Avalanche (AVAX) originally set out to be the home of DeFi, and has hosted a number of projects that make the most of its faster, more efficient ecosystem. And the list is growing.
Avalanche is true to its name. With 364 projects launched in the last 14 months, the smart contracts platform for decentralized applications is taking its role as an ETH competitor seriously. As the PoS blockchain with the fastest speeds and the most validators, it is ideally positioned to serve its chosen niche as DeFi’s destination of choice. Holders can easily generate yield from their positions by staking their Avalanche.
In addition to faster speeds, users enjoy lower costs to deploy smart contracts (currently one-tenth of the costs on Ethereum). Avalanche Virtual Machines allow developers to launch customized blockchains. Users can transfer assets to and from Ethereum easily via the Avalanche Bridge.
The network is not resting on its laurels, but aggressively targeting growth in its ecosystem. It recently launched the fund Blizzard, with $200m to be allocated to projects in DeFi and NFTs. This followed close on the heels of Avalanche Rush, a similar initiative involving $180m to fund developers looking to launch projects on the platform.
On top of its observable growth, the sheer amount of energy behind the Avalanche protocol speaks to its future potential to shape the future of DeFi. In this article, we are going to look at the projects that are currently need-to-know.
Avalanche DeFi Ecosystem
DeFi is at its heart the attempt to recreate the traditional banking system using chain-based solutions, avoiding the endemic issues of waste and bureaucracy that tend to plague centralized institutions.
DeFi, therefore, covers a lot of different fields. The 58 apps classified as DeFi in the Avalanche Ecosystem consist of a combination of home-grown applications and integrations of existing solutions (Aave, Curve).
Below, we examine some of the leading DeFi applications developed on and for the Avalanche network. Many of them are an answer to the question, “What would [insert name of well-known dApp] look like if it was faster and cheaper to use?”
Naturally, there are also genuine innovations that add to the existing DeFi universe.
One of the first ways in which DeFi revolutionized finance was the methods by which new projects raise money. The ICO boom of 2017 was one of the first major DeFi experiments, and it certainly delivered some important data. How projects are vetted and nurtured is fundamental to the future of DeFi.
“Welcome to the future of fundraising”
Avalaunch is the Avalanche network’s native solution for helping new projects launch and build communities. It is essentially an Initial DEX Offering (IDO) platform that aims to fix the common problems with decentralized funding, from basics such as pricing and speed to user experience.
While not a new concept, it brings an additional layer of ease and reliability to the wild west of decentralized listing. Listing on a typical platform can require a certain level of patience and expertise. A natural step in the evolution of any new technology is that processes require less effort and encounter fewer bugs.
If this seems like a small innovation, remember that it is how Apple in its golden age made everything it touched into a mass-adopted technology, without having to cut prices.
In a blog post earlier this year, the company expressed a more inclusive approach to non-native Avalanche projects. On the basis that the future is multi-chain, they assert, "a good team with a strong vision, regardless of their current chain of choice, is absolutely worth our time and attention".
Lending & Borrowing
If Bitcoin laid the foundation of decentralized finance by introducing permissionless payments, pioneers such as Aave and Compound laid another by solving the problem of how to decentralize borrowing. Avalanche’s own solution is in turn an important step in its work to move the DeFi field beyond the constraints of Ethereum.
Currently one of the hottest projects on the network, Benqi is a decentralized, non-custodial borrowing and lending protocol. In practical terms, it offers users the core functionality of a bank: users can borrow and lend digital assets (WETH.e, WBTC.e, USDT.e, etc.), and earn interest. As it also operates as a bridge to Ethereum, users of the latter can escape the limitations of the Ethereum network.
There are plans to add liquidity staking and to launch an additional DeFi primitive to enhance the range of DeFi strategies open to Avalanche users. Also on the roadmap are a series of subnets (similar to parachains) that will allow institutions to build networks without the limitations of Virtual Machines.
From a governance perspective, the development team is targeting progressive decentralization towards proper DAO status. Liquidity mining incentives will ensure that the native QI tokens are distributed more widely, along with governance.
Decentralized Exchanges (DEX)
As the majority of DeFi activity still revolves around trading, the same is true of the most celebrated Avalanche projects. In addition to the below, these include Lydia Finance, Canary Exchange, Elk Finance, and Olive Cash (both multi-chain).
“Scale Your DeFi Trading”
Pangolin is a decentralized exchange (DEX) for Avalanche and Ethereum assets. Originally a fork of the Uniswap DEX, it uses the automated market-maker model (AMM) to offer P2P trading - only faster and cheaper. It is unusual in prioritizing fiat integration, offering users the ability to purchase the native Avalanche token AVAX using Apple Pay or Credit Credit. This reflects its strategy to reach a larger audience of users.
The project emphasizes the fact that it is community-owned and community-driven. The original intention was to distribute 100% of the native PNG tokens to the community (liquidity mining and airdrops).
The community recently voted to reduce the supply of PNG by 57% (from 538 million to 230 million) to improve the underlying tokenomics, and to allocate 30m tokens to a foundation to fund the 'long-term sustainability' of the network.
Trader Joe (JOE)
"One-stop-shop decentralized trading on Avalanche"
While Pangolin may have been the original Avalanche DEX, Trader Joe has risen in recent months to become the largest with a TVL of $2.49bn as of the time of writing (compared to Pangolin's $419m).
It markets itself as a “one-stop” trading platform for the Avalanche user base. It is also planning to expand into the Lending space (via its "Banker Joe" arm), and potentially aims to become an end-to-end DeFi provider in the long term.
Unlike Pangolin, its tokenomics are more traditional, with 40% split between the developer team and the treasury, and 10% set aside for strategic investors (a group that already includes Defiance Capital). Rewards are focused on holders of the JOE token (rather than liquidity providers) who share in the trading fees.
Interestingly, neither Trader Joe nor Pangolin waive trading fees (as some other DEXes do), but seek to differentiate via functionality and user experience.
Investment tools on Avalanche
The DeFi focus of Avalanche naturally attracts projects that aim to solve highly-specific issues with the financial system, such as Verso Finance (which aims to connect traditional finance with decentralized finance). The majority of specialized projects exist to assist DeFi-specific investment strategies, such as yield farming.
Penguin Finance (PEFI)
“The next generation of DeFi”
Penguin Finance is based on PancakeSwap, and its stated aim is to bring yield-farming, staking, and other functionalities to the Avalanche Network. Leveraging the Pangolin platform for trading, it presents users with a gamified design to incentivize and enable them to pursue various DeFi investing strategies.
The platform includes actual games (Penguin Emperor, Penguin Arena), charity events, NFTs, and ‘the cheapest and highest-yielding auto-compounding protocol on the Avalanche network”.
Holders of the PEFI token can Yield-Farm in “Igloos”, stake in “Nests”, and earn additional rewards from partners in “Club Penguin”. Users have various incentives to invest long-term. The coin is built on a deflationary mechanism so that the value increases over time, and there is a 'Paper Hands Penalty' of 6% for unstaking PEFI.
Deflationary tokens and ‘paper hands’ penalties incentivize users to invest long-term. While it is looking for a stable base, it is a frenetically evolving platform and worth following.
Yield Yak (YAK)
“Earn More Yield and Save Time”
Yield Yak is an auto-compounding farming platform for the Avalanche network. It enables users to deposit LP tokens they have received from other Avalanche DEXes such as Pangolin and maximize their yield.
Although gas fees are cheaper on Avalanche, they are not negligible. Yield Yak pools the LPs deposited by users in a smart contract leverages economies of scale to reinvest rewards more efficiently.
Auto-compounding saves users time, and dividing the costs of investing and compounding maximizes the farming yield. Eventually, users will also be rewarded for their activity with YAK tokens (not yet released), which give holders a share in the governance of the platform and its trading fees.
While the concept appears sound and there is no evidence of suspicious behavior, questions remain about the safety of the protocol and its audit status. It currently holds a score of 2.74 on isthiscoinascam.com.
Closing words on Avalanche Crypto
Avalanche is just getting started. This overview has been like a snapshot of a sprinter about 5 meters out of the starting block, and is not intended to be definitive or complete. It is intended to give a sense of the pace of innovation on this (relatively) young platform.
The cleaner, quicker ecosystem that AVAX provides will no doubt be a source of many more innovative projects in the future. With its open attitude and willingness to collaborate, it is likely that many future projects on Avalanche will begin life outside the network.
While we have focused on native Avalanche applications, the future Avalanche envisages is one of interoperability rather than tribal loyalty. That is a great point in its favor, as the market overall shifts from the old question of the Flippening to the Great Convergence.