche shares a few features with Bitcoin, such as the use of the UTXO model and transaction structures like Segwit (but without the backward compatibility issues), it offers much better throughput. Avalanche has achieved throughput exceeding Visa’s oparator level with 6500 transactions per second and is able to accommodate millions of validators, all of whom participate in a consensus for unparalleled decentralization. Avalanche supports not only payments in its native token, but also any other asset, including stablecoins.
AVAX token burning
Charges for all kinds of operations on the network are paid in AVAX tokens. These are then burned, which reduces the supply and increases the scarcity of AVAX for all token holders. If the number of AVAX burned exceeds the amount minted in staking rewards, this creates deflationary pressures. Unlike EIP 1559 in Ethereum, the entire fee is burned, not a portion. The maximum supply of AVAX is 720 million.
Transaction fees, asset creation and minting, and smart contracts
Avalanche was built to handle financial markets. It has native support for easily creating and trading digital smart assets with complex custom rule sets that define how assets are handled and traded to ensure compliance. Assets can represent financial instruments such as stocks, bonds, debt, real estate or anything else.
Avalanche offers a good place to build DeFi applications, but also the traditional financial market, where the derivatives market alone is worth a staggering $800 trillion. All transaction fees incurred at AVAX,are burned so that they are removed forever from the supply and this results in a win-win for everyone. Avalanche’s core network currently consists of 3 blockchains:
X-Chain – acts as a decentralized platform for creating and trading intelligent digital assets and is an instance of the Avalanche Virtual Machine (AVM). In addition to AVAX, X-Chain allows anyone to create and mint other smart digital assets such as stablecoins, utility tokens, NFT, wrapped – tokens, stocks, etc. Creating and minting these tokens also requires paying a fee at AVAX, which gets burned.
C-Chain – originally an empty Ethereum VM instance. It is compatible with all the key Ethereum tools that have driven the development of decentralized finance (DeFi) to date, including MetaMask, Web3.js, Remix, Truffle Suite and Embark Platform. So Ethereum applications can easily try Avalanche and benefit from the ability to process thousands of transactions per second, finalize transactions in seconds, extremely low gas fees. All fees are paid in AVAX, which are also burned.
P-Chain – is the metadata chain in Avalanche and coordinates validators, keeps track of active subnets and allows new subnets to be created. Again, all transaction fees are incurred in AVAX, which are burned.
Creating subnets and blockchains
Avalanche is a “platform of platforms,” consisting of thousands of subnetworks that form a heterogeneous, interoperable multi-blockchain network that leverages Avalanche’s revolutionary Consensus Protocols to provide a secure, globally distributed, interoperable framework that offers unprecedented decentralization while still complying with regulatory requirements.
Avalanche enables anyone to create their own customized, application-specific blockchain, supporting multiple custom VMs like EVM and WASM and written in popular languages like Go (with others in the future) rather than poorly understood languages like Solidity. This VM can then be deployed in a custom blockchain network, called a subnetwork, which consists of a dynamic set of validators working together to reach consensus on the state of a set of arbitrary blockchains where complex rule sets can be configured to ensure compliance.
Each subnet can have its own token/fee structure. You can also choose to pay staking and transaction fees in AVAX, stablecoins or your own token. Avalanche is a consensus platform, allowing projects to focus on the application layer by moving their blockchain and continuing to use existing tokens/applications. Each subnet benefits from the increased performance and unparalleled decentralization of Avalanche, while remaining interoperable with all other subnets. Anyone can ut
create your own subnet by paying a subscription fee at AVAX, or use an existing subnet to create a new blockchain. Both the subnet and blockchain creation fee are paid in AVAX and then burned. The validator can verify multiple subnets, although verification of the underlying network is mandatory.
The traditional financial market is huge, and the derivatives market alone is worth hundreds of trillions of dollars. There are strict regulations in this world, and financial institutions need to ensure that they can maintain compliance. This is why subnets are so important; they allow you to enforce complex sets of rules about who can verify a subnet. For example, there may be a requirement that it be located in a particular country, has passed a KYC
procedure, or has a particular license. So you might have one subnet to validate a set of blockchains that deal in US securities, which requires the validators to be located in the US and hold specific licenses.
Private subnets similar to corporate blockchains, such as Corda, Hyperledger
, and Quorum R3, are also possible: access is restricted and the contents of the blockchains are visible only to their participants. Such blockchains usually do not require a token because access is restricted, but AVAX still uses it because all validators of any subnet must also verify the underlying network and put up at least 2000 AVAX. Creating subnets also requires paying subscription fees and blockchain creation fees to AVAX, which are burned. The circles represent the different subnets, and the green squares represent the blockchains in those subnets
Because each validator must also verify the underlying network, it creates an incredibly secure subnet. All participants can view it, so it is used as a bridge to external blockchains and also in the ecosystem between subnets. This further increases the utilization of the main network, leading to higher AVAX charge consumption and a further reduction in overall supply.
An important feature of store of value is scarcity. Unlike most other staking platforms that have unlimited supply, Avalanche has a limit of 720 million tokens. 360 million tokens were minted at launch (the vast majority locked in vesting periods of 1-10 years), while the remaining 360 million are used for staking rewards. As withthe
Bitcoin, reward rates will decline over time as supply approaches the limit (albeit at a much smoother pace).
In addition to limited supply, as with Bitcoin, Avalanche goes a step further by burning AVAX tokens for fees for all sorts of operations on the underlying network, such as transaction fees, subscription fees for subnetting and blockchain creation, thereby increasing the AVAX scarcity for all token holders and creating deflationary pressures.
Avalanche uses a proof-of-stake consensus model to secure the network, where you only need 2 CPU cores, 4 GB of memory and a 40 GB SSD to run the validator. Avalanche’s revolutionary consensus engine is able to scale to millions of validators participating in consensus simultaneously, offering unparalleled decentralization.
Launching a validator and staking with Avalanche provides extremely competitive rewards ranging from 9.69% to 11.54% depending on the time period you block funds for. The maximum rate is earned by staking for a year and the lowest rate for 14 days. There is also no slashing issue, so you don’t have to worry about equipment failure or customer error causing you to lose some or all of the staked amount.
Currently, the minimum amount required for staking to become a validator is 2000 AVAX (this may be reduced over time as the price increases). Alternatively, validators may also charge a small fee to allow users to delegate their shares to help cover ongoing costs. To see how much rewards you can rake in as a node, compared to delegating, You can use this calculator.
I encourage everyone to run their own validators where possible, but for those who want to delegate, I currently run a node with the minimum possible fees and the maximum possible betting period (1 year) to maximize rewards (you can delegate for a shorter period if you want). You can find my node here, and if it’s full, watch for when the delegations run out as there may be spots coming up soon:
The following article provides a step-by-step process for setting up a validator on Microsoft Azure:
These excellent guides will also help you run your own validator
Trading supply further reduced by staking
Because Avalanche uses Proof-of-Stake instead of Proof-of-Work, a large percentage of supply will be staked continuously. In addition, unlike other staking platforms from which you can usually release funds after a few weeks, Avalanche encourages you to block them for a longer period of time to receive larger rewards. So, after staking, you will have to lock your tokens for a year to get the maximum reward size. This further reduces the available supply to sell, and the simple economics of supply and demand states that when supply decreases and demand remains the same, the price will increase. If supply decreases in conjunction with increased demand (as the ecosystem continues to grow), the price increases faster.
- Avalanche creates a superior payment platform that supports a wide variety of assets through a revolutionary consensus engine, exceeding Visa-level throughput while being able to accommodate millions of validators. Avalanche offers a highly configurable, interoperable “platform of platforms” allowing other projects to build blockchains, resulting in high demand for the token.
- AVAX is a token with a predetermined supply that, like Bitcoin, creates scarcity and will not suffer from constant dilution by inflation.
- Transaction fees across all blockchains on the underlying network, fees for asset creation and mining, blockchain creation, and subnetwork creation incurred in AVAX are burned, reducing the overall supply.
- Avalanche creates the Internet of Finance, offering the best place to create DeFi applications, but also the traditional financial market, where the derivatives market alone is worth hundreds of trillions of dollars and is able to meet regulatory requirements and enterprise-level adoption, generating additional token demand.
- Staking, especially in the early years, offers very competitive rates ranging from 9.69% to 11.54%, especially when the price of AVAX can increase over time due to the factors mentioned above, making it an excellent long-term investment. Running a validator node allows you to not only receive rewards in AVAX, but also validate other subnets in the ecosystem and receive nags in the token native to their subnet.
- Staking encourages large amounts of tokens to be locked up for long periods of time, reducing the supply in circulation, and combined with the increased demand for the token due to excellent usability, the price is likely to increase significantly.
To learn more about Avalanche, check out the following articles:
*the following article is a translation of a study entitled Why Avalanche (AVAX) has the potential to be an incredible store of value; source: link*
From the Editor
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