Layer one blockchain networks, such as Bitcoin (BTC) and Ethereum (ETH), form the basis of the cryptocurrency ecosystem and enable the functionality of smart contracts that enabled the creation of new industries such as decentralized finance (DeFi) and non-fungible tokens ( NFT).
Avalanche (AVAX) is a relatively new tier one solution that has recently seen a significant increase in price and adoption as the dominant smart contract platform (Ethereum) continues to struggle with high transaction costs and slower processing times than your competitors.
Data from Cointelegraph Markets Pro and TradingView show that after hitting a low of $12.24 on Aug. 3, the price of the AVAX token rose 205% to a multi-week high of $37.42 on Aug. 20, with its 24-hour trading volume rising to over $1.4 billion.
Three reasons for AVAX’s significant price growth are its rapidly expanding DeFi ecosystem, the launch of the Avalanche bridge to Ethereum, and the protocol’s unique tokenomic design that offers dynamic rates and a token burning engine.
Avalanche Rush Expands DeFi Ecosystem
One of the biggest developments that happened for the Avalanche protocol was the August 18 announcement of Avalanche Rush, a $180 million liquidity mining incentive program launched in conjunction with Aave and Curve that was designed to introduce more applications and assets into its growing DeFi ecosystem.
Experience the power of #Avalanche. welcome to #AvalancheRush, the $180M liquidity mining incentive program in collaboration with leading DeFi dapps–both on and off Avalanche– starting with @aaveaave and @curvefinance. And, this is just Phase 1! https://t.co/YGrrVB7Uqc
— Avalanche (@avalancheavax) August 18, 2021
Phase 1 of the Rush program is scheduled to begin in the near future and will allow AVAX to be used as liquidity mining incentives for Aave and Curve users over a 3-month period.
A total of $27 million in AVAX was set aside by the Avalanche Foundation to fund the incentive program with additional allocations planned for phase 2.
The program is designed to demonstrate the Avalanche Foundation’s commitment to expanding DeFi across the network and helping “create a more accessible, decentralized, and cost-effective ecosystem.”
Evidence of the growth of DeFi on the Avalanche network can be found in the increase in Total Blocked Value (TVL) in network protocols such as Pangolin and Benqi Finance that have recently overcame a TVL of $300 million.
Ethereum Bridge Eases Asset Migration
A second reason for the bullish growth seen in the Avalanche ecosystem in recent weeks was the launch of the Avalanche Bridge (AB) on July 29th. This “next generation chain bridge technology” allows for the transfer of assets between Avalanche and Ethereum networks.
The Avalanche Bridge (AB) launched just 3 weeks ago.
Today, AB officially transferred over $100M in tokens to and from Ethereum.
— Avalanche (@avalancheavax) August 19, 2021
As shown in the tweet above, in the three weeks since AB was launched, it has transferred more than $100 million in token value between the two networks as holders look to lower fee environments to conduct their transactions.
AB is estimated to be five times cheaper than the previous Avalanche-Ethereum (AEB) bridge and aims to provide a “better user experience than any cross-blockchain bridge launched to date”.
If Ethereum is unable to control high transaction costs in the near future, there is a good chance that assets and liquidity will continue to migrate to chains like Avalanche as their DeFi ecosystems grow in size and value.
Transaction firing improves AVAX tokenomic structure
A third reason for the growing interest in the Avalanche network is the protocol’s unique tokenomic structure, which includes a transaction fee-burning mechanism that helps reduce circulating supply over time.
#Avalanche burns all transaction fees.
See how much has been burned so far! https://t.co/LpxU9dtyXy
— Avalanche (@avalancheavax) August 20, 2021
As noted in the tweet above, all Avalanche fees are burned for the benefit of everyone in the community, as the restricted supply of 720 million AVAX will diminish over time. This can help increase the value of the remaining tokens in circulation.
As of this writing, more than 163,000 AVAX have been burned, a number that increases faster as more users transact on the network.
The network’s fee mechanism is also set to undergo an update to phase three of Apricot, which will introduce C-Chain’s dynamic fees on August 24th.
⭐Apricot Phase Three: C-Chain Dynamic Fees
Apricot Phase Three upgrade will activate on @Avalancheavax Mainnet at 7 am EDT (11 am UTC) on Tuesday, August 24th
— AVAX Daily (@AVAXDaily) August 16, 2021
The new integration will allow the addition of a time-based sliding window rate calculation, a limited rate range of 75–225 nAVAX, and an 8 million gas block gas limit.
The views and opinions expressed herein are those of the author alone and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you must conduct your own research when making a decision.
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