State of Avalanche Q1 2024

Key Insights

• Avalanche continued to have impressive QoQ growth in Q1, including market cap (+38%), average daily active addresses (+39%), DeFi TVL (+45%), average daily DEX volume (+65%), and stablecoin market cap (+43%).
• Avalanche underwent a major technical upgrade called Durango. This upgrade enables any Avalanche network to natively communicate with one another by asynchronously calling smart contracts on EVM-enabled chains within Avalanche.
• The number of active subnets on Avalanche hit 20 in Q1. Gaming subnets like DFK, Beam, Shrapnel, and PLAYA3ULL GAMES continued to drive the majority of subnet activity.
• Decentralized exchange Trader Joe hit its stride in Q1, increasing its TVL to $265.7 million and its average daily trading volume to $128.4 million.
• Avalanche Codebase, a 12-week accelerator program for projects on Avalanche, announced the winning projects. The selected projects encompass a wide range of sectors, including stablecoins, RWAs, SocialFi, onchain tooling, and more.

Primer on Avalanche

Avalanche (AVAX) 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.

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Key Metrics

Financial Overview

Market Cap and Revenue

AVAX continued its Q4 rally into Q1 alongside the rest of the crypto market. By the end of Q1, its market cap was $20 billion, up 39% QoQ. By the end of the quarter, AVAX’s market cap among all tokens dropped by 1 spot from 9 to 10.

Revenue, which measures all gas fees collected by the network, was down QoQ in Q1 after an all-time high in Q4, where revenue was driven by inscription activity. Revenue in AVAX decreased from 1.5 million to 178,300 AVAX (down 88% QoQ), while revenue in USD decreased from $56.5 million to $7.4 million (down 87% QoQ). Despite the big QoQ decrease, Q1’24 revenue was higher than any other quarter in 2023 besides Q4.

Similar to Q4, Avascriptions (ACS-20 token) contributed significantly to revenue. Avascriptions are calldata sent in a transaction. Although this calldata is entirely onchain, offchain indexers actually interpret the calldata and determine what it is doing. One such indexer, Avascriptions, for Avalanche can be found here.

While Avascription activity peaked in December, there were still some significant periods of activity in Q1. From February 23-25, Avalanche netted $946,400 in revenue, mostly attributed to inscriptions. This three-day period accounted for about 13% of Avalanche’s Q1 revenue.

Supply Dynamics

All revenue on Avalanche is burned. Validators and stakers are instead rewarded with newly minted tokens. AVAX currently has a fixed supply of 720 million tokens.

Half of these tokens are distributed as staking rewards, with a dynamic schedule depending on the amount staked and time staked. As more users stake AVAX for longer periods of time, more AVAX is issued as staking rewards. The annualized inflation rate for Q1 was 5.4%, down 13% QoQ from 6.2%. This decrease in inflation was in part due to less AVAX being staked. Additionally, eligible supply staked was down 9% QoQ from 59.7% to 54.4%.

The other 360 million tokens were allocated to various buckets at launch. Genesis supply liquid measures the percent of these tokens which have unlocked.

At the genesis block, 360 million AVAX was minted. This genesis supply was distributed to various allocations over differing vesting periods. Over the past year, the liquid genesis supply increased by 15%, from 73% to 84%. The genesis supply is projected to be fully vested by 2030. In Q2, an additional 9.5 million AVAX is set to be vested in both the team’s and foundation’s allocation. A full breakdown of vesting schedules for AVAX can be found at Messari’s Token Unlock Screener.

Network Overview

C-Chain

Usage

Average daily transactions fell by 70% QoQ from 1.5 million to 470,000 in Q1, after surging in Q4 by 450%. This QoQ decrease was mainly attributable to a substantial decrease in Avascription-related activity. Despite this decrease, daily transactions were still significantly higher than they were in Q3, up 67% from 280,900. As for average daily active addresses, they rose to 58,600, a 22% QoQ increase from 48,100.

Although the daily average of total transactions fell in Q1, many protocols experienced QoQ increases for daily transactions. Tether experienced the largest quarter increase in average daily transactions, going from 7,300 to 21,200 (up 190% QoQ). Additionally, Trader Joe experienced significant growth, from 26,900 to 37,400 (up 39% QoQ). Collectively, Tether and Trader Joe account for over 50% of all transactions that interacted with a protocol in Q1. Other notable protocols with QoQ gains included Circle (up 32% QoQ to 11,900), LayerZero (up 13% QoQ to 8,700), and Stargate (up 10% QoQ to 7,300).

Similarly, daily active addresses for select protocols experienced QoQ increases in Q1. Similarly to daily transactions, Tether was the biggest gainer for daily active addresses, increasing by 146% QoQ from 3,900 to 9,600. Trader Joe also saw healthy gains, going from 6,600 to 8,600 (up 30% QoQ). Other notable gainers included Circle (up 25% QoQ to 6,800) and MetaMask Swap (up 47% QoQ to 1,500). Furthermore, although Stargate saw an increase in daily transactions, its daily active addresses fell 11% QoQ from 4,300 to 3,900. The decrease was likely due to LayerZero airdrop farming activity continuing to decline, a trend that also occurred in Q4.

Security and Decentralization

Avalanche uses a Proof-of-Stake consensus mechanism known as “Avalanche Consensus.” Avalanche’s P-Chain is responsible for validator coordination and staking operations. Both C-Chain and X-Chain utilize the entire P-Chain validator set for consensus. To determine if a transaction is valid, validators on Avalanche use repeated sub-sampling voting of a small, random subset of all validators. Consensus occurs once a sufficient majority of validators agree over a consecutive number of rounds. Both the necessary majority and consecutive rounds are configurable. Additionally, the more tokens staked/delegated to a validator, the more influential that validator is in the consensus process.

Active validators trended upwards throughout 2023, and this trend continued in Q1. Active validators grew 1.5% QoQ to 1,675. This marked three straight quarters of active validator growth, a healthy sign for the decentralization of the network.

There was an outflow of AVAX staked in Q1, decreasing by 8% QoQ from 261.4 million to 239.6 million. However, despite the decrease in total AVAX staked, the dollar amount of AVAX staked increased by 23% QoQ from $10.3 billion to $12.7 billion.

The Nakamoto coefficient is the number of node operators that collectively control more than 33% of the network. The higher the coefficient, the more resilient a network is to attacks and bugs. Although the number of validators on Avalanche increased throughout 2024, the Nakamoto coefficient decreased from 29 to 25. Despite this decrease, Avalanche remains above the median of other PoS networks.

Technical Developments

Avalanche underwent a major upgrade during Q1. On March 6, the Avalanche Durango upgrade was successfully activated. As a part of the upgrade, ACP-30 went live, implementing cross-subnet communication to the C-Chain and EVM subnets through Avalanche Warp Messaging.

This upgrade was a necessary prerequisite for Teleporter, a smart contract cross-subnet communication protocol with EVM compatibility on Avalanche. Teleporter enables any Avalanche network to natively communicate with one another by asynchronously calling smart contracts on EVM-enabled chains within Avalanche.

With its launch, Teleporter opened up a plethora of cross-chain capabilities for Avalanche and its subnets. For example, an oracle on Avalanche C-Chain could propagate the pricing information of AVAX to the Hubble Exchange subnet without relying on external third parties.

Avalanche also released a series of upgrades that were optional for validators in Q1, including:

• Cortina 18 (January 18) - Added signaling for Avalanche Community Proposals (ACP) and optimized the IP discovery mechanism.
• Cortina 19 (January 29) - Fixed issues related to the P-Chain validator set race and C-Chain bloom filtering.
• Durango 2 (February 29) - Redesigned the push gossip mechanism for the P, X, and C chains.
• Durango 3 (March 21) - Removed deprecated codes no longer in use, improved the push gossip mechanism and added BLS keys for validators on local networks.

In Q4, Avalanche introduced Avalanche Community Proposals (ACPs). ACPs are a framework for any community member or developer to propose changes or implementations to the Avalanche network. ACPs are similar to other offchain governance frameworks, such as Bitcoin Improvement Proposals (BIPs) or Ethereum Improvement Proposals (EIPs). In these frameworks, it is ultimately up to the network’s nodes to implement any approved network upgrades. The following ACPs were implemented in Q1 as a part of the Durango update:

• ACP-23: P-Chain Native Transfers - Enabled native transfers for assets on P-Chain. 
• ACP-24: Activate Shanghai EIPs on C-Chain - Implemented four EIPs that were included in Ethereum’s Shanghai upgrade on C-Chain. 
• ACP-25: Virtual Machine Application Errors - Enabled a way for virtual machines (VMs) to communicate error conditions to one another.
• ACP-30: Integrate Avalanche Warp Messaging into the EVM - Implemented cross-subnet communication to the C-Chain and EVM subnets.
• ACP-31: Enable Subnet Ownership Transfer - Allows the current owner of a subnet to transfer ownership
• ACP-41: Remove Pending Stakers - Starts the staking period for a staker as soon as the staking transaction is confirmed. 
• ACP-62: Disable ‘AddValidatorTx’ and ‘AddDelegatorTx’ - Disabled the aforementioned functions for new stakers. 

On February 24, a roadmap for AvalancheGo was proposed. The roadmap is separated into three main pillars:

• System Reliability - This roadmap pillar aims to make improvements to time-to-finality (TTF) and the overall robustness of Avalanche. System reliability improvements will be achieved through code debt removals, consensus optimizations, improved messaging handling, and better block management.
• Modular Programmability - This roadmap pillar aims to upgrade subnets into customizable, sovereign chains. One ACP has already been proposed for this pillar, ACP-13: Subnet-Only Validators, which introduces Subnet-Only Validators (SOVs). SOVs will be able to validate for an Avalanche Subnet without having to sync or validate to the P-Chain. Other changes, outside of ACP-13, include P-Chain programmability, deep BLS support, custom chain tokenomic designs, and more.
• Monolithic Performance - This roadmap pillar aims to increase the speed of Avalanche chains to 100,000+ transactions per second (TPS). This will be achieved through parallelization, and several projects are already in development including HyperSDK, Firewood, and Vryx.

Subnets

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. There were 20 indexed Avalanche subnets that produced a block in Q1 including:

• Beam
• Blitz
• Cloudverse
• DFK
• Dexalot
• DOS
• Hubble Exchange
• Green Dot
• Masa Network (Q1 Launch)
• MELD
• NUMBERS
• ONIGIRI
• PLAYA3ULL Games
• REALLY (Q1 Launch)
• Shrapnel
• Step Network
• Tiltyard (Q1 Launch)
• UPTN
• XANA
• zeroone (Q1 Launch)

Daily average transactions continued trending higher in Q1, finishing up 43% QoQ from 886,100 to 1.3 million. Part of this increase was attributable to a strong quarter from Shrapnel, a first-person shooter game with a subnet for in-game transactions. Daily average transactions on Shrapnel increased 4,493% QoQ from 4,200 to 193,300, in part due to the launch of their Early Access period on February 1. Other subnets with QoQ increases included DFK (up 16% QoQ to 530,100) and Hubble Exchange (up 53% QoQ to 210,600). Additionally, aggregated subnets outside of the top six increase daily average transactions by 12% QoQ, from 49,700 to 55,700.

Active addresses on subnets were up in Q1, with both the median (up 258% QoQ from 58 to 208 active addresses) and mean (up 16% QoQ from 853 to 993 QoQ) increasing. The vast majority of active addresses continue to come from gaming subnets DFK and Beam. DFK alone accounts for 38% of activity, and its daily average active addresses increased by 3% QoQ to 7,200. Beam ranked #2 for the quarter, increasing 5% QoQ to 3,800. Other notable gainers include PLAYA3ULL GAMES (up 886% QoQ to 2,900), Shrapnel (up 3,185% QoQ to 1,400), and Cloudverse (up 37,920% to 783).

Ecosystem Overview

DeFi

Avalanche TVL denominated in USD increased from $1.03 billion in Q4 to $1.5 billion, a 44% QoQ increase. This ranked Avalanche as the 7th highest chain by TVL denominated in USD by the end of the quarter. Additionally, TVL denominated in AVAX slightly increased QoQ by 7% from 26.3 million AVAX to 28.1 million. This dynamic indicates that the TVL increase in USD was driven by AVAX price appreciation and capital inflows.

The top three protocols by TVL on Avalanche continued to grow their share in Q1. AAVE, the largest protocol by TVL on Avalanche, grew 40% QoQ from $380.1 million to $531.3 million ($151.2 million QoQ increase). Of this TVL increase, $113.4 million was driven by borrows (75% of the QoQ increase), suggesting an increased appetite for leverage on Avalanche. By the end of Q1, AAVE’s TVL dominance was 35% (flat QoQ). Benqi also saw TVL gains, from $347.7 million to $442.2 million (up 27% QoQ), but its share of TVL decreased 9% QoQ from 32% to 29%.

The protocol with the largest gains in TVL share for Q1 was Trader Joe, increasing 124% QoQ from $118.5 million to $265.7 million. Trader Joe’s share of TVL increased 61% QoQ, from 11% to 18%. Trader Joe’s TVL surged after the launch of its memecoin single-sided staking pools as a part of Avalanche’s Memecoin Rush, a $1 million (in AVAX tokens) liquidity mining incentive program for memecoins on Avalanche. The single-sided staking pools went live on March 28, 2024 and accrued over $100 million of TVL in one day. A list of memecoins eligible for single-sided staking pools can be found here.

In total, AAVE, Benqi, and Trader Joe represented 83% of the DeFi TVL on Avalanche, a QoQ increase of 5%. TVL gains were not just concentrated to the top three protocols. Other notable TVL gainers in Q1 included GMX (up 29% to $80.1 million) and Pangolin (up 65% to $54.1 million). The only protocol in the top six with decreased TVL was Stargate (down 29% to $27.4 million).

Average daily DEX volumes continued surging in Q1, rising 65% QoQ from $103.7 million to $171.6 million. Onchain activity was elevated across most networks due to a “Memecoin Mania” in Q1, and Avalanche was no exception. The month of March had the highest DEX volumes on Avalanche of any month since January 2022.

By the end of Q1, there were 32 different DEXs on Avalanche. Despite the increased competition, leading DEX Trader Joe still remained the dominant DEX on Avalanche. The average daily DEX volume on Trader Joe increased 75% QoQ from $73.4 million to $128.4 million. For Q1, the top five DEXs by average daily trading volume were:

1. Trader Joe - $128.4 million (75% of Avalanche DEX volume)
2. Uniswap - $9.1 million (5% of Avalanche DEX volume)
3. WOOFi - $8.9 million (5% of Avalanche DEX volume)
4. Dexalot - $6.7 million (4% of Avalanche DEX volume)
5. Pangolin - $5 million (3% of Avalanche DEX volume)

Stablecoins on Avalanche had their biggest quarter increase in over a year, up 43% QoQ from $1.1 billion to $1.6 billion. By the end of Q1, Avalanche had the 6th largest stablecoin supply of any chain. Fiat-backed stablecoins like USDT and USDC represent 92% of the stablecoin supply on Avalanche. USDT increased by 44% QoQ from $690.2 million to $994.1 million (63% of Avalanche stablecoin supply), while USDC increased by 42% QoQ from $315.5 million to $448 million (29% of Avalanche stablecoin supply).

BTC.b is one of the largest assets on Avalanche besides AVAX and stablecoins. 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. The supply of BTC.b finished up 10% QoQ, from 3,777 to 4,173 BTC.b. Q1’24 marked the first QoQ increase in the supply of BTC.b since Q2 2023.

Enterprise and RWAs

One of Avalanche’s main initiatives for 2024 is to onboard institutions and enterprises onto the network. Last year in Q2, Evergreen subnets launched, allowing anyone to create a subnet with customizable KYC/AML requirements and unique privacy capabilities. Since the launch of Evergreen subnets, Avalanche has onboarded several enterprises through partnerships, including J.P. Morgan, Citi, and Republic.

In Q1, Avalanche announced the following updates related to Evergreen and other RWA adoption initiatives:

• Citi - In February, Citi outlined some of the developments it had made regarding Avalanche Spruce, an Evergreen subnet. Citi was joined by DTCC Digital Assets, Wellington Management, WisdomTree, and ABN AMRO in testing the benefits of private market tokenization. End-to-end token transfers, secondary transfers for trading, and capabilities related to collateralized lending were all tested on Spruce as a part of this initiative.
• Australia and New Zealand Banking Group (ANZ) - On March 18, ANZ announced that it had utilized both Chainlink’s Cross-Chain Interoperability Protocol (CCIP) and Evergreen subnets to conduct a case study on settlement for institutional trading systems. ANZ utilized its own Evergreen subnet for its EVM compatibility, custom gas token feature, and permissioned state.
• Diamond Standard Fund - In March, Oasis Pro tokenized the Diamond Standard Fund and listed it on its SEC-registered ATS. Diamond Standard Fund offers investors exposure to diamonds as an asset class and tracks the Bloomberg Diamond Standard Index. 

NFTs, Gaming, and Culture

Avalanche’s NFT market had a resurgence in Q4, and many related metrics continued trending stronger in Q1. The average daily NFT trading volume increased by 147% QoQ from $360,500 to $890,800. Average daily sales dipped from Q4, down 20% QoQ to 4,000. Average daily buyers were up, however, increasing 15% QoQ from 1,200 to 1,400.  The biggest catalyst for Avalanche’s NFT revival has been the launch of Hyperspace, a multichain NFT marketplace. In October, the Avalanche Foundation announced an incentives program for Hyperspace, which rewards users with AVAX tokens across different ‘Seasons’ based on activity. In Q1, rewards were distributed for Seasons 2-4, totaling 192,700 AVAX in incentives.

The most popular NFT collection during Q1 was Dokyo, an NFT venture studio, which launched last year in September. Dokyo NFTs did $54.8 million in volume during Q1, accounting for nearly 68% of Avalanche’s NFT volume during Q1 ($81.1 million).

Q1 was a busy quarter for gaming on Avalanche, with the following notable events:

• Tiltyard Subnet Launch - The Tiltyard subnet went live in January 2024. The subnet supports a fully onchain strategy game called Midnight Heist, where players can compete against one another in tournaments and win prizes. Additional games are planned to be launched on Tiltyard, including an upcoming sports game.
• New Games on Beam - Merit Circle, the DAO behind the Beam subnet, announced that three new games will be coming to Beam: Trial Xtreme, Walker World, and Hash Rush.
• MapleStory - Korean gaming studio Nexon announced that one of their core games, MapleStory, will be migrating to Avalanche and deploying on its own subnet. MapleStory is a popular massively multiplayer online role-playing game (MMORPG) and is set to be re-released on an Avalanche subnet by the end of the year.
• Gunzilla Games - In February, Gunzilla Games launched the first console-based Web3 game, Off The Grid. Then, Gunzilla Games announced in March that it had raised $30 million in a private funding round. Gunzilla Games is also developing a subnet to support onchain transactions for its games.

One of the biggest trends over the past six months has been the emergence of “Memecoin Mania” across various different networks. The Avalanche Foundation embraced this trend and began supporting Avalanche memecoins as a part of the Culture Catalyst initiative. Memecoins on Avalanche with the following criteria are eligible to be included in the initiative:

• 2,000 unique holders
• Top 100 tokenholders own less than 60% of the supply (centralized exchanges not included)
• At least $200,000 of liquidity
• Burned liquidity or at least 50 liquidity providers
• Older than 1 week
• Market cap of at least $1 million
• Daily trading volumes of at least $100,000 for a 2-week period

Adhering to this criteria, the Avalanche Foundation announced that it had acquired the following memecoins on March 14: Coq Inu, Kimbo, Gecko Inu, NoChill, and Tech. Notably, this is not an exhaustive list of community coins that the Avalanche Foundation will include in the Culture Catalyst initiative. Other memecoins that meet the criteria can be added in the future, and other types of tokens, such as ERC-404s, may also be included in the future.

Ecosystem Growth

After private crypto markets bottomed out in the latter half of 2023, Avalanche ecosystem funding picked back up in Q1. Five projects building primarily on Avalanche announced funding rounds in Q1, totaling $36.2 million raised. All five projects are gaming-based. The rounds include:

• Arcade2Earn (Private Token Sale - January 22) - $4.8 million
• Spellborne (Strategic - January 25) - $1.35 million
• Gamer Arena (Seed - March 4) - Undisclosed
• Gunzilla Games (Undisclosed - March 25) - $30 million
• Stavax (Undisclosed - March 29) - Undisclosed

One of Avalanche’s major ecosystem growth strategies is Avalanche Codebase. Codebase is a 12-week accelerator program that aims to support early-stage Web3 projects building on Avalanche. On March 30, Avalanche announced the initial cohort of projects selected:

• CCX - Bridging protocol for CBDCs and stablecoins
• Dripit - Platform for music industry incentives
• Ash - Appchain-as-a-Service (AaaS) project for Avalanche subnets
• The Guild - Web3 freelancer platform
• Inertia - Prediction market
• Lendr Network - RWA tokenization protocol for lending
• Mezzanine Labs - Smart contract tooling for companies
• Musing - SocialFi platform to earn crypto
• String Technologies - smart contract tooling for payments
• TalentLayer - API for onchain service economies
• TheBadge - Oracle for RWA certifications
• Trppn - Events platform
• URCHARMS - Social app for customer experiences
• zKnowledgeBase - onchain academic journal

Each of these projects will receive a stipend of $50,000 and the chance to receive a prize from an investment pool of $400,000. Additionally, projects will receive support, mentorship, and services from the following partners:

• Web2 Partners - Amazon Web Services (AWS), Google Cloud, Carta, deel, and Brex.
• Web3 Partners - Chainlink, Circle, Chainstack, OpenZeppelin, Fireblocks, BitGo, and Biconomy.

On March 26, Avalanche Foundation launched Avalanche Community Grants in collaboration with Gitcoin. Currently, the only active round is the Quadratic Funding Round #1 (1,500 AVAX matching pool), with one other planned round, Retroactive Funding Round #1 (1,500 AVAX matching pool).

Closing Summary

Avalanche built off the strength it established in Q4’23 with an equally impressive Q1 performance. Avalanche ended Q1 with many important metrics up QoQ, including market cap (+38%), average daily active addresses (+39%), DeFi TVL (+45%), average daily DEX volume (+65%), and stablecoin market cap (+43%). Some of these gains are particularly impressive as they came off the back of double to triple-digit growth in Q4.

Avalanche’s strength can be attributed to its diverse and multifaceted ecosystem, which continued to grow across multiple sectors including DeFi, gaming, RWAs, and more. Additionally, the Avalanche Durango upgrade makes Avalanche an even more attractive option for projects looking to potentially launch their own subnets in the future due to the interconnectedness of the whole ecosystem. Lastly, the initial cohort of projects chosen from Avalanche Codebase will play a significant role in the future growth of Avalanche’s ecosystem.

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