Amidst the unpredictable events of 2022, the Avalanche ecosystem was steadily gaining adoption. Much of this growth came from Avalanche Subnets, which are fully customizable, scalable, sovereign, and secure blockchains secured by a subset of Avalanche validators. Until recently, subnets needed to build and manage their own bridging solutions in order to communicate with and transfer assets between other subnets, but that has changed with the Banff 5 upgrade and the introduction of Avalanche Warp Messaging.
Subnets have been the core value proposition and ultimate endgame for Avalanche since launching in 2020. This is because they offer developers a scalable, sovereign, and secure blockchain solution that can be tailored for almost any use case.
Scalable - Offering high transactional throughput, subnets can reach as many as 4,500 transactions per second, allowing subnet communities to scale without resulting in higher transaction fees for end-users.
Sovereign - Subnets do not have to compete for blockspace with other subnets on Avalanche. The sovereign nature of subnets offer a more controlled, compliant, and private solution for financial institutions.
Secure - Subnets can leverage any number of Avalanche’s 1,189 validators and stake value of ~$5B+ for security. Subnets have flexibility on how they incentivize validators and can have additional requirements including high uptime standards or supporting specific hardware.
The subnet transaction volume began to surpass C-Chain (EVM Compatible blockchain on the primary network) volume in Q2 2022 and now accounts for ~90% of all transactions on the Avalanche Network. Notably, DeFi Kingdoms, a GameFi subnet, boasts over 1.5m transactions per day.
Most subnets on Avalanche today are focused on gaming applications. This is likely due to the low costs associated with transactions. In general, DeFi applications need secure and efficient interoperability solutions for asset transfers and message passing between other DeFi ecosystems. Without this, it is difficult for a new blockchain ecosystem to attract liquidity, volume, and ultimately end users.
The launch of Avalanche Warp Messaging will offer subnets a native, out-of-the-box communication solution between other subnets, which will create an even more attractive building environment for DeFi protocols.
Avalanche Warp Messaging (AWM) is an interoperability primitive that leverages BLS Signatures that allows any two subnets to send and verify arbitrary messages between themselves, providing a seamless and trust minimized communication standard across the Avalanche ecosystem of subnets.
As shown above, AWM allows subnets to create BLS signatures on the Primary Network (P-Chain) that can be verified by any subnet when passing arbitrary data. This is because all subnet validators must validate on the P-Chain as well. AWM also allows message passing to be quick since subnets simply need to aggregate the BLS Signatures, send the message, and verify the signatures. The exact time would be dependent on the block times on each individual subnet.
By leveraging BLS Signatures, AWM offers a future proof interoperability solution for subnets regardless of a change within the validator sets. New validators simply need to register their BLS keys when they join, and validators do not have to regenerate keys if a validator decides to exit the active set.
As a primitive, AWM’s fees are fairly minimal with only a small amount of AVAX needed to generate a BLS signature. That said, additional fees on subnets can exist.
Interoperability primitives are foundational to cross-chain composability and open the door to a variety of use cases for subnets.
The growth of the subnet ecosystem will create additional opportunities for stakers and delegators on Avalanche since subnets need to incentivize validators to validate their subnet. Incentives for subnets can vary depending on the preference of the subnet. This can include rewards in the native subnet token, additional AVAX, or even a stablecoin for less volatile rewards.
Because all transaction fees are burned on the P-Chain, there is no direct value accrual to AVAX stakers and delegators due to increased subnet activity. That said, as the subnet ecosystem grows, the demand for AVAX is also likely to grow due to the 2,000 AVAX self bond requirement who wish to join the validator set on Avalanche. Additionally, the use cases for AVAX outside of being used to stake and pay for fees within the ecosystem of subnets include being used as a store of value, collateral, and medium of exchange.
AWM is just the first step towards a fully interoperable subnet ecosystem on Avalanche. Expect to see interoperability solutions built on top of AWM that are optimized for UX making interoperability between subnets even more streamlined.
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