What is Avalanche and how does it work?
An extensive guide to Avalanche for beginners
Among all the smart contract platforms that emerged in the last few years, few have managed to achieve the success and gather the community that Avalanche has.
This EVM chain kicked down the door of the space in 2021, and quickly rose through the ranks of the most popular web3 ecosystem.
In this article, we’ll dive into the basics of Avalanche and how it works, what has made it become the success that it is today, and how you can leverage it in your favor.
Avalanche in a nutshell
Avalanche is a decentralized, open-source blockchain platform designed to enable high-throughput, low-latency transactions, and smart contracts, all while remaining energy-efficient. It is composed of three different chains, known as the X-Chain, P-Chain, and C-Chain, which work together to form the Avalanche platform.
This blockchain is designed to be highly scalable and to support a wide range of transactions and smart contracts. It uses a consensus algorithm called Snowman to validate and order transactions, and it can process thousands of them per second.
One of the unique features of the Avalanche platform is the use of subnets, which are decentralized, purpose-specific networks that can be used to process transactions and smart contracts. We’ll expand more on subnets further down.
Avalanche is an open-source platform, which means that anyone can use, modify, and distribute the software. It is designed to be decentralized, meaning that it is not controlled by any single entity, but rather by a network of users and nodes.
But what exactly makes Avalanche unique? Let’s dive deeper into its core aspects and architecture to learn more about this young, yet already very popular network.
Avalanche’s infrastructure and general functioning
Avalanche’s platform is not one chain, but actually composed of three of them. In other words, it’s designed as a multi-layered network.
The X-Chain (Exchange Chain) is the main chain of the Avalanche platform, and it is responsible for maintaining a record of all transactions and exchanges that are executed on the platform. It uses the Avalanche consensus algorithm to validate and order transactions, and it can process thousands of transactions per second.?
Think of Avalanche as a building of sorts. In this example, The X-Chain would be like the foundations of the building, on top of which the entire Avalanche ecosystem and platform is built on. It is responsible for ensuring the integrity and security of the network, and designed to be highly secure and resistant to censorship.
The P-Chain (Platform Chain) is a parallel chain that is used to coordinate the different validators on the network and enable the creation of new subnets.
In the building example, the P-Chain could be seen as the structure within the building plan: walls, doors, stairs, and rooms. This structure is what defines how users navigate the platform, and what purposes can the building be used for.
Finally, the C-Chain (Contract Chain) is a child chain that is used to create custom blockchain applications within the Avalanche platform. It’s the layer that provides Avalanche with smart contract functionality and thus, enables the creation of dApps and ERC-20 tokens.
It’s important to note that Avalanche C-Chain is an EVM network, meaning that it uses the infrastructure and smart contract engine created by Ethereum to function. As a result, most ERC-20 tokens and smart contracts can be migrated to Avalanche with ease.
The C-Chain is a flexible and powerful tool for developers, and it allows them to create customized blockchain applications that are tailored to meet the specific needs of their users. It is designed to be highly scalable and to support a wide range of transactions and smart contracts, making it well-suited for a wide range of applications.
In our building example, the C-Chain would be the furniture and amenities within the building, which people can use and interact with, just like they do with dApps.?
The differentiating factor: Avalanche subnets
Remember we mentioned subnets before??
Avalanche subnets are its key differentiating feature from other blockchain networks. They are decentralized networks of nodes within the Avalanche platform that can be used to process transactions and smart contracts.?
Just like a regular blockchain, except they are designed to be highly customizable and can be created for specific purposes, such as processing transactions for a particular asset or running a specific decentralized application (dApp).?
Subnets are a key feature of the Avalanche platform because they allow it to scale and handle a large volume of transactions. By dividing the processing of transactions and smart contracts across multiple subnets, the platform can achieve high levels of throughput.
领英推荐
Each subnet is composed of a group of nodes that work together to validate and order transactions and smart contracts. The nodes in a subnet use the Snowman consensus algorithm to reach agreement on the state of the subnet and to prevent double spending.
Going back to our example, let’s think of Avalanche as a building again. Now, imagine that business owners start noticing it and want to bring their companies to it, So, the building keeps building floors to provide more room for them. These floors would be subnets. They are connected and can take advantage of the entire building’s infrastructure and security, but they’re owned privately by external parties.
Subnets can be created and customized by users of the Avalanche platform, and they can be configured to support specific types of transactions or smart contracts. This allows the platform to adapt to the needs of different users.
A popular user of subnets are Play2Earn games, who run their own to support and secure their in-game economies. We’ll dive into this in the last section of the article.
How about decentralization?
The centralization debate has been one of the most heated up conversations in the web3 space as of lately. So, let’s apply it to Avalanche to see how decentralized this platform truly is.
There are different layers of decentralization for PoS networks, although the most vital ones are two key metrics: validator count and stake distribution. That is, how many nodes are eligible to create blocks on the chain, and how is the total AVAX stake distributed among those validators.
By the time of writing the article, Avalanche has around 1,200 validators, which is a pretty healthy number given the network’s size. This represents around 3% of the ecosystem’s daily active users, which is more than most networks in the space.
As per distribution, the story changes. Data indicates that 51% of the staked AVAX is concentrated among the first 54 validators. In other words, it would take 54 agents to collude to take control of the Avalanche ecosystem.
Now, while this sounds low in theory, it’s actually much harder for this to happen in practice. Still, it’s very far from the level of decentralization achieved by other ecosystems—especially Cardano.
What can users do with Avalanche today?
As we mentioned, Avalanche is one of the highest growing smart contract platforms. Therefore, it has a very active developer community, which has created several great applications on top of its architecture.
First of all, we got Avalanche’s well-known DEXs. These are platforms that allow you to exchange, trade, and swap cryptocurrencies. However, Avalanche’s DEX ecosystem is developed in the sense that there are many different platforms with different focuses.
TraderJoe, for example, is Avalanche’s most popular DEX, but it’s also much more than that: it aims to become the go-to DeFi hub for the ecosystem. In TraderJoe, you can swap tokens, lend and borrow funds, participate in token launches and ICOs, and even stake the JOE token to earn a share of the platform’s revenue.
Platypus, on the other hand, is a stableswap DEX that focuses on capital efficiency for stablecoin trades. Its goal is to keep slippage as minimum as possible to facilitate truly 1:1 trades between different types of stablecoins. Naturally, it also allows users to provide liquidity in exchange for a percentage of the fees.
The DEX roster of Avalanche is so rich that another type of platform has emerged behind them: aggregators.
Aggregators are DeFi platforms that provide users with automation tools to maximize the yield you can earn from different DEXs earning opportunities, like liquidity providing, staking, lending, and so on.
Let’s explain this with a practical example: Suppose you stake USDC on Platypus to earn PTP (Platypus native token) rewards. You come back every week to claim your rewards and re-stake them in the PTP pool, which gives you an extra yield boost.
However, you could go to Vector Finance, one of the most complete aggregators on Avalanche, and stake your UDSC directly with them. Then, Vector will automatically stake it on Platypus for you, claim the rewards, convert them, and re-stake them in the same or a different pool. It's up to you!
To give you an idea, staking USDC yields about 1.5% in PTP, while staking on Vector yields 5.6%—that’s a 250% increase!
And that's not even Avalanche’s strength. While it has an amazing DeFi platform, this ecosystem is well-known for its diverse Play2Earn community.
In fact, GameFi projects are the most popular subnet users, and most of Avalanche’s subnets were created to support Play2Earn games. This works well, as having their own, customized chain allows games to have more control over their in-game economies, and give players total freedom to interact with the game’s world and environment.
Among Avalanche’s most popular Play2Earn games with their own subnet are:?