On November 10, Bitcoin (BTC) marked its latest all-time high value of $69,000 before tumbling to its current market price of ~$57,000. The fall of BTC was accompanied by a dip in the wider crypto markets as the total crypto market cap shrunk from more than $3 trillion to its current figure of around $2.7 trillion.
However, Avalanche has been an exception.
Avalanche’s native coin, AVAX has been on an absolute tear for the past few weeks and quietly made its entry into the top 10 cryptocurrencies by market cap by displacing the top meme cryptocurrency, dogecoin (DOGE).
Avalanche’s sudden foray among the top cryptocurrencies in the world begs a few questions, such as what is Avalanche and is AVAX still a good investment for the remainder of the crypto bull run?
In this article, we will explore the Avalanche ecosystem and highlight some of its features that have attracted users to the new smart contract platform. We will also learn what separates it from Ethereum and what the future of AVAX looks like.
Now, without further ado, let’s jump right into the Avalanche winter.
What is Avalanche?
Avalanche is a layer-1 smart contract platform that was founded by Ava Labs in 2018.
The Ava Labs team is led by Emin Gün Sirer, an Associate Professor of computer science at Cornell University. Besides Emin, the team comprises other leading computer scientists, economics and finance veterans, and law experts that are committed to making Avalanche the leading smart contracts platform in the world.
Unlike Ethereum, which currently utilizes the Proof-of-Work (PoW) consensus algorithm and plans to switch to Proof-of-Stake with the launch of ETH 2.0, Avalanche’s consensus algorithm draws inspiration from several consensus protocols.
Put simply, the platform’s consensus model brings together the benefits of Nakamoto consensus that promises scalability, decentralization, and robustness, along with the advantages of Classical consensus that ensures quick transaction speed, and energy efficiency.
Leveraging the Subnets to Ensure High-Throughput
The Avalanche ecosystem comprises several blockchains in itself that leverage the PoS consensus algorithm.
Think of Avalanche as a wide ecosystem that has several different blockchains that follow the PoS consensus mechanism to validate transactions on their network. At a time, there are thousands of such subnets functioning on Avalanche and with the rising adoption of the network, the number of subnets is expected to shoot further up.
Thanks to the subnet model of the platform, Avalanche can process as many as 4,500 transactions per second (tps) which is orders of magnitude higher than that of Ethereum at 15 tps.
Consider the following table that highlights the technical superiority of Avalanche relative to other blockchains.
(Source: Ava Labs)
The Avalanche X, P, and C-Chains
A striking feature about the Avalanche platform is its three different blockchains that serve a specific function.
Avalanche has three main blockchains, the Exchange Chain (X-Chain), Platform Chain (P-Chain), and the Contract Chain (C-Chain).
Among the aforementioned chains, the X-Chain uses the AVAX token for the creation and exchange of digital assets.
Similarly, the P-Chain is responsible for the creation and maintenance of subnets, creation of custom blockchains, and addition of validators to the Avalanche network.
Finally, the C-Chain is the end-user facing network as it is used for the creation of smart contracts. The C-Chain is an instance of the Ethereum Virtual Machine (EVM) powered by Avalanche that makes the platform compatible with Ethereum-based applications and services. However, being an Avalanche chain, users can enjoy Ethereum-based offerings with the high scalability, and cheap transaction fees offered by Avalanche.
If you are a regular Avalanche network user, you will most likely only interact with the C-Chain for the movement of tokens in the AVAX ecosystem or while interacting with smart contracts on decentralized exchanges (DEX).
Is AVAX a Good Buy?
At the time of writing, AVAX is trading at $127 with a market cap of more than $28 billion.
As can be inferred from the chart below, AVAX has been on an absolute rampage lately, rising from $10.4 in July to its current price of almost $130, indicating an increase of more than 13 times in just four months.
While it’s never advisable to buy any asset when it’s in an uptrend and has already witnessed growth in orders of magnitude in recent times, AVAX’s continued upward surge largely depends on the adoption of the Avalanche ecosystem.
Various metrics highlight that the Avalanche ecosystem is rivalling its competition in terms of usage.
For instance, the following data from DeFi Llama indicates that the TVL of digital assets in the Avalanche ecosystem currently sits at $12.42 billion.
(Source: DeFi Llama)
This is more than the TVL of other ecosystems such as Terra, Fantom, and Polygon. However, Avalanche still trails the likes of Solana, Binance Smart Chain, and Ethereum in terms of TVL.
In addition, Avalanche recently unveiled a mammoth $200 million incentive fund to incentivize developers to grow its DeFi and NFT ecosystems.
Considering the aforementioned factors, an argument could be made that AVAX can still run a long way from here. However, as is the case with crypto markets, certainty is almost non-existent.
Therefore, investors should consider buying AVAX in parts and dollar cost averaging their investment should the token’s price fall sharply.