Avalanche's Vision for Customizable Blockchains and Enterprise Adoption

In a recent episode of the Lightspeed podcast, Luigi DeMeo (Head of DeFi Developer Relations) and Patrick O'Grady (VP of Engineering) from Avalanche joined to discuss the platform's core thesis, design philosophy, and vision for the future of blockchain technology. The conversation provided deep insights into how Avalanche is positioning itself in the evolving crypto landscape, with a particular focus on customizable blockchains and enterprise adoption.

Avalanche's Unique Architectural Approach

Avalanche's architecture sits somewhere between Polkadot and Cosmos in terms of design. At its core is a primary network consisting of three chains - the P-chain for staking, C-chain for smart contracts (EVM-compatible), and X-chain for asset creation. On top of this foundation, Avalanche allows for the creation of "subnets" - separate blockchains that can be fully customized while still benefiting from Avalanche's consensus mechanism and interoperability features.

Luigi DeMeo explained the high-level architecture:

"Basically the way it works is you have this primary network, which consists of the P chain, X chain and C chain. We really, really went for simplicity here. And basically each one of those chains for serve different functions. The C chain is the one anybody that is probably used. It's the EVM-based chain. That's where like, Obey, Trader Joe, all those types of applications look. The P chain is where staking occurs on Avalanche. And then the X chain is for native asset creation."

This modular approach allows for significant flexibility, enabling developers to create purpose-built blockchains tailored to specific use cases while still maintaining connections to the wider Avalanche ecosystem.

Consensus Innovation Driving Scalability

A key differentiator for Avalanche is its novel consensus mechanism. Patrick O'Grady highlighted how this allows Avalanche to achieve high performance and decentralization:

"At that time, the things that really mattered to me at that time were I liked purchase stake because I felt it was a better fit for blockchain than proof of work. I thought that the A6 centralizing forces of proof of work were really challenging to actually deal with. And so proof of stake, I think, was a better way to actually distribute secure or like participation in a network without requiring me as like an average person to go by like a shit ton of A6 to actually like participate in something like this."

He went on to explain how Avalanche's approach differs from other proof-of-stake systems:

"But the issue was most like proof of stake consensus mechanisms at that time were like big O, like N squared or even higher in network complexity. And so when I stumbled across Avalanche, you know, it had a very different network complexity that I thought made proof of stake much more open and like easier participated."

This innovative consensus allows Avalanche to support over 1,300 validators - far more than many competing networks. The subsampling approach means each validator only needs to communicate with a subset of other nodes, enabling scalability without sacrificing decentralization.

Subnets: Customizable Blockchains for Diverse Use Cases

Perhaps the most distinctive aspect of Avalanche's vision is its focus on enabling customizable blockchains through subnets. Luigi emphasized this as a core thesis:

"Avalanche basically, it's a bunch of interconnected networks. We believe people have different ideas on how to customize a blockchain. And then we want to give you the tools to be able to do that."

This flexibility allows developers to create purpose-built chains optimized for specific use cases, whether that's gaming, DeFi, enterprise applications, or novel experiments. Importantly, these subnets can maintain sovereignty while still benefiting from Avalanche's security and interoperability features.

Patrick expanded on the motivation behind this approach:

"The vision here is that trying to create a framework that allows other people to actually like launch high throughput chains. And so the high-breasted case focused on that, which is like an EVM alternative, it has nothing to do with the EVM whatsoever. It's all built from scratch for Avalanche to achieve a much higher throughput, similar to what you would want to achieve on something like salon or something like that."

This customizability is seen as a key differentiator, especially as the blockchain space matures and more diverse applications emerge beyond simple token transfers or DeFi.

Positioning for Enterprise and Institutional Adoption

While Avalanche gained initial traction in the DeFi space, the team is increasingly focused on institutional and enterprise use cases. Luigi highlighted this as a major area of focus:

"A lot of the conversation I have is around like enterprise and institutional use cases for subnets. And that's been a very, very big focus. Like those entities want their own blockchains. Then it's full stop. And they want to be able to curate and sort of restrict the validator sets from different jurisdictions."

This ability to create permissioned or semi-permissioned blockchains with customizable validator sets is seen as a major selling point for enterprises looking to leverage blockchain technology while maintaining control over their networks.

Patrick added context on why this flexibility is important:

"So basically the primary network starts as a sub. All those validators are clearly interested in validating avalanche and now there are ways to create interesting incentive mechanisms to get them to validate yourself. So I think it's how do I pull validators to also validate my network?"

This approach allows new subnets to bootstrap security and participation by tapping into Avalanche's existing validator community.

Real World Asset Tokenization: A Key Focus

One area where Avalanche sees significant potential is in the tokenization of real-world assets (RWAs). Luigi mentioned partnerships with major financial institutions like KKR, highlighting the platform's traction in this space.

He expanded on the opportunity:

"RWAs is like, I have spent a mind-numbing number of hours this year on the fall with institutions. Like if I counted them up, I don't know, I probably throw up. But basically, like, I've learned a lot about that. And I think we are not talking about it a lot, but like incredibly well positioned on that front, just given the team, given sort of like architecture."

The ability to create customized, permissioned subnets is seen as a key advantage for institutional RWA use cases that may require KYC, geographic restrictions on validators, or other compliance features.

Challenges and Competition in the Scaling Race

While Avalanche offers a unique approach to scaling through subnets, the team acknowledges the fierce competition in the layer-1 and scaling solution space. Patrick addressed how Avalanche compares to layer-2 rollups and other scaling approaches:

"I think that that point I made is true with the current like feed pricing mechanism of the chain. The hope is to make it more accessible to smaller companies that can't afford like a large commitment of capital. So the hope is to make it more accessible to that community. But I would say right now, that the subnet like trade-off for that is like a fee, like a pricing that's like really a factor above. I think what you can get from a roll-up to begin."

This highlights an ongoing challenge - making subnet deployment accessible and cost-effective for smaller projects and startups, not just large enterprises.

Beyond the EVM: Expanding Virtual Machine Options

A common misconception about Avalanche is that it's primarily an EVM (Ethereum Virtual Machine) chain. While the C-chain does use the EVM, the team emphasized that Avalanche is designed as a framework for running diverse virtual machines.

Patrick explained their efforts to expand beyond the EVM:

"About a year ago, I had a hard look in the mirror, I was like, you know, I'm telling everyone to launch your own blockchain, like, is it actually that easy to launch your like, build your own VM? No, it's not as well. And so I built a few of my own on top of Avalanche and it was, there's a lot of nuance to it to actually make it work well."

This led to the development of the Hyper SDK, a framework for building high-throughput custom virtual machines on Avalanche. This toolkit aims to make it easier for developers to create optimized blockchains without being constrained by the limitations of the EVM.

Luigi added:

"We are seeing like there is some momentum, I think, on people exploring different virtual machines on Avalanche Week. There's a team building a move based on it. You know, I've seen, you know, obviously with Hyper SDK, you know, Hyper VMs, other non-EVM subnets be excited to see SVM sub map, but trying to will it into existence."

This push beyond the EVM is seen as crucial for enabling the next generation of blockchain applications and positioning Avalanche as more than just another smart contract platform.

Community Dynamics and Ecosystem Growth

An interesting aspect of the conversation centered on the role of community in blockchain ecosystems. Luigi reflected on the Avalanche community:

"From what I'm observed, I guess on avalanche in general, I found that our community tended to be folks that, you know, had a very deeper understanding of technology than sort of some of the others. And maybe that's why like, I always tell people, like, nobody's better studying avalanche than our own community."

He noted that the community tends to skew older and more technical compared to some other blockchain ecosystems. However, there's also a growing contingent of younger builders attracted by Avalanche's customizability.

Patrick emphasized the importance of allowing individual subnet communities to develop their own identities:

"And I think it's important to allow these communities to really have their own identity. But the joke I always say is like, in my life, I've never seen like large groups of people agree on anything. And I think that like blockchain, when everyone has a funny, but arguably like a financial interest to not agree. Like, I don't think this is the place where it's going to happen."

This highlights a key challenge and opportunity - fostering a cohesive Avalanche ecosystem while allowing for diverse and independent subnet communities.

Tokenomics and Value Accrual

The conversation touched on Avalanche's approach to tokenomics and value accrual for the AVAX token. Patrick expressed a view more aligned with Solana's approach:

"My view on that is consensus is still a bottleneck, but there are now more ways known to handle it such that it's not necessarily a differentiating, the differentiating feature it used to be. So like, obviously Ethereum has a lot of validors now, same with Solana, same with a bunch of other ecosystems, right?"

Luigi expanded on how AVAX derives value:

"For like, outbox in general, the value of cruel is like really in a few different ways. And this is not like any type of advice or legal advice or whatever. But basically, the way it's currently designed is that the more subnets that you have, the more outbox you lock up, because every single value there needs to stake that outbox component validate a subnet. So that like ties down supply. And then all fees basically on the product that we're governed currently. So that reduces the supply of the token, which I think is similar to Solana in a lot of ways."

This model aims to create demand for AVAX as the ecosystem grows, without relying solely on transaction fees for value accrual.

Technical Innovations and Future Directions

Throughout the conversation, several key technical focus areas emerged:

1. Improving subnet deployment accessibility
2. Expanding virtual machine options beyond the EVM
3. Enhancing cross-subnet communication and interoperability
4. Optimizing for specific use cases like gaming or institutional finance

Patrick highlighted the Hyper SDK as a key initiative:

"The Hyper SDK does not have it needs is like a Helius like RPC system. It doesn't store any archival stuff. The BD train in action, baby. I mean, like, I think what you guys are doing is really interesting, like how you like abstracted a bunch of the node out of the system and like how based on like actually more scalable hardware, but I've seen the Hyper SDK is very much based on the idea that you as a valid or like you're not going to keep it on your display. It's going to slow everything else down, like just get it out as fast as possible."

This focus on high performance and customizability is seen as crucial for enabling the next wave of blockchain adoption.

Avalanche's Vision for the Future

When asked about their ideal vision for Avalanche in five years, both Luigi and Patrick emphasized customizability and adoption:

Luigi: "For me, like the goal is that people, people are like changing their own blockchains with toggle click feature requests that change basically, you know, the trade offs that they want to make. And it's similar to deploying your own AWS instance. Like that to me would be, you know, the dream goal."

Patrick: "To me, it's like the, I think it's like the aggregate value of elastic subnets, which are the subnets where you have a staking token. Like in aggregate, maybe is at the level or exceeds that of avalanche is whole would be really interesting."

This vision of Avalanche as a platform for easily deployable, customizable blockchains represents a distinctive approach in the layer-1 race. Rather than focusing solely on scaling a single chain, Avalanche aims to enable a diverse ecosystem of interconnected, purpose-built networks.

Conclusion: Avalanche's Unique Position in the Blockchain Landscape

Avalanche's approach to blockchain scaling and customization sets it apart in an increasingly crowded field. By focusing on subnet flexibility, institutional use cases, and expanding beyond the limitations of the EVM, the platform is carving out a unique niche.

The team's emphasis on real-world asset tokenization and enterprise adoption suggests a clear strategy for growth beyond the current DeFi and crypto-native applications. However, challenges remain in making subnet deployment more accessible and cost-effective for smaller projects.

As the blockchain space continues to evolve, Avalanche's bet on customizable, interconnected networks could position it well for the next wave of adoption. The platform's ability to balance the needs of decentralized communities with institutional requirements may prove crucial in bridging the gap between traditional finance and the world of web3.

While competition in the layer-1 space remains fierce, Avalanche's unique architectural approach and focus on flexibility give it a distinctive value proposition. As the team continues to innovate with initiatives like the Hyper SDK, Avalanche is well-positioned to play a significant role in shaping the future of blockchain technology and its real-world applications.

Facts + Figures

• Avalanche currently has around 1,300 validators on its network
• The platform consists of a primary network with three chains: P-chain (staking), C-chain (EVM-compatible smart contracts), and X-chain (asset creation)
• Avalanche's consensus mechanism allows for sub-linear network complexity, enabling a large validator set
• The platform is focusing heavily on institutional and enterprise use cases for blockchain adoption
• Avalanche has partnerships with major financial institutions like KKR for real-world asset tokenization
• The Hyper SDK is being developed as an alternative to the EVM for building high-throughput custom blockchains
• Avalanche's AVAX token has a capped supply of 720 million
• 100% of transaction fees on Avalanche are burned, similar to Ethereum's EIP-1559 mechanism
• The team is working on making subnet deployment more accessible and cost-effective for smaller projects
• Avalanche's community is described as older and more technically inclined compared to some other blockchain ecosystems
• The platform allows for both permissionless and permissioned subnets, catering to different regulatory and compliance needs
• Cross-subnet communication is enabled through a native messaging system called "warp"
• The team sees potential for the aggregate value of subnet tokens to potentially exceed that of AVAX itself in the future

Questions Answered

What is Avalanche's core thesis?

Avalanche's core thesis is that blockchain users and developers want customizable, purpose-built chains. The platform provides a framework for creating interconnected networks (subnets) that can be tailored to specific use cases while still benefiting from Avalanche's consensus mechanism and interoperability features. This approach allows for greater flexibility and optimization compared to a one-size-fits-all blockchain design.

How does Avalanche's consensus mechanism differ from other proof-of-stake systems?

Avalanche uses a novel consensus approach that allows for sub-linear network complexity. Instead of requiring all validators to communicate with each other, Avalanche's mechanism uses a subsampling approach where each validator only needs to query a subset of other nodes. This enables the platform to support a large number of validators (currently around 1,300) while maintaining high performance and decentralization.

What are Avalanche subnets and how do they work?

Avalanche subnets are customizable blockchains that can be deployed on top of the Avalanche network. Each subnet can have its own virtual machine, token economics, and validator set. Subnets benefit from Avalanche's security and interoperability features while allowing developers to optimize for specific use cases. Validators on subnets must also stake AVAX on the primary network, creating a connection between subnet activity and the main Avalanche ecosystem.

How is Avalanche positioning itself for enterprise and institutional adoption?

Avalanche is focusing heavily on enterprise and institutional use cases by offering flexible subnet deployments. This allows organizations to create permissioned or semi-permissioned blockchains with customizable validator sets and compliance features. The platform's partnerships with major financial institutions for real-world asset tokenization demonstrate its traction in this space. The ability to create purpose-built chains while still connecting to a wider ecosystem is seen as a key advantage for institutional adoption.

What is the Hyper SDK and why is it important for Avalanche's future?

The Hyper SDK is a framework being developed by Avalanche to enable the creation of high-throughput, customized virtual machines beyond the EVM (Ethereum Virtual Machine). This toolkit aims to make it easier for developers to build optimized blockchains tailored to specific use cases. By expanding beyond EVM compatibility, Avalanche hopes to enable a new generation of blockchain applications and position itself as a more flexible and powerful platform for diverse blockchain deployments.