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Key Takeaways:
- AVAX ranks among the top 15 cryptocurrencies with a market capitalization of over $10 billion, indicating strong market confidence and positioning Avalanche as a major player in the blockchain space.
- Avalanche operates in a highly competitive environment dominated by Ethereum and other layer-1 platforms, presenting significant hurdles for its market position.
- Avalanche has strong institutional backing, with investors like Andreessen Horowitz and Polychain Capital raising over half a billion U.S. dollars for the project.
- Despite its initial growth, Avalanche faces challenges in maintaining its user base, and has dropped significantly in total value locked.
Origin Story
In May 2018, a mysterious research paper emerged from the internet, authored by a group known only as “Team Rocket.” This paper suggested solutions for some of the key problems with blockchains, explaining how to make them faster, cheaper, and more energy-efficient.
One of the core ideas was called “Avalanche,” named after the rapid and unstoppable force of nature. By building a new blockchain from the ground up with these ideas, Team Rocket argued, it could gain that same kind of speed and momentum.
The crypto world took notice, but it would take a visionary to bring these ideas to life. Enter Emin Gün Sirer, a renowned computer scientist at Cornell University. Alongside his colleagues Kevin Sekniqi and Maofan “Ted” Yin, Sirer saw the potential in the Avalanche protocol. Together, they founded Ava Labs in 2018, setting out on a mission to transform the blockchain landscape.
In 2019, Ava Labs secured a $6 million seed round, led by prominent investors like Andreessen Horowitz and Polychain Capital. This funding was crucial, and the team worked tirelessly, navigating the challenges of creating a new blockchain from scratch.
The journey was fraught with obstacles. The team faced technical challenges, market skepticism, and the ever-present threat of competition from established blockchains like Ethereum. But in 2020, after months of rigorous testing and development, they launched the Avalanche mainnet, and the team held its breath.
Avalanche quickly gained traction, breaking into the top three chains by Total Value Locked (TVL) in 2021, trailing only behind Ethereum and Binance Smart Chain. However, the euphoria was short-lived, as the rollercoaster crypto market and the rise of new competitors soon tested Avalanche’s resilience. By 2024, Avalanche found itself ranked ninth in terms of TVL, a humbling position for a once-promising star.
Despite the setbacks, Ava Labs continued to innovate. In April 2023, they launched Evergreen Subnets, enabling institutions to create private blockchains, attracting partners like Wellington and T. Rowe. And they launched Avalanche Vista, a $50 million initiative to purchase tokenized assets minted on its blockchain, encouraging enterprise adoption. Ava also partnered with Citigroup for a successful tokenization proof-of-concept built on Avalanche.
The story of Avalanche is just like an avalanche: from its rapid and unstoppable momentum at launch to its recent slowdown. Given its decline on several fundamental metrics, is the Avalanche token AVAX a good investment? Here’s our analysis.
Key Fundamental Data
- Daily Active Users (DAU): According to TokenTerminal, Avalanche records around 34k daily active users as of this writing. Compared to its competitors, Avalanche’s metrics are below average, with Solana recording over 800k DAU and Ethereum over 400k. Additionally, Avalanche’s DAU has dropped by almost half since around 12 months ago when it was recording roughly 70k DAU.
- Fees and Revenues: Avalanche generates revenue primarily through transaction fees. Every transaction on the Avalanche network incurs a fee paid in AVAX, the native token. These fees are generally considered reasonable and are structured to be sustainable for both users and the network. TokenTerminal estimates that Avalanche generates around $8 million of revenue annually from fees.
Avalanche fees are dependent on overall market activity.
- Market Cap: AVAX is one of the top 15 largest coins by market capitalization, with over $10 billion invested in the coin, which is almost double from a year ago. That said, the majority of the projects ahead of AVAX by market cap are Layer-1 coins like TRK, ADA, SOL, BNB, and ETH.
Market Analysis
- Problem that it solves: Avalanche is a smart contract platform designed to address the scalability challenges faced by many existing networks. Avalanche claims to be capable of processing thousands of transactions per second through its unique consensus mechanism without compromising performance or causing fees to spike.
- Customers: Avalanche's customers include developers looking for a reliable Layer-1 network to run their dApps. Other customers are users who access these dApps developed on Avalanche.
- Value creation: By adopting Avalanche, developers can enhance user experience, taking advantage of the platform’s performance capabilities. Users, in turn, enjoy fast transaction speeds and low fees facilitated by the platform.
- Market structure: The Layer-1 space is relatively saturated, with Ethereum as the clear leader. Avalanche still has some ground to cover to close the gap between it and Ethereum.
- Market size: The potential market size for Layer-1 networks is significant as they will likely benefit from the increased adoption of web3 apps. While Ethereum may remain the go-to platform, EVM-compatible chains like Avalanche might also benefit due to their performance advantages.
- Regulatory risks: There is a risk of regulation in this sector, with platforms like Ethereum probably facing higher risks. Although Avalanche is not as large, it is still as well-known, so regulatory risks remain high.
Our analysts rated AVAX a 3 out of 5 for market analysis. Download the complete scorecard here.
Competitive Advantage
- Technology/blockchain platform: AVAX runs on its own chain, Avalanche, which launched in 2020.
- Lead time advantage: Avalanche does not hold a lead time advantage in the layer-1 space, with Ethereum already enjoying first-mover advantage and launching five years prior to Avalanche.
- Contacts and networks: Avalanche’s contacts appear to be well-developed; the project has managed to secure partnerships with major companies such as Amazon and Mastercard.
Our analysts rated AVAX a 3 out of 5 for competitive advantage.
Management Team
- Entrepreneurial team: Avalanche's team, led by Emin Gün Sirer, comprises experts in computer science, economics, finance, and law. Team members bring a wealth of experience from top companies such as Google, Microsoft, and NASA.
- Industry/technical experience: Since launching Avalanche in 2020, the team has rapidly propelled the project to become one of the most popular blockchain networks and coins by implementing their innovations. This demonstrates their strong technical experience.
- Integrity: Although Avalanche has been part of some controversies, none have been significant enough to question the team's integrity.
Our analysts rated AVAX a 4 out of 5 for the management team.
Token Mechanics
- Token required: AVAX is essential to Avalanche as it is used to pay for fees and secure the platform through staking.
- Value added: AVAX functions like most other platform native tokens and does not necessarily add a new type of value.
- Decentralized: Avalanche allows some input from the community through proposals; however, the team still holds the ultimate power.
- Token supply: The maximum supply of AVAX tokens is capped at 720 million, with 443 million tokens currently in circulation.
- Public exchange: AVAX is available on major crypto exchanges such as Binance, Coinbase, and KuCoin.
- MVP: The Avalanche project has been in active development since 2018, and the blockchain was launched in 2020. It now exists as a fully functioning blockchain project.
Our analysts rated AVAX a 3.7 out of 5 for token mechanics.
User Adoption
- Technical Difficulty: Avalanche primarily tries to attract users and developers using its performance as the main selling point. However, it appears to be losing ground to other high-performance blockchains like Solana and Ethereum Layer-2 solutions.
- Halo Effect: Avalanche benefits from a strong halo effect, heavily backed by big-name institutions such as Andreessen Horowitz, Three Arrows Capital, and Polychain Capital, which have collectively raised over half a billion dollars for the project.
- Buzz: Avalanche generates significant buzz and has an impressive social media presence, with over 1 million followers on Twitter and 51k members on its subreddit.
Our analysts rated AVAX a 3.8 out of 5 for buzz.
Potential Risks
- Team: Avalanche’s team risk is low, comprising capable members who are experienced and have successfully brought the project’s ideas to life. Additionally, the team hasn’t been part of any significant controversies that could question their integrity.
- Financial: Avalanche has raised over $640 million in funding to date, suggesting low financial risk. However, it’s uncertain how much of this capital remains available as the team does not publicly disclose their financial information.
- Regulatory: Avalanche hasn’t had any encounters with the SEC as of writing. However, being headquartered in the U.S., which has evolving and unclear crypto regulations, and being a popular platform, it might face closer scrutiny from regulators.
- Smart Contract: Avalanche’s smart contracts have been audited by the reputable security firm Halborn. Additionally, the project maintains a bug bounty program that offers up to $100k in rewards for reporting bugs and vulnerabilities.
- Traction: Generally, Avalanche has no trouble attracting users, as evidenced by over 1 million followers on its social media platforms. On-chain, however, the project appears to be struggling with a drop in daily active users, now around 34k. While this figure is respectable, it still lags behind its peers.
- Behavioral: While many investors believe in Avalanche’s technology and potential, some are likely attracted to it partly out of a desire for financial gains, fueled by the hype of it being positioned as an "Ethereum killer."
Our analysts rated AVAX a 2.4 out of 5 for risk (Note that for this section lower = better).
Investor Takeaway
Avalanche has proved to be a solid project with a capable team, successfully executing on the plan they set out over six years ago. Its heavy backing also suggests that institutional investors believe in the project, and it has major financial institutions building on top of it. Additionally, the project has maintained a strong presence in the crypto market, with AVAX being one of the top 15 largest tokens by market capitalization.
Despite its initial momentum, Avalanche has faced challenges, particularly in maintaining its user base. The project operates in a highly competitive Layer-1 space, and is struggling to find a way to grow its users. Its DAU metrics, for example, significantly lag behind its competitors like Solana and Ethereum.
Overall, our analysts rate AVAX a 3.5 out of 5, reflecting its strong foundation, achievements, and advanced technology, while acknowledging the hurdles it faces in sustaining long-term growth and user engagement. Download the complete scorecard here.
This analysis is to help make you a better-informed investor; it is not financial advice. The future may look different than the past. All investing involves risk; see our investing approach for how we manage risk through diversification. Never invest more than you’re willing to lose, and see losses as learning.
