I have been a supporter of this project for a long time, with multiple validators now approaching nearly 1 1/2 years. With my validators unlocking soon, I am weighing my options.
I think it’s time we start thinking seriously about the tokenomics of this platform before it is too late.
The reality is that c-chain activity is trending down. People are not going to click on Avascan and select the “network view” just to give a favorable impression of AVAX. Even if they do, they’re going to find a dozen or so subnets, with only a handful of these contributing most of the activity. A deeper dive will reveal that these are deadcoins (DFK, CRA, FITFI etc.) which are down 99% from their highs. A large amount of the activity is bot-driven and there’s a ton of failed txns.
The great hope is that many hundreds, if not thousands of projects will choose to build subnets. This will result in lots of AVAX being locked and put some downward pressure on the price. But this does not seem likely. Clearly projects are not falling over themselves to build on AVAX right now, instead choosing Arbitrum etc. The amount of AVAX being locked is trivial.
It’s a classic chicken and egg situation. Subnets make c-chain look bad. This makes AVAX look unappealing to new projects. With hardly any AVAX being locked up and subnets contributing nothing to the burn, the 8% APR for validating is really just a bribe to not sell (it’s more or less roughly how much we’ll lose due to inflation).
So what’s the solution? Well, I don’t know exactly but I’m hoping that I could at least spark some conversation. I recommend something like this:
50% of subnet fees are burnt (instead of 100% currently)
25% of subnet fees are converted to AVAX and burnt (thereby adding to the burn & benefiting all holders)
25% of subnet fees are airdropped equally to all AVAX validators (think of it as an extra perk, just as ETH validators get random MEV awards; it may also inspire some validators to look into the projects and participate in some way). Such an airdrop should not be proportional to the amount staked, it makes no sense to send large amounts to VCs and pre-sale hodlers who won’t care anyway.
Totally hear you and your thoughts are definitely in the right place.
My worry is the reality is that we are competing with other app-chain projects to onboard developers and thus we need to make the situation favorable to them or they may turn elsewhere. Converting subnet feed to avax will create sell pressure on the subnet’s token and I doubt projects will like that. They would probably prefer to pay validators in their native token instead.
Thanks for sparking the discussion here. As tooling and subnet features mature (AWM, HyperSDK, elastic subnets), I expect the uptake from teams building subnets to increase precipitously. Further, there are dozens of teams working on subnets as is.
There are a few issues with your suggestions though from a subnet team and community perspective. Converting subnet fees to AVAX + airdropping to validators (especially to those that don’t contribute to securing the subnet) will cause downward price pressure on the subnet token. Not to fully discount your idea, it can be implemented by subnets for sure, but probably not something that should be enforced by the network.
Avalanche and the subnet use case will have to stand on its own merits, and I believe it will.
Thanks for your thoughts they are much appreciated. My two cents:
Subnets in 2022 showed the c-chain can gracefully offload traffic when needed. It’s a good start, and more are on the way. How many Polygon Supernets are live?
Assuming on-chain activity picks up across all of crypto, Avalanche is the only platform that has actually shown it can scale today, thanks to subnets.
Regarding overall validators yield, I’m with you - I’d like staking yield to be as high as possible. But sending subnet validation rewards to nodes that don’t do the work creates a massive free-rider problem. I certainly wouldn’t validate a subnet if the rewards go to another node that isn’t doing the work.
Agreed. But herein lies the chicken and egg situation. Projects launching on subnets aren’t going to like e.g. 50% of their fees being airdropped or converted to AVAX and burnt. This puts some downward pressure on their price. But let’s zoom out for a second.
There’s only 3 subnets with any sort of volume worth talking about:
Crabada CRA - market cap 1.2M, down 99.82%
DeFi Kingdoms JEWEL - market cap 30.2M, down 98.78%
Step App FITFI - market cap 42.8M, down 96.98%
Are any of these projects really worried about downward price pressure at this point? They would surely be more concerned with existing.
If c-chain looks healthier (along with the AVAX burn), it’s better for everyone, including projects that launch on subnets.
I don’t profess to know “the answer” but I strongly believe that the current set-up is not workable. The tokenomics don’t factor in human psychology, though they may be sound from a technical point of view. Just look at Coinmarket cap and scroll through the new coin listings, it’s just page after page of ETH, Arbitrum and maybe a random AVAX one somewhere on the 5th page.
I believe that we still have time to right this ship but decisions need to be made that fundamentally improve the value proposition for AVAX holders. It’s not just “bear market things”, we’re clearly lagging ETH, Polygon, Arbitrum and even Solana - which depressingly doesn’t even work some days - yet still outperforms.
The chart you linked excludes subnet activity. Including subnets (chart below) here’s what I see:
Total transaction count is up YoY, including all subnets (blue line)
May 2022 - Crabada subnet (pink) went live and offloaded traffic from c-chain (orange)
August 2022 - DFK (green) experienced a huge surge in transactions, and did not impact the c-chain at all!
Ultimately, you are right though- in May of 2022, c-chain activity declined dramatically, and that is of course not great. I’d argue this was the case for all of crypto in the aftermath of Luna/UST crash, not unique to Avalanche.
The point I’m making is builders have a roadmap for how to scale on Avalanche. They can actually speak to teams who started on the c-chain and transitioned to their own.
I understand what you are saying about current low subnets adoption, low qty of active validators to validate those current subnets and how txs metrics affected the C-Chain once some games moved to their subnets.
But we need to keep in mind the following: most of the last 1yrs 1/2 have been in a bear market that started in November 2021, this means less builders, less users, less liquidity, less txs. That’s something affecting all blockchains but maybe more Avalanche (DFK, CRA…) on C-chain metrics.
Now specifically on Avalanche, the tech for subnets is not yet fully developped and many teams are waiting for some components to become available so they can build their projects on a subnet.
No live subnets currently use elastic subnets (this is only couple of months old) this restrict validators, No cross-chain communication (AWM) between Subnets and C-Chain (EVM), Tool kit HyperSDK developement just been announced and finally we know they are working on an E++VM…
So I think we need to give the runner the time to tie his shoes and START the race before judging if his diet need to be changed.
Avalabs gave us early the C-Chain as Amuse-bouches, in the last couple of months their plublic communication clearly changed and is more transparent, we now can see more clearly where they are going and how Subnets will have the tech and tooling to allow the network to scale.
Once this upcoming subnets tech is available we then need to give the time to builders to build and launch their projects and users to adopt etc. We still have many many months before this fruition can be reflected in charts and metrics. Meanwhile a change in tokenomics probably wont change much in my opinion.
Great question and thank you for the question. My name is Lucian and I’m an Ava Labs team member. I help teams deploy subnets to production.
I’ve also been in the ETH space for a while and I recognize the token economics design you’re describing. The thinking goes: gas burned is good because it removes liquidity that potentially would have been sold otherwise, creating upwards price pressure in some cases. Add in the fact that ETH burns only part of the gas and some part goes to Validators as a ‘bonus’ and you have a paper model of their token economics. For a better paper model here’s a good resource: https://www.ethmodel.io/
Avalanche is different in it’s token design in 2 major ways:
We have a fixed-cap supply model more akin to Bitcoin’s than Ethereum’s since validator rewards reduce to 0. AVAX will be deflationary well before that point.
The point of running a validator will be to get rewards from Subnets instead of rewards in AVAX.
ETH needs gas burn to remain deflationary, while AVAX does not.
Ethereum’s scaling solutions requires the perpetuation of ETH as the gas token, Subnets do not.
Network tokens are used to rate limit network usage, but Subnets can scale at the network level.
Gas fees on L2 mainly accrue value to ETH because of gas burn, while their own token is an abstraction used to capture a small percentage of value for themselves.
Avalanche Subnets don’t require the forced introduction of AVAX because they scale independently, so the success of one subnet adds no additional burden to another.
While L2 designs provide nice kickbacks for ETH holders, it sucks for L2 developers and dapp developers who need to pay higher prices whenever ETH gas gets more expensive.
Having worked with a lot of subnets, including many where we will never see tx counts publicly, Subnet builders resoundingly appreciate that we don’t force our token down their throats. In fact, many high profile projects like Deloitte’s https://www.cayg.app/ would flat out reject working with us if that were not the case.
Subnets are launching at an accelerating rate as we work hard to make it easier and more accessible.
Lastly, the C-chain will see even more HIGH VALUE activity once Avalanche Warp Messaging natively connects Subnets to the mainnet.
From my experience, the current subnet design has pushed the per transaction cost on Subnets effectively to 0. New use cases have sprung up as a result. This can be seen in practice with modern web3 games get to focus on the fun, instead of monetizing every single micro transaction in order to cover the ETH cost. We’re on the cusp of truly flexing the full power of Subnets with some amazing launches and I would love to hear if you feel the same way in the next 3-6 months after you see what is coming to production imminently.
Nah. This is not about ETH v AVAX. That’s a strawman. This is about the fact that Avalanche is dying, since my post barely 90k c-chain transactions for 2 out the last 3 days → the lowest points since like August 2021. New projects are not choosing AVAX → look at CMC and list by newly added. Even protocols that have literally gone down (Solana) are easily outperforming AVAX.
Subnets may be a good scalable solution but, as I mentioned, they contribute massively to making the chain looking dead/unappealing. Without community buzz this thing is going to continue to fall in value and will be an afterthought, just like EOS, DASH, NEM, NEO, STRATIS, IOTA → darlings of the previous cycle.
With staking rewards and coin inflation at roughly break-even, there’s just not a lot of reason to hold this coin. I was merely suggesting reworking the subnet/burn tokenomics to make it a more appealing investment and bring some buzz back to this chain. Nobody seems at all interested in this which is disappointing but, whatever, at least it makes my decision easier moving forward. I will bounce and will be just another little red tick amongst the sea of ticks. But I hope I have at least inspired some of you to think about the economic realities. Good luck!
Smoke and mirrors. The market is not fooled by this sir.
What matters is the economic value of those transactions. Nobody is buying into the idea of a vibrant subnet community when there’s millions of fractions of pennies being traded amongst bots on DFK, along with many failed txns.
Avalanche is alive more than you are able to see. I think you are not really constructive and focused on c-chain only. Why don’t you tell more about your solution to scale to millions with a single chain and everything on smart contracts before you compare the network to NEO?