In an explosive move reminiscent of the growth of the Binance Smart Chain (BSC) and Polygon earlier this year, the Avalanche blockchain is pulling a barrage of new deposits into its decentralized financial (DeFi) ecosystem.
Despite the signs of strength, however, not all analysts are convinced that the Ethereum competitor has staying power.
As of late July, Avalanche’s DeFi ecosystem made a Total Value Locked (TVL) of just $ 180 million – a number that has grown 1,000% to over $ 1.8 billion at the time of writing. Likewise, Avalanche’s native token AVAX rose from $ 13.41 to a high of $ 55.42 earlier this week.
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The Benqi money market leads the way, breaking the TVL threshold of $ 1 billion on Tuesday – less than a week after it was launched on August 19. By comparison, Aave, one of the first DeFi credit protocols when it launched in 2019, took more than eight months to hit the same mark on Ethereum.
In an interview with CoinDesk, Luigi Demeo, director of Ava Labs at DeFi, said a number of factors, including a revamped token bridge and a $ 180 million incentive program, are the main catalysts for the surge.
“We saw all of these things peaking at once, between bridging, lending, a massive incentive program and a lot of things the team worked very hard on for six months,” he said.
However, Mewny, a self-described “internet couch” and a pseudonymous member of the angel investing collective eGirl Capital, warned that the burgeoning ecosystem may be backing down.
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“There could be one of two ways,” Mewny told CoinDesk, speaking to the wandering horde of DeFi investors. “The [liquidity mining] Incentives trigger a flywheel effect in your ecosystem or enthusiasm dries up and the hot money ball wanders into the next pot of honey. “
The story goes on
Incentives and Catalysts
The timing of Avalanche’s creation is somewhat surprising, as Layer 1 went live on the mainnet in September 2020 and already had a working (albeit clunky) bridge in February of this year.
“The UX wasn’t great,” said Ava Labs’ Demeo of the user experience. “It was slower, more extensive … it was honestly a temporary solution.”
Additionally, Demeo said the ecosystem is missing “key pieces of infrastructure,” including oracles, a faster bridge, a lending platform and stablecoin support.
Chainlink Oracles went live on July 21st and provides the pricing data infrastructure that enabled Benqi’s lending platform to launch. The Aave money market will soon join liquidity mining incentives with $ 20 million; Curve, a protocol that enables efficient stablecoin swaps, is also signing up for $ 7 million in AVAX liquidity mining rewards.
Demeo added that the new bridge will offer free AVAX (for deposits over a certain amount) to pay for subsequent transactions.
While Demeo is referring to Ethereum-native dapps like Curve, Sushi, and Aave, which provide implementations on Avalanche as “validating the technology,” eGirl’s Mewny says other Layer 1s paved the way for Avalanche’s success.
“I think BSC and Polygon created the stage for this current AVAX run. The relationship between the [liquidity mining] Incentives that have been removed and the fast TVL that has been bypassed are obviously no accident, “they said, adding:
“While I think the technology is interesting and this is not a negative comment on its technical merits, many people saw the green light to take advantage of the profits made on the above platforms. With money flowing in to play the casino income farms and / or the same basic DeFi primitives for a long time, but on a new platform, the same playbook is possible (again). “
Demeo said Avalanche has built-in technical advantages that allow it to compete over the long term, including a unique consensus mechanism and architecture.
“An important fundamental decision was to allow multiple subchains that would allow AVAX to easily integrate any virtual machine or smart contracting language,” he said. “That should be a competitive advantage for long-term sustainability [allowing] AVAX can be easily rotated to accommodate different developers. ”
In addition, Demeo said the $ 180 million Avalanche Rush program is currently tailored for users. Over time, the money could be used to motivate developers to build more platforms on top of Avalanche. He said a user base was a necessary first step.