Sat. Nov 27th, 2021
    Avalanche, DeFi

    In this article, we will talk about the popular decentralized finance project, Avalanche (AVAX), and what makes it a safe, fast, and convenient DeFi system.

    About What DeFi Is

    Let’s remember what decentralized finance is all about. DeFi is one of the most rapidly growing segments of cryptocurrency.

    Yes, different segments have long been distinguished in cryptocurrency: blockchains, stablecoins, digital collectibles (NFT, non-fungible tokens), prediction markets, decentralized autonomous organizations (DAO)…

    The idea is simple. If all traditional financial institutions (banks, exchanges) are just software under the control of certain legal entities, why not place all these institutions on autonomous Ethereum smart contracts or another blockchain?

    This is how protocols appeared that allow, without the involvement of an intermediary, to trade cryptocurrency on decentralized exchanges (Uniswap), lend (Compound), manage monetary policy and issue stablecoins (MakerDAO), rebalance assets (TokenSets), create derivatives (UMA), insure risks (Nexus Mutual) and do everything that traditional financial institutions do.

    If ICO was about raising capital, then DeFi is about all the other functions of the traditional financial market.

    What is meant by market size or DeFi capitalization? Unlike ICO, where market size meant the amount of funds raised, with DeFi, this means:

    1. The amount of funds that are stored in the smart contracts of the respective protocols as collateral.
    2. The value of tokens that give the right to vote in protocols management.

    Today, the entire DeFi segment is estimated at $7.8 billion (as of June 2021), which is about 2% of the total capitalization of the cryptocurrency market.

    Is there a main one in DeFi

    At the moment, Ethereum is the main player in the DeFi segment. Thousands of applications of different functionality are developed specifically on the ETH protocol — the second-largest cryptocurrency in terms of capitalization and the first by the number of projects operating in their network.

    The need for speed and cheaper transaction costs creates precedents when other ecosystems appear as a counterbalance to ETH, which is burdened with several disadvantages:

    • low network throughput;
    • high transaction costs;
    • low yield to create liquidity.

    The Binance Smart Chain (BSC) protocol exploits the weaknesses of Ethereum (read more here), which boasts the following criteria:

    • fast and scalable network;
    • the cost of transactions is many times lower than in the ETH network;
    • high liquidity, which is possible because of the leading position of the Binance exchange.

    The Founding Fathers Of Avalanche

    AVAX builds smart contracts that operate with higher speed and performance, greater scalability, and low-cost transactions.

    Three computer scientists are the creators of the protocol. At the head is Emin Gün Sirer, who has extensive experience with Bitcoin, decentralized networks, and blockchains.

    Emin Gün Sirer

    Co-founder of the project Kevin Sekniqi, aka COO of AVA Labs. Kevin Sekniqi is a professor at Cornell University. He also has experience working at NASA and Microsoft.

    The third founder is Maofang “Ted” Yin, Dr. Sirer’s protégé and chief architect of the Ava Labs protocol. In 2021, he is due to receive a Ph.D. in Computer Science from Cornell University.

    Besides the founders, the team working on the project consists of 45 people who specialize in different areas, from computer science and engineering to economics and finance.

    What Is The Power Of Avalanche

    AVAX builds smart contracts that operate with higher speed and performance, greater scalability, and low-cost transactions.

    Avalanche provides decentralized asset trading accessible to everyone and does so using a network unique in that it allows transactions in a fraction of a second.

    The decentralized blockchain is built on the Proof-of-Stake (PoS) consensus protocol. The network is supported by validators, which guarantee the network throughput from the blocked funds stored in it.

    Currently, network availability is guaranteed by 1,009 validators, with an annual stacking yield of 10.3%.

    The superpower of the Snow Protocol (Avalanche protocol family) is that they allow thousands of transactions per second, which is much more than other large blockchains. This is achieved because the validator does not query the entire network, but a sample of other validators, before accepting the consensus.

    Such a system allows you to scale the network to millions of participants without losing the speed of transaction processing.

    The Snow protocols are very lightweight and economical: they switch to an “energy-saving” mode when the validators have nothing to check.

    Unlike bitcoin and many other networks, transaction fees are “burned” here to increase token scarcity. This process is offset by the issuance or minting of new coins, so the blockchain is based on a “deflation” mechanism.

    DeFi Projects On The AVAX Platform

    These include liquidity providers, digital asset stores, wallets, asset transferring bridges from other blockchains, etc.

    AVAX Token And Others That Anyone Can Create

    172 million AVAX tokens are in circulation — 24% of the total. The cost of the token is $11.

    The key difference with the non-changeable Bitcoin issuance is that the AVAX issuance rate can be changed by the community consensus. The volume cannot be changed! Consensus can only change the rate at which the upper limit of the offer is reached.

    The Avalanche project is also impressive because the platform can be used as an IDO to issue its native token, running on the Avalanche blockchain and customized for some specific tasks.

    The company also launched the Avalaunch platform, which offers promising ideas to pass the IDO and start fundraising to launch their projects.

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    The developers of Avalanche attempted to solve the problems of other blockchains and systems and equipped it with the most advanced and proven technologies. They created a decentralized blockchain, independent of the large power consumption, and got DeFi projects interested to choose their protocol to launch their own platforms.

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