Avalanche Subnets, Scaling The Next Wave of AppChains and GameFi

Introduction to Avalanche

Avalanche started off as a research project at Cornell University by Computer Science professor Emin Gun Sirer and his doctoral students Kevin Sekniqi and Ted Yin. Its vision is to “Digitize All The World’s Assets” through its blazingly fast, low cost, and eco-friendly Layer 1 blockchain network, and to scale horizontally through its Subnets.

One of Avalanche’s core innovations is that its Layer 1 blockchain network is composed of three built-in chains, each with its own functions. Avalanche’s three chains include:

• The X-Chain (Exchange Chain): a UTXO-based payments chain that is optimized for users to create and swap digital assets.

• The C-Chain (Contract Chain): an EVM-compatible chain that facilitates the efficient creation and execution of NFTs, DeFi, and Dapps like Trader Joe and Aave. This is where most users currently interact with Avalanche.

• The P-Chain (Platform Chain): a coordination chain that manages Avalanche Validators and lets teams build Subnets.

The reasoning behind Avalanche’s architecture is quite brilliant – by distributing tasks amongst specialized chains, one chain does not have to do everything, and Avalanche is able to achieve the golden trinity of decentralization, security, and scalability.

Avalanche C-Chain Deep Dive

In 2021, Covalent integrated with the Avalanche C-Chain and Fuji Testnet, indexing every single block, smart contract, event, and transaction since their genesis. This integration enables developers to pull Avalanche’s data with our Unified API and allows analysts to build bespoke dashboards with Increment.

Our data shows that despite the market downturn, Avalanche has had a very stable number of daily active addresses and transactions compared with Ethereum – surfacing its core user base and steady network usage.

Recently, Avalanche has been executing on its vision of Subnets – a major innovation that makes developers’ and users’ experiences on utilizing AppChains more enjoyable. At the 2022 Avalanche Summit in Barcelona, Covalent announced our partnership with Chainstack to support Avalanche Subnets. We’re still incredibly proud to be the only data provider that has been able to index Subnets.

Understanding Avalanche Subnets

Subnets offer an out-of-the-box scaling solution for a wide range of entities such as games, companies, DAOs, Dapps, or even governments. They enable the deployment of AppChains within the Avalanche ecosystem by utilizing sets of Avalanche Validators to create new Subnetworks. With Subnets, Avalanche can theoretically achieve infinite scalability by running multiple AppChains in parallel.

Last year, the Avalanche C-Chain faced the challenge of rising fees due to increased demand and limited block space. If one Dapp had a massive traffic spike, it would slow down the entire network for other Dapps – we saw this firsthand with Crabada, which alone accounted for 56% of the Avalanche C-Chain’s daily gas paid at its peak.

Subnets eliminate this issue – instead of forcing transactions to take place on the Avalanche C-Chain’s shared state, Subnets allow Dapps to create more block space and computation to meet demand, and get isolation from whatever’s happening in the rest of the system. If the Avalanche C-Chain is a major highway running through a very crowded city, then Subnets represent connected roads. They help clear up congestion on the main highway, making the city more efficient.

Benefits of Avalanche Subnets

With their flexible design, Subnets are a huge unlock for the broader Web3 ecosystem. Each of the following benefits can be leveraged by teams launching their own Subnet:

• Custom Virtual Machines: Subnets enable teams to implement their own Virtual Machines, such as the Ethereum VM, Bitcoin Script VM, or Avalanche VM, to process transactions. This way, a Subnet can be fully optimized to match a project’s requirements.

• Avalanche Validators: based on their project’s demands, teams can access an unlimited number of Avalanche Validators to secure their Subnet and take part in consensus. These Validators can be incentivized through $AVAX or the Subnet’s native token.

• Independent Tokenomics: teams on Subnets can create their own native token, customize gas fees, and set the fee parameters to reduce expenses for end users. This enables the sound growth of GameFi and DeFi projects that already have large transaction volumes.

• Regulatory Compliance: Subnets can require Validators to be located in a particular country, pass a KYC check, or have a specific licence. This design allows financial products to comply with regulatory standards and jurisdiction laws more conveniently.

• Privacy: enterprises that do not want to make their confidential information public can create private Subnets formed by a select group of Validators. By doing so, the contents of the Subnet can only be seen and downloaded by those Validators.

• Interoperability: with Cross-Subnet Transfers, assets can move freely between Subnets without a beacon, relay chain, or third-party bridge. This results in a smoother experience for end users.

As one can see, Subnets offer a wide range of personalizations and they are uniquely positioned to be hubs for institutions to launch highly permissioned systems. However, most of the Subnets today are being utilized to scale existing GameFi projects. Subnets are a great choice for GameFi projects as they naturally need to process thousands of transactions per second, reach finality in seconds, and have little to no transaction fees for players.

Just in the past year, two of the most popular GameFi projects on Avalanche, DeFi Kingdoms and Crabada successfully migrated to their own Subnets, the DFK Chain and Swimmer Network, respectively. Data from our full historical archive indicates that the DFK Chain is executing 10x more transactions per user and total transactions per month than the Avalanche C-Chain – being a main driver of traction for the Avalanche ecosystem.

DFK Chain Deep Dive

DeFi Kingdoms originally started on Harmony, but after an explosion in interest, they launched their own Subnet in March 2022 – the DFK Chain, with its native token, $JEWEL, for all of the chain’s transactions.

Since launching the DFK Chain, not only have transaction fees decreased to just under $0.01 during peak usage, but the DFK Chain is currently executing around 40 million monthly transactions – more than some Layer 1 blockchains.

As a sovereign Subnet, the DFK Chain has garnered tons of traction. The DFK Chain’s success has served as a proof of concept for other live GameFi projects and even Web2 gaming studios looking to take advantage of the potential power of Subnets.

Swimmer Network Deep Dive

Crabada started as one of the first gaming Dapps on the Avalanche C-Chain but quickly became one of its top transaction drivers, leading to higher fees and latency. In May 2022, Crabada launched its own long-awaited Subnet – the Swimmer Network, using $TUS for gas fees and $CRA for rewarding its Validators.

By migrating from the Avalanche C-Chain to the Swimmer Network, Crabada was able to optimize transaction speed to be around 12 seconds faster and reduce transaction fees to be under $0.0005 – enabling players to maximize their gameplay.

The Swimmer Network is yet another example of how Subnets can help ensure the seamless experiences of GameFi projects. Both the DFK Chain and Swimmer Network demonstrate how Subnets are a win-win scenario for the players and the Avalanche C-Chain.

Bringing GameFi mainstream

The GameFi sector continues to be one of the most appealing parts of Web3 – GameFi projects are still driving most of the industry’s on-chain activities, and they are still retaining players even during the bear market.

But for GameFi to go mainstream, it must have a fluid user experience that players are used to in Web2 games. Thanks to Subnets, GameFi projects can now achieve that level of fluidity by handling high network usage and having gas fees so low that they’re almost free of charge. The DFK Chain and Swimmer Network serve as successful case studies of how Subnets are reliable for sustaining increased traffic and delivering low expenses in their own native tokens.

If more GameFi projects follow in the footsteps of DeFi Kingdoms and Crabada, Avalanche will soon become one of the biggest hubs for GameFi projects that want to establish themselves on a large scale and for Web2 gaming studios that are looking to move into Web3. 

Doubling Down on Avalanche’s Future

In 2021, our team at Covalent began our journey with Avalanche to bring unparalleled data accessibility to the network. We’ve simplified the experience for developers and analysts who need reliable, high-quality data, and we’ve seen plenty of innovation through our Unified API and Increment.

This year, we’re doubling down on our partnership with Avalanche – we’ve indexed DeFi project Dexalot’s Subnet, which aims to bring a more secure, affordable, and efficient decentralized trading experience to its users. Through its own Subnet, Dexalot will be able to have easier transaction completions with fewer reversions due to gas price fluctuations, as well as more freedom in designing new functionalities. These are the type of exciting projects that are building their own Subnets every day and why Covalent is so optimistic about the future Subnets.

Subnets are one of the most agile solutions we’ve seen in blockchain scaling so far. Besides GameFi, they open the door to many more use-cases like DeFi Subnets, regulatory-complaint Subnets, and enterprise Subnets. In the coming years, we expect Avalanche to be the home to numerous top-tier Subnets, and Covalent will continue to proudly support Avalanche’s entire Subnet ecosystem with our robust data infrastructure.

Quote from Ganesh Swami, Co-Founder and CEO at Covalent

"The best part about Avalanche Subnets is that you can never run out of them. There can always be another Subnet, and there can always be more scale. Subnets are also not something that Ethereum has or will have for a long time. Currently, the only two other systems that come close are Polkadot and Cosmos. Our team at Covalent will carry on backing the future of Subnets with our friends and colleagues at Avalanche."

Written by David Tso.