Usage measured by active addresses has been very steady over the last year on Avalanche, after removing the impact of LayerZero-related activity. Including the activity, there is a sharp drop-off from the second quarter’s spike.
DeFi TVL fell again in the third quarter, down 28.8% from Q2, but stablecoins are beating the trend and remaining on the Avalanche network.
Gaming and RWA partnerships highlighted the Q3 announcements, with new subnets launching that take advantage of the customizability of the Avalanche technology.
While activity on DFK, the largest subnet by transactions, fell in Q2 by 62%, Dexalot usage continued to climb through the bear market and transactions increased 110% in Q3.
The announcement of Hyperspace launching support for Avalanche NFTs, along with their release of the Dokyo collection, led to the highest NFT sales in over a year with over 160,000 transactions in Q3.
Primer on Avalanche
The Avalanche network is a Proof-of-Stake (PoS) smart contract platform for decentralized applications. Avalanche differentiates itself by creating and implementing a consensus family known as "Avalanche consensus."
Following years of research, the Avalanche mainnet was launched in September 2020 and featured the release of a multichain framework utilizing three chains: the P, X, and C chains. Each chain plays a critical and unique role within the Avalanche ecosystem while providing the same capabilities of a single network, often called the Primary Network. Avalanche consensus and the Primary Network are designed to support sovereign, interconnected blockchains known as subnets.
Subnets are subclasses of Primary Network validators that run the same Virtual Machines (VMs) with their own rules. Subnets enable different properties of reliability, efficiency, and data sovereignty. They provide the ability to create custom blockchains for different use cases while isolating high-traffic applications from congesting activity on the Primary Network.
To join the Avalanche architecture, every subnet must provide at least one validator to the Primary Network (staking 2,000 AVAX). For its own consensus, each subnet utilizes anywhere from three to all P-Chain validators. Therefore, every subnet is considered when evaluating overall network activity in terms of transactions and users.
In Q2, Layer Zero accounted for 45-60% of activity on Avalanche. Removing addresses that interacted with LayerZero or Stargate contracts shows a more stable signal for activity on Avalanche (though likely underestimates overall usage). Excluding those that integrated with LayerZero or Stargate contracts, daily active addresses on Avalanche were down 12% from Q2 but up 9.2% from Q1. Including all addresses, daily active addresses were up 116% from the first quarter.
Subnet transactions fell again in Q3, led by DFK transactions down 62%. Dexalot was a bright spot among subnets, with transactions increasing 110% from the previous quarter and up 425% from Q1. The central limit order book subnet received a grant worth up to $3 million from the Avalanche Foundation in Q3 and launched two new features in September to improve the user experience with SimpleSwap and SimpleView.
Technical Developments
Avalanche released an optional upgrade as part of Cortina 7, enabling faster validation calculations and removing the LinkDB Iterator.
Other big updates primarily relate to the HyperSDK, a developer kit enabling builders to launch a blockchain on Avalanche.
The launch of Teleporter on Avalanche also opens new cross-chain possibilities and a new communication tool for subnets. Teleporter is built on Avalanche Warp Messaging, the interoperability standard for Avalanche subnets. It enables developers to call contracts from other EVM chains. Alongside Teleporter, the Relayer was released, which receives the cross-chain calls. A relayer can be created by anyone, allowing builders to safely access information across EVM chains.
RWAs
Avalanche has been a leader in developing the technology and solutions to empower traditional financial assets to come onto crypto rails. In Q2, the Spruce and Evergreen subnets launched, which allow anyone to create a subnet with customizable KYC/AML requirements and unique privacy capabilities. Wellington and T. Rowe were early partners of the product.
In July, the Avalanche Foundation launched the "Avalanche Vista" program, allocating up to $50 million to buy tokenized assets minted on its blockchain. The initiative underscores Avalanche's commitment to promoting a more efficient, cost-effective, and accessible financial system through its unique technical features. This move comes amidst a growing trend of asset tokenization. Avalanche has achieved some major milestones in that area, including tokenizing interests in significant funds and launching platforms for asset-backed securities. “Avalanche Vista” reaffirms the commitment and support for RWA providers on the Avalanche blockchain. The program celebrated its first win on August 1, with the announcement of HiYield from Lydia Labs joining Vista.
Avalanche was also the host of the first tokenized assets by Securitize, a firm specializing in tokenization of offchain assets. Securitize found the solutions needed to regulators' requirement that they operate in “sandbox” conditions, with Avalanche’s unique capabilities. The tokens represent equity in the Spanish real estate investment trust Mancipi Partners.
Financial Overview
AVAX underperformed its peers in Q3, falling 28% while ETH fell 13% and ATOM, DOT, and MATIC fell 21-24%. Despite the poor third quarter performance, AVAX is down only 14% for the year, which is middle of the pack for the group.
Gas fees paid on Avalanche are AVAX tokens that get burned, benefiting all tokenholders in the network. However, newly minted tokens are staking rewards and only accrue to stakers and delegators. The blockchain has a hard cap of 720 million AVAX tokens and a dynamic inflation schedule depending on the amount staked and time staked.
In USD terms, both AVAX fully diluted value and fees paid trended lower in the quarter. In AVAX terms, the fees paid (or revenues) were 61% higher in Q3’23 from Q4’22. Part of the QoQ decrease likely came from the aforementioned LayerZero-dominance of network activity, as transaction fees associated with LayerZero or Stargate contracts accounted for 43% of fees paid in the quarter.
Staking yield returned to a more steady-state 5.28% in Q3, after increased usage from the XEN crypto free-to-mint event in Q2 as well as LayerZero activity driving usage. AVAX buried, which is equivalent to gas fees paid, was 45% greater in Q3 than Q1. The amount of AVAX staked fell to its lowest since the second quarter of 2022, ending the quarter just below 235 million AVAX.
Ecosystem and Development Overview
DeFi
Despite being down 29% from the end of Q2, Aave remains the largest protocol by TVL on Avalanche, ending the quarter with $238 million in TVL. Benqi is the second largest protocol by TVL, with a share of 19%, up from just 12% at the start of the year. TVL on Benqi fell less than 3%, while TVL on Avalanche outside of Benqi dropped 45%. Key to Benqi’s success has been its liquid staking offering, which allows users to stake AVAX in exchange for sAVAX. In AVAX terms, the amount staked through Benqi has increased steady since launching in February 2022 and is up over 50% year-to-date with 7.28 million AVAX staked.
Avalanche welcomed some EVM behemoths in Q3, with Uniswap and Balancer launching on the chain. The two bring competition to the DEX space, where Trader Joe reigns supreme with over $50 million in TVL.
Other notable DeFi moments in the quarter include:
The growth of EURC on Avalanche, the only chain natively supporting the euro stablecoin besides Ethereum. Avalanche now hosts over 3 million EURC with steady growth through Q3.
DeFi innovation took another step on Avalanche on July 28, with the launch of DBOE, a fully onchain order book for trading.
CavalRe launched Multiswap, a reimagined AMM that enables single sided staking and multi-asset swaps in a single router.
Dexalot, a leading subnet on Avalanche, launched SimpleSwap. The new feature enables atomic swap-style access to the CLOB liquidity, giving traders a new tool to increase capital efficiency.
Stablecoins and BTC.b are two of the largest assets on Avalanche. After a surge in Q2, BTC.b supply moderated in Q3, ending the quarter at $123 million market cap compared to the $170 million at the beginning of the quarter. BTC.b is a token that represents Bitcoin on Avalanche and can be automatically bridged in Core. Compared to other natively bridged Bitcoin assets, BTC.b allows users to freely transfer native Bitcoin without relying on custodians.
Stablecoins are imperative to all DeFi ecosystems. Stablecoin supply on Avalanche has been steady the last two quarters with around $1.22 billion of market capitalization, fifth most among base layers or seventh including rollup/validiums. USDT and USDC continue to make up over 90% of the stablecoin market cap on Avalanche.
NFTs
Avalanche had its quietest quarter for NFT volumes in USD terms, despite a second consecutive quarter of rising sales. Q3 was highlighted by a spike in activity on September 21 with the launch of Dokyo. The NFT launch celebrated the expansion of Hyperspace to Avalanche and led to over $300,000 in daily volume and over 6,000 transactions. Avalanche tech also continues to draw new use cases, with South Korea’s Dreamus announcing NFT tickets on the Avalanche blockchain.
Looking forward to Q4, Stars Arena launched on Avalanche in the waning days of Q3 and passed $1 million in TVL in just over a week. The app is similar to friend.tech, enabling social engagement and creator earnings on Avalanche.
Partnerships
Avalanche continues to win important partners by leveraging its technology to build their Web3 solutions.
Rumble Kong League - RKL is a digital 3v3 basketball game and digital entertainment brand. Since launching on Ethereum in 2021, the flagship NFTs have traded over 19,000 ETH in volume and are currently held by almost 3,000 unique addresses. RKL announced in August plans to migrate to Avalanche as its scaling solution going forward.
Acme and Warner Bros. Discovery launched a new accelerator program dubbed “Collider on the Lot” and have chosen Avalanche as a blockchain partner.
Megaweapon on Beam - Beam mainnet launched in Q3, providing gamers a new chain that has been built on Avalanche and optimized for their scaling needs. Only 10 days later, Megaweapon announced it will be launching the WEAPON token on Avalanche C-Chain as well as a “Frictionless Player Economy” on Beam.
Ponta - PlayThink and Loyalty Marketing partnered to launch the Ponta subnet on Avalanche, building an onchain loyalty rewards program for users. Loyalty Marketing is a loyalty program provider in Japan with over 100 million users.
SARAH - A Japanese food app with over 2 million monthly users, SARAH announced a partnership with Avalanche in Q3 to build a loyalty rewards program for its users.
A leading debit card solution for crypto users and employees, Holyheldenabled new ways to spend using Avalanche in Q3.
Layerr.xyz expands to Avalanche, bringing new artists and a new NFT marketplace for existing artists in the community to leverage.
Google Cloud - Avalanche ended the quarter with a bang, sharing that Google Cloud will now support Avalanche data in its Big Query product. This gives a reliable and performant partner for front ends and new tools and protocols that want to build on Avalanche.
Network Security Overview
The amount of unresponsive staked AVAX fell to the lowest point of the year. Some of that apathy has spilled over into the amount of AVAX delegated and staked overall. Active stakers and delegators increased, although the Nakomoto coefficient fell for a second consecutive quarter.
Active validators and delegators are responsible for the security of the Avalanche blockchain. The number of delegators continues to grow, rising 11% in Q3 after a 27% increase last quarter. The average number of active validators also rose, though by a more modest 2.8%. In the third quarter, the average percent of unresponsive validators fell to 11% from 17% the previous quarter. The average percentage of AVAX circulating supply staked was 75% in Q3.
Closing Summary
Avalanche remains a leading public blockchain solution for builders and partners both native to Web3 and from outside the crypto realm. Its usage metrics reverted to trend in Q3, likely due to some farming of the LayerZero potential airdrop last quarter. NFTs and gaming had a strong quarter for both announcements of new partnerships and the launch of Hyperspace covering Avalanche. Subnets had mixed results, with the largest subnet by usage DFK slowing and Dexalot, a younger subnet, growing steadily. More subnets will likely continue to launch as builders and partners experiment with Avalanche’s technology and development kits, balancing access to censorship-resistant transaction settlement using AVAX validators with customizable execution environments.
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Before joining Messari as a Senior Research Analyst, John worked in Equity Derivatives on the buy-side and sell-side for over five years. He studied macroeconomics and markets for almost a decade. Now, John spends time thinking about token design, DeFi protocols, and governance.
Before joining Messari as a Senior Research Analyst, John worked in Equity Derivatives on the buy-side and sell-side for over five years. He studied macroeconomics and markets for almost a decade. Now, John spends time thinking about token design, DeFi protocols, and governance.
