What is AVAX?
Avalanche (AVAX-USD) is the native token of the blockchain platform Avalanche which was launched by New York-based AVA Labs in 2020. Described by its makers as a programmable smart-contracts platform for decentralized apps, Avalanche has been gaining traction in the world of cryptocurrency for its fast transaction processing times and offering users a secure and agile platform to deploy blockchains and low-cost apps.
AVAX Technology
The Avalanche platform has three main use cases – building scalable and decentralized apps; smart assets, and customized blockchains for both public and private use. The Avalanche interface also supports decentralized trading between AVAX and other Ethereum-based (ETH-USD) tokens.
The Avalanche network spans across three in-built blockchain networks – exchange, platform, and contract chains. Each of these blockchains have customized functions that make the platform agile and scalable.
The exchange chain (X-Chain) is where the transactions happen. For every transaction that occurs on the X-chain, a fee is incurred which has to be paid in AVAX tokens.
The contract chain (C-chain) is the blockchain where developers can build and deploy low-cost apps by leveraging the Avalanche platform. Also, AVAX has subnets, which allow for horizontal scaling. Subnets are separate but interoperable chains. They are in fact quite similar to Polkadot’s (DOT-USD) Parachains.
Lastly, the platform chain (P-chain) gives developers a free hand to build customized blockchains that are optimized to meet different requirements. In addition, subnets are a recently launched feature that is not only interoperable but can be scaled on demand. Avalanche’s network of subnets also eases managing regulatory compliance.
Avalanche uses Proof-of-Stake and Direct Acrylic Graph in its consensus mechanism. This technology allows the network to process transactions in parallel, which enables AVAX to achieve quick finality.
To ward off Sybil attacks, a blockchain network needs an influence over the infrastructure that is paid with a scarce resource. Using a scarce resource makes it expensive for the attacker to infiltrate the network and tinker with security protocols. Proof-of-work systems leverage computing power as a scarce resource. In Avalanche's case, the AVAX token is the scarce resource.
Here are the key ways in which the AVAX tokens can be used on the Avalanche platform:
Payments: With an easy-to-use mechanism, AVAX tokens are used to pay any fee across the Avalanche network – which can reportedly support up to 4,500 transactions per second. What's more, is that the AVAX tokens used for fee payments are burned to ensure that the number of tokens circulating is limited. AVAX also helps to secure the Avalanche network and rewards validators with more tokens.
Staking: The Avalanche platform is built on a robust interface that shields users against Sybil attacks with staking. Staking refers to locking tokens to secure a network while getting rewards in exchange. Validators or stakers – as AVAX users are sometimes referred to – need to stake in order to get the right to validate transactions. They are compensated on the basis of the staked amount and the duration. The platform leverages a compensation function that checks variances and ensures that stakers who stake a large number of tokens automatically don't receive larger returns. The scheme of rewards minimizes instances of formation of staking pools, thereby paving the way of seamless decentralised transactions.
Atomic swaps: Apart from keeping the platform secure, the AVAX token also functions as a versatile unit of exchange that supports native atomic swaps on the platform, irrespective of the asset type.
AVAX Ecosystem
Being compatible with EVM and Solidity has made Avalanche a preferable choice for developers who are looking to deploy low-cost apps with scalable frameworks.
Developers can build Ethereum dApps that can process thousands of transactions quickly. They can also build blockchains that cater to the specific needs of their app. Not only that, the platform gives developers complete control over their virtual machine.
Here are some of the decentralised apps (dApps) that the Avalanche network supports:
- Trader Joe: It’s a popular one-stop decentralised trading platform supported by Avalanche. On Trader Joe, users can lend, trade stake, pool, farm and buy non-fungible (NFTs) tokens among other things.
- Pangolin: The dApp is a community-driven exchange that deals in both AVAX and Ethereum tokens. Launched in 2021, the app boasts features like democratic distribution, low settlement fees and fast transactions. Users can swap tokens on Pangolin's automated market maker (AMM) exchange, stake, decide on limit orders, farm, provide liquidity and buy cryptocurrencies.
- Snowball: Its mechanism combines several DeFi protocols to build interoperable frameworks while enabling its users to exchange stable coins and provide liquidity. With a robust API, the dApp features a yield optimiser that can help users optimise lending rates on different protocols
- Aave: It's an open-source liquidity protocol platform where users can earn interest and borrow assets. Users can also take part in Aave governance and get the right to vote on proposals, protocol upgrades and new assets.
- Topps NFT: It's a multi-product platform that offers users a diversified range of NFTs to choose from.
Security, Scalability and Decentralization
The big difference between AVAX and other cryptos is the former’s superior time-to-finality. Finality is an important metric because even if you can process a million transactions per second, the network will be slowed down if finality is not achieved quickly. Avalanche theoretically has one of the fastest time-to-finality in the industry. This makes AVAX a fast and scalable network, and much of it can be attributed to the fact that it breaks up its operations into numerous chains and even sub-chains.
AVAX has around 1300 validators, and requirements to become a validator are not too prohibitive, making it a reasonably decentralized and secure network. Also, as we will see in the next section, tokens are well distributed amongst the public and insiders. Like with Polkadot, sub-chains can benefit from the more robust security of the main chain.
Lastly, AVAX has on-chain governance, but this doesn’t mean that anything can be changed by vote. Only some parameters can be changed via governance.
Tokenomics
AVAX comes with a capped supply of 720,000,000 tokens. Of these, only 360,000,000 are available for circulation. Unlike many other tokens that have a capped supply, AVAX is designed to react to changes in economic conditions. With its monetary policy, Avalanche seeks to balance out AVAX users' incentives in staking while using the guidelines to regulate other services offered by the platform. Collectively, users of the Avalanche platform play the role of a reserve bank that is decentralized. The tools available to regulate the quantum of tokens in circulation include transaction fees, staking rewards, and airdrops.
A few defining features of AVAX's tokenomics are:
- Despite its capped supply, AVAX is governable
- As Avalanche is leaderless, users' rewards aren't compounded
- Validators with a higher lock-in period get higher rewards
- As their rewards are subject to proof of correctness and proof of uptime, validators are encouraged to stay and operate cautiously
Price Forecast
In terms of the big picture, I see AVAX as starting a wave 3, which could go as high as $309. To calculate this target, we measure AVAX from its all-time low at $0.85 to its ATH at $147. This is the length of wave 1. We then take this and measure from the bottom of wave 2, which for AVAX was around $15.
According to Elliott Wave Theory, wave 3 should target the 1.618 ext, which gives us a potential price of around $253. However, at the high end of the range, this wave could also hit the 2 ext, which lands us near the $300 range.
AVAX is a volatile cryptocurrency that could explode in the next bull run.
In the shorter time frame, I believe the token has just completed a diagonal in wave (1) and should therefore be ready for a pullback in wave (2). The $20 could be a good place to enter a buy-order for those looking for an entry.
Risks
While AVAX has a lot going for it, investors must be wary of the potential risks of investing in this altcoin.
For starters, although the supply of AVAX is capped, inflation rates vary wildly since AVAX's tokenomics fluctuates depending on economic conditions.
Some argue that AVAX is still deflationary because all transaction fees are burned, but that depends. At the very least, the supply of AVAX is unpredictable.
Another problem with AVAX is that subnet validators require 2000 AVAX to run. This could become very costly, especially as the token's price goes up.
Lastly, it is worth mentioning that as Ethereum merges into a PoS blockchain, the advantages that AVAX provides will dwindle. AVAX is EVM compatible, which is part of what makes it attractive. However, this means that it will be that much easier for those using AVAX to switch to ETH if the conditions are right.
Final Thoughts
Compared to other blockchain platforms with archaic consensus protocols that make them inefficient, slow, and non-scalable, Avalanche offers users a faster, scalable, and safer module. The AVAX token is designed to ensure a higher measure of decentralization, rein attacks, and help dApp developers scale without imposing any limits. Avalanche, from time to time, keeps updating and introducing new features in governance and transaction management, thereby helping its users leverage the best of technology.
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