Altcoin Spotlight Shifts to AVAX Price and Solana Ecosystem
Since mid-July, the cryptocurrency market has been in recovery mode, with Bitcoin rising from sub-$30k levels and reclaiming $50k – at least temporarily. But while Bitcoin has been regaining lost ground, some Altcoins have been minting fresh all-time highs. It is almost certainly Alt season, and leading the way are Avalanche (AVAX) and Solana (SOL) whose tokens have posted several-hundred-percent gains over the past 30 days. These tokens represent not only a single blockchain project – but rather a whole ecosystem of projects and Decentralized Finance applications.
The Blockchain Arms Race
It’s been just over a month since the much anticipated London hard fork of the Ethereum Network. The fork implemented EIP-1559 – an improvement proposal that introduced fee burning to all Ethereum transactions, effectively reducing emissions and making the network more economically sustainable. Many crypto enthusiasts and influencers speculated that EIP-1559 would result in lower network fees overall – but this has not been the case. While the price of Ethereum has risen since the upgrade, so have transaction fees. On-chain swaps often cost hundreds of dollars – rising well over $1k for a simple swap during periods of high network demand. Such costs have made Ethereum’s base layer virtually unusable.
These exorbitant fees underscore the need for scalability. In order for Decentralized Finance applications to truly liberate people from oppressive banking and monetary systems, they must be accessible. This has been a major catalyst behind the rise of Solana and Avalanche – both in terms of Ecosystem adoption and price.
Avalanche and Solana are both alternatives to Ethereum. They are base “Layer 1” blockchains that utilize their own coins to pay for transaction fees. For these projects, demand for network usage (and scalability) directly correlates to the price of their tokens – SOL and AVAX. This is the driving factor for the AVAX price and SOL price increases of late.
Liquidity Mining Incentives
In order to stimulate network demand, Avalanche announced that they will provide $180 million worth of AVAX tokens as added incentives for liquidity mining on their network. Their goal is to attract widely-used DeFi applications (such as Curve, Aave, and Sushi) to their network – and bring tens of thousands of users along in the process. All of these users would need to purchase and hold AVAX tokens in order to use the network.
These incentives are to be used to bolster demand for liquidity mining. If you’re unfamiliar with Liquidity Mining, here is a quick “crash course”:
Decentralized Exchanges have little to no native funds. They rely on users depositing their funds (liquidity) as a counterparty to trading activity. Users are able to withdraw their funds at any time, but their underlying coin balances may change as trades are executed. As a reward for taking on this risk, exchanges reward Liquidity Providers (LP’s for short) with governance tokens like UNI, CRV, SUSHI, AAVE, and so on. This is also referred to as “yield farming”.
Essentially, Avalanche is proposing projects add support for their network and are offering nearly 200 million dollars as added rewards on top of the rewards already offered by these protocols. The combination of these rewards is quite literally a golden carrot meant to lure investors into the adoption of the network. Judging by the AVAX price, it’s been largely successful.
Avalanche is not alone in their liquidity incentive program. Solana has its share of liquidity mining platforms as well, notably – Raydium, Saber, and the recently launched Sunny platform which has aggregated over $1 Billion in user liquidity in just a few short weeks.
Rather than invest directly in liquidity mining, Solana has taken to partnering with firms to invest in development on its network. They announced in March of this year their plans to partner with OKEx and MXC – two south Asian exchanges – to invest over $40M directly in project development.
Both Solana and Avalanche are betting on the long-term adoption of their networks. While giving away $180 million of your own tokens may seem a recipe for a short-term price crash, it has provided a marketing boost that will pay dividends for years into the future. Transactions on both networks burn a portion of fees – similar to Ethereum after EIP-1559 – but they do so in a way that maintains low cost and usability.
Solana’s emission schedule will taper inflation down to 1.5% annually in about ten years. With enough transaction volume, Solana could actually become deflationary over time.
Unlike Solana, AVAX actually has a maximum supply of 720M tokens which will be reached in 50 years’ time. Unlike Ethereum post-EIP-1559, the entirety of each transaction fee on the Avalanche network is burned. This means that AVAX is guaranteed to become deflationary in no more than 50 years – but could happen much sooner depending on network demand and adoption!
The powerful combination of tokenomics, incentive programs, and scalable technology has driven the SOL and AVAX price to new highs. With ETH unlikely to become usable anytime soon, it seems the best is yet to come.