AVAX's Role in the Blockchain Revolution

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Weekly Chain Highlight: Avalanche’s Three-Chain Architecture

In April 2022, the minting of Moonbirds NFTs pushed Ethereum gas fees to over $100,000 with some users paying as much as $100,000 in transaction costs. For smaller users, the network became unusable, locking them out of one of blockchain’s most innovative spaces. Meanwhile, Bitcoin’s 7 transactions per second (TPS) and Ethereum’s 15 TPS proved far too limited to handle such demand. These aren’t one-off problems—they expose the fundamental flaw of single-chain blockchain architectures: congestion, high fees, and a lack of scalability.

Enter Avalanche (AVAX): a blockchain platform capable of processing over 4,500 TPS with finality in under two seconds and transaction costs that remain consistently low—even during peak demand. Powered by a three-chain architecture, Avalanche separates blockchain operations into specialized chains for asset transfers, smart contracts, and governance, preventing bottlenecks and delivering a scalable solution for DeFi, NFTs, enterprises, and beyond.

The Problem with Single-Chain Blockchains

Most blockchains, including Ethereum and Bitcoin, process all activity on a single chain. Whether it’s transferring tokens, executing smart contracts, or managing governance, all operations share the same resources, creating inevitable bottlenecks as demand grows.

Here’s what happens:

• Congestion: Networks slow to a crawl during high demand, causing failed transactions.

• Skyrocketing Fees: Limited throughput drives fees up. During the Moonbirds mint, gas fees topped $100, locking smaller users out of the market.

• Low Scalability: Ethereum processes just 15 TPS, while Bitcoin lags at 7 TPS—a far cry from the infrastructure needed for global adoption.

These inefficiencies make deploying dApps, launching NFTs, and integrating blockchain technology into enterprise systems both unreliable and expensive. Avalanche solves these issues by rethinking blockchain design from the ground up.

Avalanche’s Three-Chain Solution

Avalanche fixes the core scalability issues of single-chain blockchains by splitting operations across three interoperable chains, each optimized for a specific function. This architecture eliminates congestion, reduces fees, and ensures scalability.

1. X-Chain: Asset Transfers Without Bottlenecks

The X-Chain (Exchange Chain) specializes in creating and transferring digital assets like AVAX tokens and custom cryptocurrencies. This separation allows asset transfers to happen quickly and affordably without competing with other operations.

• Real-World Impact: Platforms running DeFi applications on Avalanche can process thousands of token transactions per second with near-zero fees, making it ideal for payment systems and liquidity pools.

2. C-Chain: Faster, Cheaper Smart Contracts

The C-Chain (Contract Chain) is Avalanche’s Ethereum-compatible smart contract engine. Developers can use familiar tools like Solidity and Metamask to build or migrate DApps without having to overhaul their projects.

• Real-World Impact: Unlike Ethereum, where gas fees frequently exceed $50 during peak activity, Avalanche’s C-Chain enables DeFi platforms like Aave and GoGoPool to operate with significantly lower fees and faster execution times.

3. P-Chain: Custom Subnets for Enterprises

The P-Chain (Platform Chain) supports subnets, customizable blockchains tailored for specific use cases. Subnets allow enterprises to create private, permissioned blockchains or public networks optimized for industry-specific needs.

• Real-World Impact: Financial institutions can use subnets to build regulatory-compliant systems for secure, transparent transactions, while gaming companies can deploy subnets for high-speed in-game economies.

This modular architecture ensures that Avalanche avoids the bottlenecks of single-chain systems, making it a scalable and adaptable solution for developers and enterprises alike.

Real-World Applications of Avalanche

Avalanche isn’t just a theoretical improvement—it’s already driving real-world adoption across multiple industries:

1. DeFi

• Aave and Curve have launched on Avalanche, leveraging its low fees and high throughput to provide users with better trading and lending experiences.

• Protocols like Benqi Finance, LFJ (previously Trade Joe), BlackRock BUIDL, and others have also been innovating heavily and generating a huge amount of TVL!

• Developers enjoy seamless migration from Ethereum to Avalanche thanks to its EVM compatibility.

2. NFTs

• Avalanche’s fast, low-cost transactions make it a natural fit for NFTs. Unlike Ethereum, where gas fees often make minting prohibitively expensive, Avalanche enables affordable NFT creation and trading on platforms like Kalao.

3. Enterprise Solutions

• Financial Institutions: Subnets allow banks to create private blockchains for regulatory-compliant transactions without sacrificing interoperability with public chains.

• Gaming: Avalanche powers gaming economies like Shrapnel, enabling millions of in-game transactions daily without slowing the network. The network's unique subnets are enabling games like Shrapnel and Off The Grid to launch their own dedicated blockchains, handling millions of transactions daily without slowing the network.

4. Supply Chain Management

• Companies are using Avalanche subnets to build transparent, secure supply chain systems, allowing real-time tracking of goods and seamless data sharing between stakeholders.

Subnets: Avalanche’s Enterprise Advantage

Subnets are Avalanche’s game-changing feature, enabling businesses to build customized blockchains tailored to their specific needs. Unlike traditional blockchains, which force all participants to follow the same rules, subnets allow for flexible governance, privacy, and compliance requirements.

Examples of Subnet Applications:

• Healthcare: Securely store patient data while complying with GDPR and HIPAA regulations.

• Governments: Deploy tamper-proof voting systems for transparent elections.

• Gaming: Handle high-speed in-game economies without impacting the performance of the public network.

By allowing enterprises to build blockchains on their terms, subnets make Avalanche an attractive option for industries that require scalability and customization. From DeFi protocols like Aave and Curve to gaming economies and supply chain management, Avalanche is already driving real-world adoption. As demand for blockchain technology grows, platforms that can’t scale will inevitably fall behind. Avalanche’s modular architecture ensures it is ready not just for today’s challenges but for the future of decentralized systems.

Avalanche isn’t competing to be another blockchain—it’s setting the standard for what blockchains should be.

Quick-Start Guide: AVAX Yield Strategy Guide

What You’ll Need

• USDC or AVAX tokens: AVAX can be swapped to USDC if needed.

• A Web3 wallet (e.g., Metamask and Core which was developed by Avax team themselves) and AVAX for transaction fees.

Note: Keep some AVAX aside to cover transaction fees on Trader Joe, BENQI, and Yield Yak. Fees are minimal but can accumulate across multiple transactions.

Step-by-Step on the Strategy

1. Convert AVAX to USDC:

   • If you already have USDC, skip this step.

   • Visit Trader Joe, connect your wallet, and swap your AVAX for USDC.

2. Supply USDC on Core BENQI Finance:

   • Go to BENQI Markets.

   • Deposit USDC into the platform and enable it as collateral.

Note: Enabling collateral is crucial for borrowing USDT later in the strategy. Without enabling, you cannot proceed to the next step.

3. Borrow USDT on BENQI Finance:

   • Borrow USDT against your supplied USDC while keeping your Health Factor above 2. This ensures your position remains safe from liquidation risks.

Note: Borrow an amount you're comfortable managing. Overleveraging can increase the chances of liquidation during market fluctuations.

4. Swap USDT to USDC:

   • Use Trader Joe to convert your borrowed USDT back into USDC.

Note: Swapping USDT to USDC maintains the stability of your holdings since both are stablecoins, minimizing price fluctuation risks.

5. Stake USDC on Yield Yak:

   • Visit Yield Yak’s USDC Vault.

   • Stake your USDC to maximize returns through auto-compounding.

Note: Ensure your USDC is successfully deposited into Yield Yak’s vault and monitor the dashboard for compounding progress.

Yield Sources

• USDC Supply on BENQI:

  • Earn interest on your supplied USDC.

  • Receive additional AVAX rewards distributed by BENQI.

• USDT Borrow on BENQI:

  • Borrowing incurs an interest rate.

  • Receive distribution rewards in AVAX to partially offset borrowing costs.

• USDC Staking on Yield Yak:

  • Auto-compounding further enhances your returns, though calculating this effect precisely can be challenging.

Note: Auto-compounding increases the yield rate over time, so the final return may exceed the estimated rates shown here. While we don't calculate the compounding effect explicitly, expect yields to track higher due to frequent reinvestment.

Calculating Potential Yields

1. USDC Supply Yields:

   • Total Supply Yield = 11.3% (Supply Rate) + 3.2% (AVAX Distribution Rewards) = 14.5% APY.

2. USDT Borrow Costs:

   • Borrowing Cost = 12% APY, offset by 3.2% AVAX rewards.

   • Net Borrowing Cost = 8.8% APY.

3. Yield Yak USDC Staking:

   • Auto-compounding Staking Yield = 15.8% APY.

4. Total Strategy Yield:

   • Net Yield = (14.5% + 15.8%) - 8.8% = 21.5% APY.

Note: These yields do not account for auto-compounding’s effect, so actual returns may be higher. Regular monitoring is recommended to track performance over time.

Risks to Consider

1. Liquidation Risk:

   • Borrowing USDT against USDC exposes you to potential liquidation if the Health Factor drops below 1. Always maintain a buffer by borrowing conservatively.

Tip: Set alerts or frequently monitor your Health Factor to avoid unexpected liquidations.

2. Smart Contract Risk:

   • The strategy involves multiple DeFi platforms, including BENQI, Trader Joe, and Yield Yak, each with potential smart contract vulnerabilities. Only invest what you’re willing to risk.

3. APY Volatility:

   • Supply, borrow, and staking rates may fluctuate based on market conditions, impacting your overall yield.

4. Operational Complexity:

   • Managing multiple transactions across platforms can be challenging. Double-check steps to avoid errors, especially during swaps or staking.

Why This Strategy?

Pros:

• High Returns: The combined yield reaches 21.5% APY, even before factoring in auto-compounding gains.

• Stablecoin-Based: Using USDC and USDT minimizes exposure to crypto market volatility.

• Multi-Platform Leverage: Combines supply, borrow, and staking rewards into one optimized strategy.

Cons:

• Liquidation Risk: Mismanaging the Health Factor can lead to collateral loss.

• Complex Execution: Requires multiple steps and familiarity with DeFi tools.

• Smart Contract Risks: Exposure to vulnerabilities in three separate platforms increases the overall risk profile.

This strategy capitalizes on stablecoin yields, lending rewards, and auto-compounding to maximize returns while minimizing exposure to volatility. Monitor your positions regularly and adjust utilization rates as needed to stay on track and avoid unnecessary risks.

Strategy Spotlight

Maximize Yields with Boosted Pools on Yield Yak

Boost your stablecoin or AVAX returns by staking in Yield Yak's high-performance boosted yield pools.

Steps:

1. Visit the Yield Yak Boosted Yields page.

2. Connect your wallet and explore the list of boosted yield pools.

3. Deposit your selected assets (e.g., AVAX or stablecoins) into a pool with attractive APY.

4. Monitor your rewards and reinvest periodically for compounded returns.

Invest in Tokenized Assets with BlackRock’s BUIDL Project via Securitize

Participate in cutting-edge tokenized funds through BlackRock’s BUIDL initiative, powered by Securitize.

Steps:

1. Go to Securitize and create an account.

2. Complete the KYC/AML verification to comply with regulations.

3. Explore the selection of tokenized funds and choose your preferred investment product.

4. Transfer funds to acquire tokenized shares and track your portfolio’s performance on the dashboard.

Trade and Earn on GMX Perpetuals Market

Leverage the GMX perpetuals market for high-risk trading or low-risk fee earnings by providing liquidity.

Steps:

1. Visit the GMX platform and connect your wallet.

2. To trade: Go to the “Trade” section, choose an asset pair, set your leverage, and open a position.

3. To earn fees: Navigate to the “Earn” section, deposit GLP (GMX liquidity token), and start earning a share of platform fees.

4. Regularly monitor your positions or rewards to optimize returns and manage risk.

Innovations on Avalanche

• Triple-Layer Blockchain Architecture:

  • Avalanche is built on three distinct blockchains: X-Chain (for asset transfers), C-Chain (for Ethereum-compatible smart contracts), and P-Chain (for validator staking and subnet management). This modular architecture enables specialized functionality, significantly improving scalability and performance compared to single-layer blockchains.

• Directed Acyclic Graph (DAG) Framework:

  • Avalanche’s DAG structure supports high transaction throughput, processing up to 4,500 TPS. Validators use a sampling process to reach consensus by randomly selecting subsets of validators, enabling rapid, scalable, and energy-efficient transaction finality.

• No Slashing Penalty for Validators:

  • Unlike most proof-of-stake (PoS) blockchains, Avalanche does not penalize validators with slashing for submitting incorrect information. Validators simply forfeit rewards if they do not perform correctly, creating a more forgiving and decentralized ecosystem.

• Subnets for Custom Blockchains:

  • Avalanche’s Subnets allow developers to create independent blockchain-like networks with their own consensus algorithms, governance, and coding standards. This high degree of flexibility is unmatched in other blockchain ecosystems, enabling tailored solutions for enterprises and developers.

• Unique Consensus Mechanism (Snowman Protocol):

  • Avalanche employs the Snowman Consensus Protocol, which is designed for high throughput and rapid transaction finality while maintaining strong decentralization and security.

• Avalanche9000:
  Avalanche9000 introduces a multi-L1 architecture, enabling the creation of multiple Layer 1 blockchains (L1s) that seamlessly integrate with the Avalanche ecosystem.

  • The C-Chain acts as a central liquidity hub, allowing new L1s to leverage pre-existing tools and infrastructure.

  • Builders can customize L1s with unique staking economics, gas token configurations, and compliance features such as geo-restrictions.

  • Avalanche Interchain Messaging (ICM) fosters interoperability between Avalanche L1s, ensuring shared liquidity and a unified ecosystem.

  • Avalanche9000 reduces the cost and complexity of launching new L1s, accelerating innovation and adoption.

• Gunzilla’s AAA Shooter "Off The Grid" on Avalanche:
  Gunzilla Games partnered with Avalanche to launch Off the Grid (OTG), an AAA Battle Royale game built on a blockchain-powered gaming subnet.

  • Realistic Gameplay and Ownership: OTG combines high-quality visuals, immersive gameplay, and Play-to-Own mechanics, enabling players to own in-game assets as NFTs.

  • Mainstream Appeal: The game is set to release on PS5, Xbox, and PC, and has already garnered attention from renowned streamers like Dr. Disrespect and Clix, who have provided positive reviews after testing.

  • Why Avalanche? Avalanche’s subnets provide the scalability and reconfigurability needed for dynamic, fast-paced gaming environments, ensuring low latency and seamless in-game transactions.

These innovations showcase Avalanche's ability to cater to diverse use cases, from high-performance financial applications to immersive gaming ecosystems.

Avalanche Data and Analytics: Insights into a Growing Ecosystem

Avalanche (AVAX) continues to solidify its position as a leading blockchain ecosystem, with recent data reflecting its performance and areas of growth. Here’s a breakdown of the key analytics shaping its narrative.

TVL and Volume Trends
According to DefiLlama, Avalanche’s Total Value Locked (TVL) remained steady throughout the first half of the year. However, volume has seen a notable increase since August, primarily driven by the launch of gaming innovations like Shrapnel and other blockchain-based games. These projects have brought significant activity and attention to Avalanche’s network, highlighting its potential in the gaming sector.

Daily Active Addresses: Room for Growth
Data from the Artemis Terminal indicates that daily active addresses have shown no substantial improvements year-to-date. The metric has remained relatively flat, signaling that while Avalanche’s ecosystem is growing in specific sectors, broader user adoption may require further efforts or innovations.

Bridge Volume Sees Steady Influx
On the other hand, bridge volume has steadily increased throughout the year, signaling external liquidity flowing into the Avalanche ecosystem. This trend suggests growing interest from external networks and investors, particularly to participate in Avalanche’s TradFi-focused projects, such as BlackRock’s BUIDL, and its burgeoning gaming sector.

What the Numbers Mean for Avalanche
These metrics paint a picture of a blockchain that’s gaining traction in gaming and attracting institutional interest, but still has room to expand its overall user base. With its unique infrastructure and innovations like subnets, Avalanche remains a promising ecosystem to watch as it continues to diversify its use cases and attract new liquidity sources.

Avalanche’s ability to sustain growth in critical areas while addressing adoption gaps will be pivotal for its long-term success in the competitive blockchain landscape.

Disclaimer

All information provided in TheYield Quest is for educational purposes only and does not constitute financial advice. DeFi investments carry inherent risks and can lead to capital loss. Readers should do their own research and assess their risk tolerance before implementing any strategy.

Stay yield-savvy,
The Yield Quest Team