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Glossary

AVAX

AVAX is the native cryptocurrency of the Avalanche blockchain, a layer-1 platform launched by Ava Labs in September 2020. Introduced during Avalanche’s mainnet debut, AVAX serves as the fuel for transactions, staking, and governance within the network’s ecosystem. The total supply is capped at 720 million tokens. Avalanche is a high-speed blockchain designed to process up to 4,500 transactions per second (TPS) on its X-Chain, supporting a growing ecosystem of decentralized applications (dApps) and custom blockchains (subnets).

How AVAX Works

  • Transaction Fees: Users pay AVAX to execute transactions and deploy smart contracts across Avalanche’s three primary chains:
    • X-Chain: For asset creation and transfers.
    • C-Chain: For smart contracts and dApps, compatible with the Ethereum Virtual Machine (EVM).
    • P-Chain: For coordinating validators and subnet creation.
  • Staking: Validators and delegators lock AVAX to secure the network. Validators require a minimum of 2,000 AVAX to participate, while delegators can stake smaller amounts (historically as low as 25 AVAX). Staking rewards typically range from 7-11% annually, depending on network conditions and staking duration.
  • Governance: AVAX holders vote on network parameters, such as staking rewards or fee structures.
  • Burn Mechanism: All transaction fees are burned, reducing the circulating supply over time to enhance scarcity.
  • Interoperability: AVAX supports bridging to Ethereum via the Avalanche-Ethereum Bridge, enabling asset transfers between ecosystems.

Key Features

  • Utility Token: Essential for fees, staking, and governance on Avalanche.
  • Fixed Supply: Capped at 720 million tokens, with approximately 50-57% in circulation as of late 2024 (exact figures fluctuate due to burns and staking).
  • Burning: Millions of AVAX have been burned since launch, tracked via Avalanche explorers like Snowtrace (not Etherscan, which is Ethereum-specific).
  • High Liquidity: AVAX is traded on major exchanges like Binance, Coinbase, and Kraken, with significant daily trading volume.

Benefits of AVAX

  • Low-Cost Transactions: Fees are typically low, often a fraction of a cent, due to Avalanche’s efficient consensus and architecture.
  • Staking Rewards: Offers 7-11% annual percentage yield (APY) for securing the network, with over 60% of the circulating supply historically staked.
  • Ecosystem Support: Powers a robust network with substantial Total Value Locked (TVL) in DeFi protocols like Aave and Trader Joe.

Risks and Challenges

  • Price Volatility: Like most cryptocurrencies, AVAX experiences significant price swings, influenced by market trends and adoption.
  • Staking Barriers: The 2,000 AVAX minimum for validators (approximately $86,000 at $43 per AVAX) and technical setup requirements can exclude smaller participants.
  • Competition: Faces pressure from other layer-1 blockchains (e.g., Solana, Ethereum) and layer-2 solutions (e.g., Arbitrum, Optimism) with larger ecosystems.
  • Burn Impact: While fees are burned, the deflationary effect is gradual, with only a small percentage of the circulating supply removed annually.

Use Cases of AVAX

  • DeFi Payments: Users pay gas fees for swaps and lending on platforms like Trader Joe or Aave.
  • Staking Income: Delegators and validators stake AVAX for passive rewards.
  • Governance Voting: Holders influence network upgrades and policies.
  • Subnet Operations: AVAX is required to create and operate custom subnets, independent blockchains within the Avalanche ecosystem.

Examples or Case Studies

  • Staking Participation: Historically, over 250 million AVAX have been staked, representing a majority of the circulating supply, to secure the network.
  • DeFi Growth: Avalanche hosts protocols with significant TVL, such as Benqi and Aave, reflecting its role in decentralized finance.

AVAX is the core of Avalanche, driving a fast, scalable layer-1 blockchain with a focus on low fees, staking rewards, and interoperability. Its capped supply and burn mechanism aim to balance inflation and scarcity, while its architecture supports a growing ecosystem of dApps and subnets. Despite challenges like volatility and competition, AVAX remains a prominent cryptocurrency, bolstered by Avalanche’s technical innovation and adoption in the blockchain space.

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