How Does Avalanche Scale?

The last bull market can essentially be summarized as a competition between Ethereum and its rivals. Central to this were Terra, which has now disappeared but left the biggest impact; Solana, which faltered due to the FTX incident but is now reviving; and Avalanche, which I will introduce today. These platforms were sometimes collectively referred to as SOLUNAVAX, and at one point they accounted for over 20% of the blockchain market by Total Value Locked (TVL). Of course, their status has changed significantly after the Terra and FTX incidents, but except for Terra, these blockchains are still developing their own narratives and technologies.

In particular, Avalanche, much like Cosmos, is expanding its scalability parallelly by building a multichain ecosystem. However, there are still many people who are not familiar with Avalanche, and its recognition is low compared to multichain ecosystems like Cosmos and Polkadot. Yet, seeing Avalanche's consistent collaboration with major corporations like SK Planet, I feel a necessity to discuss it. Therefore, in this opportunity, I want to explore Avalanche's ecosystem and structure, the recently launched Hyper SDK, and discuss in detail the future that Avalanche is envisioning.

1. What is Avalanche?

(Avalanche Networks Architecture | Source: Avalanche)

Firstly, Avalanche doesn't build a single-chain ecosystem; instead, it focuses on constructing a multichain ecosystem. It has a unique structure that includes the concept of a Network (which encompasses both Primary Network and Sub-Networks, or Subnets) existing above the chain level and an Avalanche mainnet that encompasses these networks. Due to its commitment to a multichain ecosystem, Avalanche, much like Cosmos, allows for the design of application-specific blockchains, selecting a method of parallel expansion to achieve scalability. This approach doesn't merely enhance scalability by improving one chain but instead achieves overall network scalability by constructing an ecosystem where diverse chains coexist and increasing chains in parallel.

To clarify, a Subnet and a blockchain are not synonymous, and a single Subnet can encompass more than one blockchain. A typical example of this is Avalanche's Primary Network. The Primary Network is also a Subnet of Avalanche, within which exist three chains: the C-Chain (Contract Chain), P-Chain (Platform Chain), and X-Chain (Exchange Chain).

Let's explore the roles and properties of each chain:

1.1 C-Chain (the Contract Chain)

As the name suggests, the C-Chain is where smart contracts operate, supporting the Ethereum Virtual Machine (EVM), and can be understood as the chain where applications are implemented. The C-Chain utilizes a consensus algorithm called Snowman. Snowman consensus is fundamentally the same as Avalanche consensus; however, while the latter implements consensus in a purely DAG (Directed Acyclic Graph) manner (transactions occur concurrently), the former must ensure total ordering because of the nature of smart contracts, where the order of transactions must be clearly defined. Therefore, Snowman can be considered a blockchain, while the Avalanche consensus can be seen as a DAG.

1.2 P-Chain (the Platform Chain)

The P-Chain handles infrastructure-level operations, such as validators and subnet management. Through the P-Chain's API, one can create new blockchains or subnets or add validators to existing subnets. The P-Chain also uses the Snowman consensus.

1.3 X-Chain (the Exchange Chain)

The X-Chain manages Avalanche's native assets and handles the trading of tokens, with the AVAX token being one of the assets traded on the X-Chain. By using the X-Chain's API, Avalanche's native assets can be traded or created. The point of distinction for the X-Chain from the C and P Chains is that it uses the Avalanche consensus instead of the Snowman consensus.

In summary, what a single chain accomplished in traditional blockchain systems, Avalanche divides among the C, P, and X-Chains. If one wants to operate smart contracts (use dApps or deploy smart contracts), they use the C-Chain; if they want to operate on the infrastructure level (create subnets or blockchains, or stake), they use the P-Chain; if they want to perform operations related to assets (issue or trade assets), they use the X-Chain. By gathering chains with various functions within a single Primary Network, Avalanche aims to achieve scalability.

2. Introduction to Subnetworks

As repeatedly mentioned earlier, a subnet is not a blockchain. Instead, a subnet is better understood as a collection of validators, and just as there are three chains within the Avalanche Primary Network, there can be multiple blockchains within a subnet. While most subnets currently don't operate multiple blockchains, the structure allows for the technical possibility to operate various blockchains at any time. Of course, Avalanche's validators (or a portion of them) need to maintain the security of the subnet, but it's not mandatory, and the subnet needs to design appropriate incentives to attract validators.

2.1. DFK Subnet

(DeFi Kingdom Sub-network | Source: Avalanche)

The DFK Subnet(also known as DeFi Kingdom Subnet) is a subnet specialized for GameFi, aiming to facilitate the launching of GameFi projects by communities or third parties. It is one of the most recognized subnets in Avalanche due to the launch of DeFi Kingdoms, the most famous GameFi on the Harmony blockchain, via the DFK Subnet. Currently, the DFK Subnet operates one blockchain, with ten validators. It uses $JEWEL for network fees, a token already used in DeFi Kingdoms. However, for minting NFTs, swapping within the game's DEX, and governance, the $CRYSTAL asset is used.

2.2. Dexalot Subnet

(Before implementing a subnet and after implementing a subnet | Source: DEXALOT)

The Dexalot Subnet is an EVM-based subnet specifically designed for decentralized exchanges (DEXs). Its aim is to implement a user interface similar to that of traditional centralized exchanges, and it uses the $ALOT token. Like the DFK Subnet, the Dexalot Subnet also operates a single blockchain and consists of a total of ten validators. Dexalot was initially an application residing on the Avalanche Primary Network's C-chain. However, it currently supports both the C-chain and its own subnet.

2.3. UPTN subnet

(SK Planet has entered into a strategic partnership with Avalanche to facilitate the migration of SK Planet's user base to the WEB3 ecosystem | Source: Avalanche)

The UPTN Subnet has been one of the most notable Avalanche EVM-compatible subnetworks this year, as it was created by South Korea's conglomerate, SK Planet. Given that SK Planet commands an extensive user base in the millions, the potential for UPTN is substantial. SK Planet, one of the subsidiaries of South Korea's conglomerate SK, primarily conducts digital content business and achieved a revenue of approximately 270 billion KRW(Korean Won) in 2020. They also operate mileage services such as OK Cashback. Notably, UPTN is expected to be actively incorporated into the OK Cashback service and is planning to introduce blockchain into various applications and services offered by SK Planet, such as issuing NFTs for members, with UPTN as the underlying infrastructure.

In addition to the subnetworks mentioned, there are others like DOS Subnet and Loco Legends Subnet. However, apart from a few, most subnetworks are not currently showing notable activity.

3. Avalanche’s SDK is here: HyperSDK

(Avalanche’s first framework for building high performance Virtual Machine | Source: Avalanche)

Similar to other multichain ecosystems, Avalanche has released a Software Development Kit (SDK) into the world, known as HyperSDK. Avalanche introduces HyperSDK as a framework that can create high-performance virtual machines. They point out the advantage of being able to swiftly implement a blockchain of one's design with little coding (according to the Avalanche team, you can make a custom design with around 500-1000 lines of code, although this may vary depending on the extent of mechanism design). Blockchains based on HyperSDK are called HyperChains.

The Avalanche team has emphasized the simplicity and convenience of HyperSDK, pointing out that it does not require onboarding a large number of developers to build a chain. However, as it is still in the alpha stage, it appears that more testing and refinement are needed. One clear fact is that, compared to the past when networks were simply built by forking Avalanche's VM, HyperSDK provides an easier and more convenient tool. It can play a significant role in fanning the flames of growth in Avalanche's multi-network ecosystem.

4. Conclusion

I believe the terms "multichain ecosystem" and "modular blockchain" best encapsulate the direction in which crypto market is heading. Many blockchain projects have already chosen to specialize due to the limitations of scalability from a single shard. Avalanche is no exception. While it may not be what people typically think of as a 'modular blockchain structure' (for those curious about the modular blockchain structure, please refer to this article), it aims to expand its scalability through organic inter-chain communication, building a multichain ecosystem similar to Cosmos.

Moreover, it is noteworthy that Avalanche is making an aggressive attempt to expand its ecosystem by providing a useful infrastructure tool for builders, known as HyperSDK. Much like the Cosmos ecosystem onboarded various app chains through CosmosSDK, Avalanche will onboard more businesses and users into its ecosystem via a simpler onboarding framework. The attention is highly focused on how much the Avalanche ecosystem will grow once HyperSDK moves beyond the alpha stage and becomes practically usable.

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Four Pillars is a global crypto research firm based in Seoul, consisting of the most influential blockchain researchers in Korea. Through robust research and governance skills, it helps various market players easily onboard to the blockchain industry by offering high-quality research articles while supporting protocols in their expansion into Korean and global markets.

Writer: Steve Kim, Co-Founder and CEO at Four Pillars

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