If you would like to view the full recording of the live Crowdcast event, you can find it on our Youtube channel. You can also read the full Quarterly Report by Chase Devens and James Trautman here.
Ryan Selkis (0:10): Alright we should be live now. Welcome everyone, thank you for joining us. We’ve got a ton of folks here for this interactive quarterly update on Avalanche. Our team has spent quite a bit of time working with some of the top DeFi, Layer 1, other protocols, and communities in the past couple of months coming up with a robust quarterly updating framework and we’re really excited about the three folks from Ava Labs here to participate in this discussion today. I should note as we kick off that this quarterly report that was built by Messari was authored entirely by the two analysts on this call, James and Chase; they’re going to be leading the discussion here. What I think has been really powerful about these sessions so far is it shows just how open and transparent these emerging economies are in that an independent team with no direct affiliation or connection to the underlying protocol is able to come in and and with about a month’s worth of work build a really robust framework for making sure that we monitor KPI’s, ecosystem developments, governance updates, and a whole slate of material bits of information on a quarterly basis going forward. We’re excited to work with the Avalanche community on this. We’re excited to work with the Ava Labs team on coloring in some of the details that these two [Chase and James] uncovered during their analysis. Most importantly, we want to use these [quarterly updates] as a forum for people to ask our analyst team questions about the reports but also be able to interface with some of the leaders within the Avalanche community. Today, as has been typical in some of the initial kickoff calls we have, folks from Ava Labs [are joining us] which is certainly one of the central parties that’s been doing great work in advancing the Avalanche ecosystem. In the future we’ll also pull in folks from other parts of the community and other, either corporate, or non-corporate entities or just other meaningful individual contributors to the project as well. So, with that said, hopefully the context is in place; as usual, this is not investment advice and do your own research yada-yada but that’s why we’re here. We’re going to try to let Chase and James take it and walk through their analysis, the update on the Avalanche products, and project. We’ll make sure that we have plenty of time to learn more about what’s ahead and ask any clarifying questions in the quarter behind; take it away guys.
Chase Devens (2:51): Alright, thank you Selkis, so I just dropped the link to this report into the chat if you guys want to follow along. If you guys have been following some of the quarterly reports that Massari has been publishing recently you’ll notice that it’s mostly Web3 or DeFi related. This Avalanche report was actually our first stab at tackling what a quarterly report for a Layer 1 network could look like. The way that we decided to break it [the report] out is into these three buckets —network usage ecosystem, developer activity and staking and decentralization—before we dive into all the specifics of those I think it would be really great if one of the team members of Ava Labs could talk about what differentiates Avalanche from a consensus perspective from other smart-contract networks and how it fits into this overall Layer 1 game that’s being played.
Lydia Chiu (3:59): Nick, you want to touch on the consensus piece?
Nick Mussallem (4:11): I think there’s three areas that we focus on at the core technology layer that are all heavily driven by the consensus algorithm. The first one is speed; so time to finality, and that is really the underlying driver that the consensus algorithm allows us to achieve. It’s very fast, it’s using an entirely new type of consensus algorithm that was invented by Team Rocket. The second piece is the ability to scale, we’ll talk a little bit about this later today but that gets into the concept of subnets and we’re heavily focused on going forward. The last one is just ‘what is the cost to transact’ so we’re constantly making changes to make sure that the network is affordable for projects to build on and for people to transact on.
Chase Devens (5:11): Awesome, appreciated.
John Nahas (5:12): I’ll tack-on to what Nick said real quick, you know, at the cornerstone of everything that we do and that we’ve been doing is all dependent on the Avalanche consensus, right, the third ever novel consensus after classical, Nakamoto. Everyone’s kind of made edits to those in the past and optimized a little bit, but no one’s really brought to the market a new consensus algorithm that actually allows us to scale at the level that you’ve seen Avalanche do. And what I believe we are going to focus on this call today, and look to the future is Q4 really focused on the EVM, the c-chain that we have, right, that enables Web3, DeFi, NFTs and everything of the sort but that’s just the initial thing. The first focus is to show how an EVM can scale and now going forward we’ll see how we can continue to build on that through everything else.
Chase Devens (6:04): Awesome, really good background for our audience here, I want to go back to something that Nick touched on as we dive into the network usage data. Going through the report we saw Q4 was just a huge explosion in network activity. Active addresses were up to about 70,000 per day, we had transaction activity reaching about 40% of Ethereums. Maybe talk a little bit about the gas spikes that you guys saw in late November, early December and Avalanch’s approach to keeping those down, but also using them as a key source of revenue for the network.
Nick Mussallem (6:54): Yeah, I think there’s two good points here; one is that gas fees do ensure liveliness and so they were set fixed. When we launched on the c-chain they were 225 so the first thing we did was to drop those dramatically so that the floor now is is at 25 and then there was an implementation on something called dynamic fees as a part of the Apricot releases and so dynamic fees really allows the network to breathe so as there’s more congestion or more demand you’ll start to see those fees creep up. We keep tweaking on that and keep improving it so that we can keep scaling while managing to keep the fees lower. The fees are actually dramatically lower from when we had that congestion; that’s really when we put a lot of effort into making sure that it could scale and that the fees would remain low but we would also have the guarantee of liveness at the same time.
John Nahas (7:59): Of course, there were subsequent releases such as Snowman Plus Plus and many other network upgrades. To Nick’s point, the ultimate goal here is to focus on liveliness; to ensure that the network is coming along, fees could spike up and down. The fact that the network continues to come along despite these moments of very high network usage has been a testament to the teams’ architecture and follow-up of updates as we go on.
Chase Devens (8:27): Awesome, in terms of the largest catalysts to this growth in network adoption do you guys see anything beyond the Avalanche Rush liquidity mining program as large sparks for why everyone’s starting to migrate over the network.
John Nahas (8:45): So Avalanche Rush definitely was a huge catalyst, but I think previous to that, the team here on this call, as well as the broader team took a step back during those two–three months where things were somewhat slow to strategize as to the next steps. Anybody can throw money at a petty issue, anyone can incentivize but if the necessary cornerstone pieces aren’t there, once that liquidity is deployed, and once those users come to utilize it, it’s really not going to make that much of a difference. We’ve seen this across the board, money comes and goes, the first piece of this that I think was the most important and that became a meme is the Avalanche bridge. I think you saw ‘Good morning, good bridging’; that’s a testament to Nick and the product team for building what we believe to be the fastest, best, and easiest bridge to use. Right on the heels of announcing [Avalanche] Rush that bridge was live and it was ready so even before the Rush incentives were deployed we saw exponential growth, usage, and people coming over the bridge because they wanted to come and check it out. That bridge gave people who previously were not into the Avalanche, weren’t keeping up, or were wondering what was going on but didn’t have as many on-ramps to really jump into the ecosystem and this is previous to c-chain exchange listings. Previous to listings on global exchanges where focused on the x-chain, c-chain integrations were in process such as Coinbase and other major exchanges but the first on-ramp for a lot of people into our DeFi ecosystem was that bridge. That was really kind of the front door and the welcome for people to come in once they came in. Before they got incentives they started to realize the ease of use of the Avalanche platform. What I see on Crypto Twitter is that Avalanche just works; it’s faster, it’s cheaper, the UI, UX, or just interacting with the network is there and we captured people’s attention and it became a fun place to do DeFi again. On top of that the Rush rewards were a boost as well as the exponential amount of partnerships and different applications and platforms that we brought on really fueled this thing to take off.
Lydia Chiu (11:11): Just to add to that, if it isn’t clear already that the team is very focused on user experience it’s something that we spend a lot of time on. Also, we listen to the community to figure out what some pain points are. I think going forward you’ll see what that focus looks like when implemented and we’ll have new products that make it easy for users to not just enter the DeFi ecosystem, but the Avalanche ecosystem as a whole. There are going to be other sectors that take off on the platform. We’re going to see everything grow and we’re going to make sure that people just have an easier time getting into crypto, not just the crypto native folks bridging onto Avalanche; we’re trying to focus on mainstream adoption as well.
John Nahas (11:56): Yeah, to add to Lydia’s point, even before the bridge happened, the very core engineering team had to make sure that everything that was underneath it could scale and so the bridge launched in August but that time that John talked about between January and July there was a heavy emphasis in making sure that the underlying platform was going to be able to take on the amount of demand that we that we expected and they really knew that.
Chase Devens (12:28): Awesome. Going into the DeFi ecosystem a little bit more here. When I was looking through the data I thought it was really interesting that the TVL dominance of Avalanche was the fastest growing out of any network over the quarter; a lot of people will say that can be attributed to the rising prices but if you strip all that data back out there was just a huge growth in activity that was coming into the network. I think the market cap only grew about 50% relative to 800% in TVL. I think it was early October that Curve and Aave launched onto the network. Do you guys think that these launches were what catalyzed the rest of DeFi’s growth on the chain, or do you think it was something else? Maybe a better developer experience that may have brought people over?
John Nahas (13:40): So it’s a mix of all of those things. To the earlier point, once the bridge brought people over, people started using the platform and interacting with native apps. We had a rich and growing native community of applications which got a great boost from all the new users but we had a user base and we added [to] it. There’s a three prong situation here; first and foremost, bringing over those Ethereum blue chips like Aave and Curve did two things; one, they brought a lot of new users. People that hadn’t yet come now came because there’s credibility, there’s a track record, there’s a history with Aave and Curve. There’s a credibility that they [bluechips] impart so people come with that, and with that you start to see fellow Ethereum applications follow suit. On top of those initial guides you started to see a lot of deployments. First you saw the Ethereum blue chips come, second you saw the rest of the Ethereum applications come and deploy on us, or pour over into play on us but what we’ve seen in a second stage which has been really interesting like Alpha Labs which has Alpha Hemorrha decided to launch their new product Alpha X on Avalanche first. Third, what we’re seeing is that native community development of applications and the number of developers has grown significantly. What you’re seeing is a lot of devs that have created really cool and innovative products that simply can’t launch on Ethereum or other chains because economically it doesn’t make sense with the cost of gas or the times of [block] finality. The speed of Avalanche, the lower fees, and the ease of use, really makes it an ideal place for a lot of these innovative applications that have been in development or been in the back of people’s minds to find a new home and to develop and work within native Avalanche applications with the Ethereum blue chips. It kind of all built upon itself by bringing people, developers, applications into a great mix that just benefited from everything. To your point, you know, yes we did see a tremendous rise in TVL and of course there is a rising price but as we’ve seen recently, prices have been going down across the board. We’re still holding our place so if anything daily active users, monthly active users, active wallets continue to grow so at the end of the quarter I believe you mentioned we have 40% of Ethereum’s daily transactions; I think we’re clocking in anywhere from 70% to 80% on certain days if not even higher. Over the past few weeks we’re only seeing continued growth and we’re really excited for the pipeline of things that are going to come.
John Nahas (16:24): One other quick point is one of these metrics that the product team closely tracks is inflows across the bridge versus outflows; what that tells us is there is a compelling use case once they cross the bridge. People are finding the ability to use; it’s three across to one back right now and that fluctuates, it gets up to four but that’s telling us, okay, there is a compelling use case on the other side. People are finding that the time to finality, and the low fees are worth sticking around for and then they’re discovering other avenues onto it. Maybe they’ll start with Aave and Curve but then they discover a Penguin, or a Trader Joe, or a Platypus so there’s all that. There’s a lot of these native applications that are popping up that are also starting to create their own market share and really do innovative things.
Lydia Chiu (17:20): Yeah and one of the other metrics I like to look at personally is the daily active addresses relative to monthly active addresses because you’re talking about engagement at that point. We’ve been growing exponentially in Q4 and December or January, we’re at that 800,000 [monthly addresses] mark but the daily active addresses really shows how many people are creating addresses and using the platform every day and that ratio has held constant, the average users per day. I think that’s really promising because folks aren’t just bridging across and then doing one transaction and not coming back; I think it shows that people are staying, and they’re actively participating in the ecosystem.
John Nahas (18:07): To Nick’s point real quick on the bridge outflows I think an important thing to keep in mind is up until a point, the only way you could get out of the ecosystem is to go through a centralized exchange. If you want to go into dollars you’d have to go through Avalanche or to bring ETH back over [the bridge], wrap the ETH, and go out that way. Primarily, with USDT and USDC we have wrapped bridge versions right so USDC.E, USDT.E. With the integration of native USDC and USDT on Avalanche, we see exchanges start to support those native stablecoins. You’ll start to see less outflows or we anticipate seeing less outflows from the bridge from Avalanche back to Ethereum so that people could bridge their USDC and USDT back to an exchange or to an Nexo or to a Celsius or whatever it is that they might be kind of holding their stables you’ll be they’ll be able to go straight from the Avalanche ecosystem into an exchange. We anticipate that number to start going down.
Chase Devens (19:13): Awesome, um so we’ve got about like 10 more minutes to talk about the metrics and activity from Q4 before I turn it over to James to focus more on some of the qualitative events and drivers of this growth. We have a question though from Gucci in the chat; they say, “How will Avalanche plan to keep its user base once Avalanche Rush incentives are depleted or other protocols are offering better incentives?”; and follow-up to that is “How might subnets play a role in terms of building out the Avalanche ecosystem?”. One additional question from me is: could you also touch on you know how long you guys are planning to have the Avalanche Rush liquidity mining campaign run for?
John Nahas (20:03): So, Avalanche Rush was announced for $180 million; I don’t have exactly the amount that’s been deployed to date but there’s still a significant amount left. It’s not, as everybody here has noticed, just a dump the money in and see what happens [kind of] approach. We’ve been very methodical with who we want to support, what projects we want to support in a thoughtful way. Avalanche Rush is still ongoing and we anticipate it going through the rest of this quarter, if not longer. Credit to Gucci for keeping an eye on what’s going on in the ecosystem because he definitely can start to see the rumblings of where this is going to go next. Rush was a great program, there are other programs that can come after Rush. We’re working through a bunch of that on our end. Without giving out too much there’s a lot happening. I think you’re already starting to see rumblings around subnets: the ability for the network to continually scale horizontally, GameFi, a million other applications that are in process right now on that side.
Lydia Chiu (21:04): In addition to the Rush liquidity mining program there are other pieces in the ecosystem to support growth of projects coming onboard. There is also Blizzard, the ecosystem fund. The funds’ mandate is to promote and accelerate growth and innovation on Avalanche and that means encouraging native projects to build and developers to come here and build out primitives that we’re missing. At the end of the day, it’s really about having a more holistic approach to the ecosystem and having pieces that keep users here. Users want things to do, that’s what drives transactions, that’s what drives the activity. If we have a robust ecosystem with the right apps and protocols here then we’re going to put all of our resources to promote that growth, that’s what’s important.
Chase Devens (22:02): Got it, so the last section that I want to touch on with you guys is the aspect of decentralization and that always seems to be one of the largest debates on these smart-contract platforms. Everyone has very different definitions of what decentralization is. I’d be curious to get your take on how you would quantify decentralization and how you believe that Avalanche is able to scale while maintaining step-decentralization.
Nick Mussallem (22:44): So, I can jump in here and then Lydia, John you can jump in. The number of validators currently running that are supporting the network is one of the key metrics we look at; it’s not like there’s 10, 15, or 21; we’re well over a thousand at this point. The number [of validators] keeps growing so that’s a primary metric. The other thing that we look at and how we plan to scale it is through the growth and launching of subnets. Subnets essentially give us theoretically infinite scale. You can take aspects that are currently running on the mainnet and run them on a subnet and have everything interact and interoperate. Subnets are its own chain that’s handling that scale that also has the ability to write its own rules around gas fees, emissions, validator rules, who gets to validate, who doesn’t, what the native token is so; it really gives a lot of flexibility to be able to scale the network up, you’re starting to see that specifically. I think John mentioned GameFi which has different tokenomics and different needs than just what is on the mainnet. They’re starting to build these custom subnets to be able to have their own chain that has ownership with the ability to control the scalability of that at the same time and how they’re tuning and configuring it.
John Nahas (24:05): As of today I just checked, we’re at 1,232 validators. The minimum stake there is 2000 a box so there is a future where that threshold could be potentially lowered in which case you can see it continue to explode the number of validators. From the metrics that I see, the Nakamoto coefficient is probably the best indicator of decentralization. From what I saw last week, we have the highest score amongst the other proof of stake chains. I think we have the highest score amongst the rest of the competition in that regard.
Chase Devens (24:44): I was looking through the data, it’s not like the Nakamoto [coefficient] fluctuates heavily despite you guys averaging in the high 20s low 30s; overall for network security that’s really strong. For those of you who might not know what the Nakamoto coefficient is, it’s basically a measure of the minimum number of validators that would need to be compromised in order to collude against the network. A lot of these chains have smaller validator groups such as Binance Smartchain, it’s only just a small handful that you can count on one hand. You would need to get almost 30 [validators] here. With that, James I will turn it over to you to go into depth more on some of the events and catalysts that really drove this growth that we’ve been talking about here.
James Trautman (25:51): Yeah definitely, thanks! First of all, just listening for the first 30 minutes here is all very insightful. Taking a quick step back and thinking about the work that Chase and I did over the last quarter and what we’re planning to do going forward. This starts with data driven insights. We start with looking at what the data is telling us and what we basically just discussed here is high growth in every metric that we were evaluating, all the way from number of addresses [to] daily transactions. Some fundamental activity going on in the network. Of course, TVL and revenue to the protocol was growing so once we see that, it begs the question of well what’s the drive or why is that right? I think your conversation there touched on a couple of different things and there is really no one single reason or answer but thinking back to what you all just discussed; obviously you were prepared for it before it happened, before this growth occurred. As you were developing the core platform improvements and upgrades through Apricot and then the launch of the bridge led itself up to a perfect timing to just let the floodgates open. We were working through that again with incentives and the Rush program, so as we were looking at it, it’s like okay “Well yeah of course the incentive program has a bit to do with it and the bridge has a bit to do with it.”. You still kind of wonder like okay well why so many addresses and why so many more developers developing and deploying unique contracts? Why are there more developers on the core platform? I think that gets back to some of the things that you expressed about user experience. There was a lot for us to try to figure out and find out, like what were the key drivers? It’s not as easy as it sounds when there’s so much going on, but what I wanted to do is take a little bit of a step back and look at some more macro things that are going on that maybe are showing up in the data but maybe aren’t yet. I’d like to talk a little bit about that because we were seeing household names come across the headlines. I collected Tops baseball cards when I was a kid. I still have tons of cardboard boxes with cardboard little cards in them from Tops, so I know that name. When I see that name I get excited, and obviously in partnership with Major League Baseball, Tops is launching an NFT collection of collectibles. What other names, Deloitte, Andretti Formula E, Mastercard, there are so many that the New York Islanders and Banksy came up with this fractionalized NFT of a well-known Banksy piece. There was a mural that formed as an NFT, that’s in Chicago where Chase is right now. So, it asks the question of “Why Avalanche?”. Why launch a one-to-one NFT of Kanye West on Avalanche versus any other chain? Those questions are still out there for us. I’m curious as to what you think about all of that; which out of all of the initiatives and all the partnerships that we saw occur over Q4 actually influence the data? Perhaps they will in the future, which ones are you guys most excited about, and which initiatives that we know about are you the most excited about and see as the greatest opportunity to grow the ecosystem?
John Nahas (30:22): So I’ll start real quick, first and foremost, credit is due to Ethereum and the Ethereum community. The growth that we’ve seen happens to be the EVM. Other platforms are using other smart-contract layers. We chose EVM because to us it’s the standard smart-contract platform. The benefit that we’ve had with the Avalanche consensus of course; this is what was conveyed to all of our partners and at a point it’s not taking our word for it, it’s go and try it for yourself. When people wanted to do things but didn’t want insanely high fees to mint NFTs, for instance, on Ethereum but wanted an EVM compatible option, they came to us. We work hand in hand with our products; we’re not just a shop that says come build on us and here’s some support in some way. Whether it’s Nick working hand-in-hand with projects, Lydia working with projects, myself and the entire business development and product marketing teams, we truly treat our partners that are building on us or want to work with us as part of this Avalanche community. When Topps says “How do we take trading cards into the next century?”, this is a way to do so; so we work with these guys, but on top of the familiarity of Ethereum. The speed and the cost are a big item that’s top of mind for everybody, of course, is the environmental impact of blockchain. Today actually of all days we have a report that just went live. Ava Labs commissioned the Cryptocarbon ratings institute; this is Uli Gandalf and Ahristian Stoll from MIT and the University of Technical Institute of Munich to do a study on the carbon footprint of Avalanche in addition to proof-of-stake chains as a whole versus proof-of-work. Bitcoin, I believe, is several million U.S. households worth of carbon, Ethereum’s about one and a half million. Some of our competitors in the proof-of-stake chain—and to highlight proof-of-stake, of course, we’re in a completely different universe, orders of magnitude less. I think Solana is around a thousand U.S. households, others are like in the high hundreds. Avalanche as a chain, the entirety of which utilizes 46 U.S. households worth of carbon in a year; that is 280 metric tons of which we bought 560 to offset so we’re technically carbon negative. We’ve been working with this team, they did a complete climate controlled study, the report is live today. I urge everybody to go and check [it] out, this [report] is from climate scientists and some of the foremost scholars in this space. Speed matters, cost matters, but sustainability also matters, so when it comes to the sustainability of NFTs that’s why you see us growing the licensed product side. Whether it’s Tops or Orange Comet that had the Islanders and other NHL properties or the team over at Particle that decided to do a Banksy or all the other artists that we’re speaking to who want to do NFTs, it doesn’t fit in their ethos to do it in an unsustainable way. The sustainability angle has been a key priority for us and we’ve been driving that too; on top of all that stuff I think to your point there’s also the big names that bring credibility. The partnership with Deloitte to build products on Avalanche, the start path inclusion of Ava Labs with Mastercard. These are things that bring not just users, they bring attention not just from the daily users or the DeFi users, but from the household retail investors from several other enterprises that look for a solution that’s familiar to them like Ethereum but takes it a step forward. Avalanche does bring all the things of what a third generation blockchain should be.
Nick Mussallem (34:28): I can speak to a few other items here as well. There are other items around that have been very compelling for us. The Deloitte alliance, you saw that come out; you mentioned it and there’s been questions like how deep is that alliance? What’s really happening, are they building? Yeah they’re building, they’ve launched their first product, it’s called Close As You Go; it helps disaster recovery victims, counties, municipalities, cities to go through the process much more quickly to get the assistance they need. That product is live and it’s just taking that further because as you start to get into subnets, they have a very sharp technical team headed by Peter Mueller over there who’s looking at these use cases and saying okay how can we use subnets? How can we use the semi-public or private subnets in order to meet these government use cases in order to streamline operations at those levels? We keep working through these, we work very closely with them [Peter and team] in order to try to push new use cases out. This all takes a while, this is a lot of new technology but we very much value that relationship and we are very engaged in order to make the subnet use cases work for what their business use cases are as they go to apply them to their clients.
Lydia Chiu (35:58): I just wanted, highlight an example of the importance of sustainability and environmental impact. That funny little anecdote, over at Blizzard we speak to a lot of different projects and a lot of the new projects that are popping up are folks that want to do NFT drops with different celebrities—different well-known figures. One of the points that they highlighted today was that these guys can get canceled for being environmentally wasteful. lt’s completely in their imperative to pick a chain that is green or greener at least out of the other chains out there that they can choose from; I thought that was a funny anecdote that was timely as well.
James Trautman (36:50): Yeah, for sure, I was just thinking back to what Nick was saying about the Deloitte initiative. Early on when I was getting more involved in this space I thought “Wow, this is a great solution for disaster relief”. We’ve unfortunately experienced many of those over time. It’s problematic, the inefficiencies of any level of government to gather relief is just ridiculous. It’s encouraging to see a big four accounting firm, and really, a leader in traditional finance if you want to call it that but in any case spearheading the ability to make that more efficient. When that [Deloitte partnership] came across, I was like “Good for Deloitte, good for Avalanche”; I suspect that will be a relationship that will continue to grow and evolve as we look ahead.
Nick Mussallem (38:07): James, I think it’s unique too because it’s not around cryptocurrency in any way; it’s really tackling a workflow and making that workflow more efficient and then trying to reduce the government clawbacks. The processes are extremely complicated and they’re complicated for a reason but this makes it a lot easier to go through, everybody’s on the same page, everything’s on chain. You can see where you are in the process and you can see what’s next. If there’s any question of how this certain piece happened and the answer who you know, you get into the he said, she said, then you get into clawbacks—that costs everybody money. It’s not an efficient process so they’re using the blockchain to create efficient solutions for governments that aren’t necessarily finance related and don’t have the use of cryptocurrencies, that’s very unique.
John Nahas (38:53): One last thing, you made a good point. This is great for Deloitte, it’s massive for Avalanche but more so than that, it’s great for the broader blockchain crypto community and economy. It’s a validation for the technology and for all the FUD that we see out there about crypto this, and blockchain that, it’s unsustainable every day. There’s a new narrative that they try to smear or hold us back as an industry; I think this is validation at one of the highest levels, especially when it gets into municipalities, states, and the federal level. Blockchain technology is here to be used and it’s here to stay. There’s multiple use cases, aside wherever Ethereum is at, the use cases are here, the growth is here, and we’re continuing to grow and build not just on Avalanche but with the broader ecosystem as well.
James Trautman (39:48): Got it, yeah again I think some of this Deloitte initiative and some of these other partnerships and events that occurred, there’s a lot here. In the report we covered like 24 different major events all the way from major exchange listings which I think is important; it’s healthy for the ecosystem but not necessarily going to drive the fundamental activity that we can see in the metric like number of addresses perhaps. It goes back to the developer growth and revenue to the network, and TVL. In any case, a lot of what occurred is showing up in the data, but a lot hasn’t yet. I think Deloitte is probably an example of that and some of these other initiatives; another one that stuck out to me was Blizzard. We think about potential catalysts or sustainability, if the incentive program exhausts itself at some point over the next quarter, there are other initiatives in the works. One that stuck out to me was Blizzard and I know you spoke about it briefly, could you just tell us a little bit about how that came to be? Like, what it is and what it’s aimed at and how you think it will go going forward? What’s the strategy when it comes to the mandates you touched on? I was just hoping you could expand on that a little bit more when it comes to Blizzard.
Lydia Chiu (41:29): Yeah happy too, the team looked at the different ways that the ecosystem is being supported and one of the things it was missing was an ecosystem fund. An ecosystem fund is a very vital role because in terms of supporting developer growth, oftentimes what you need to get something started is capital. We felt it was appropriate to fill in one of the gaps and the mandate for Blizzard is to accelerate the digitization of the world’s assets and what that means is helping people bring things online, and using Avalanche obviously. That covers DeFi, gaming, NFTs—anything under the Web3 umbrella for member networks and DAOs. The mandate is to also deploy capital quickly so that the ecosystem is growing and growing very quickly. Right now we obviously need to support that growth with capital in high quality teams and projects. Over time I think we’ll see the thesis at Blizzard evolve. The fund is still very young; it closed and launched in November. Right now we’re seeing a lot of DeFi activity, we’re definitely seeing a lot more gaming, a lot of infrastructure as well. In the near future we’re definitely excited about how the next vertical on Avalanche is going to grow. It looks like gaming to me and then obviously infrastructure will enable cross-chain communication, across subnet communication potentially just interoperability and really taking advantage of the composability of blockchain.
James Trautman (43:22): Makes sense, yeah it’s also something that we’ll be keeping an eye on over the next quarter. Come next quarter we can check-in on it and see how it’s progressing. With so much activity this quarter I’d like to bring it back to the transaction activity in those momentary spikes of transaction fees; it’s really interesting to think about. When we look at the visual of daily active transactions, the fees actually declined quite rapidly as transactions were increasing. At the all-time high of daily transactions we actually saw quite a decline in gas fees; that is a result of a couple of things but I’d like to hear a little bit more about the development of the core platform. I think that was heavily the reason for that decline—as a result of an implementation of Apricot which I think was phase five point, you know, I can’t remember the exact number. When we saw the unleashing of Apricot and updates is when we saw a decline; to me, that is some evidence of a solution actually working. Thinking ahead, there are certain initiatives that you guys have internally and on the development front. Outside of the partnerships and outside of building the ecosystem, what is top of mind for Ava Labs team and just the community as a whole when we think about what’s next? I know, Nick, we’ve discussed this in the past, I think it’s important to touch on because a lot of it does revolve around technical developments and solutions that just aren’t there yet. What I’m getting at is again core development; subnets and governance. We have yet to see on-chain governance and I know that’s going to be something that we can follow over the course of 2022. In summary, tell us a little bit about the solutions that were implemented and how that fits into the vision for 2022.
Nick Mussallem (46:03): I could spend an entire hour just on this. There’s so many cool things going on. First of all, hats off to our platform team; they do the Avalanche Go Node, they’re the ones making all these changes and refining things at such a rapid pace. That team was set up by Patrick O’Grady, Steve, Dan, and Aaron. That’s exactly right; they looked at what was happening and they knew they needed to tackle those three core areas. We needed to be fast, there needed to have fast time to finality, we needed to scale, and transaction costs needed to remain low. When those spikes happened, it actually was right at the end of a release cycle when they were working on dynamic fees; dynamic fees came out right after that—it was just in time. We’re trying to anticipate what is happening and then figure out where we need to focus these deep engineering resources. These [the engineering resources] are like the giant heads in the team, they got dynamic fees out, then got Snowman Plus Plus out which dealt with congestion which also made things much faster and reduced MEV on the chain so there’s all this. Like you said there’s five phases to Apricot, I can go through all five of them, and then there’s all these really deep things in them which is, you know, Snowman Plus Plus and looking at block based fees and changing the way blocks are structured and how the state management behind this growing chain is handled. To keep it at a high level, they’re just looking at how to do exactly that, which is how to optimize performance and how to make cross-chain interoperability work better because it does become more important as we get into subnets. This last phase of Apricot has [been] pruning a lot around state management because it is getting quite big. There’s some fast sink-in there and they’re really getting into making the x-chain and optimizing that. As it [x-chain] becomes a bigger part of the ecosystem will get more usage and then after that it’s just subnets. At this deep tech level you’ve seen Patrick’s been releasing spaces which was an example for developers to reference. The way we look at it, we organize our roadmap into four core areas; at the back of it is that core tech one, then and as you go up a layer from that you get into the core properties, and the core properties are those things that allow users to leverage this technology. While the platform engineering team is deep in the weeds there’s another team that’s just focusing on how does the user best interact with that, and that’s when you start to get into the wallets and their various incarnations, bridges, the explorer. There’s a ton to focus on that right now, and you will see multiple releases along those lines of creating a better core properties experience. We don’t call it a wallet experience because what we’re doing is we’re taking all the aspects of these core properties and combining them into this curated experience to try to abstract a lot of the technology away. We don’t want people to think “Oh hey I’m using blockchain right now!”, we want them to think “I’m trying to do ‘x’ and ‘y’ is helping me do that.”. And to create an experience that allows them to see you shouldn’t have to go to an explorer to see your most recent transaction, it should just be right in your face as it’s doing and you should be able to see the state of it sending, transferring, buying, swapping, all those things should be right at your fingertips rather than having to go to these disparate places. We’re working on these curated experiences to keep the user interaction and the user workflows to something that people are familiar with rather than something that feels very foreign to them. As you go up a step from that we kind of get into the builder world like you said it, the developers and the builders and the people bringing projects to the platform are critical. We have a whole team focused on building modules that are going to help them get up to speed faster. If you’re a game developer we want you to be able to focus on the game, not the blockchain infrastructure, not the tokenomics; you can focus on the game and you’ll be able to pull from these modules to get to market more quickly than if you had to do all those things yourself. This goes into push button node deployment, push button validator, easy to access APIs; this list just keeps going on and on and then at the end of that there’s the external projects themselves. We have a whole team that supports those projects and really makes sure that they do have questions, especially as they get into the usage of subnets and things that are now. We’re there to help them along [on] the way to get to market quickly with the best product possible. Also, they’re informing us on like; “Hey! Subnets need to be able to do this”, we might be like “Oh we didn’t really think of that!”; so you know we add that into the backlog. We do these prioritizations and then we’re churning out this work based on where the demand is.
James Trautman (51:37): Excellent, just recapping that in different layers, I’ll probably get them out of order, but as we’re looking again looking ahead what’s top of mind is the core platform, developing Go, and EVM development for chain optimization, making node launches faster building out infrastructure to make it easier for users to access the ecosystem development, subnets that will allow for builders to go to market quicker. I think you mentioned before segmenting off into, I like the use of the word, cultures; that’s mentioned in the Blizzard announcement. That’s maybe a shift from something like NFTs to gaming, like Lydia had mentioned maybe is an area of focus now as we look ahead. I think that kind of captures all the different pieces but what we’ll probably pay attention to though is, like yeah, let’s take a look at that over the next quarter and beyond; how is the user experience evolving and can we see that in the data that we continue to collect and evaluate. That’s very interesting and very insightful, so I appreciate you guys sharing what’s top of mind without diving too far into it and disclosing some of the proprietary things I’m sure you’re working on. I appreciate that, I think we’re coming up on time here, any closing thoughts?
Chase Devens (53:22): Selkis, did you have anything for them to add? Otherwise we can take a couple of these community questions.
Ryan Selkis (53:28): This is great, I just want to thank you all again for joining. We do have five minutes left for a set of lightning round questions so we can funnel those. Chase you can pick from them and we’ll see how many we can get in the next four minutes 30 seconds.
Chase Devens (53:47): Awesome, I’m just going to go down the list from most upvotes, if you guys don’t want to answer them just feel free to skip it. The first one is: “Avalanche will compete against ETH (Ethereum) L2 and that could eventually cost less than one cent per transaction, what is Avalanche’s scaling strategy against that? Subnets will likely cost more gas fees in comparison to ZK roll ups.”.
John Nahas (54:13): Happy to go head to head with those once they’re live and actually performing but we’ll see what happens when they come.
Nick Mussallem (54:25): Yeah I think L2s have their own set of challenges. We’re not gonna get into all of the differences right now. In subnets you can actually set your own gas fees so you could keep them extremely low if you wanted to. If you’re a builder you will be able to establish the subnet and you can set the rules on how that blockchain works. Now, there is we’re going to advise you like “Hey, that’s not going to be a very secure way of doing it.”. The L2s are doing some very interesting things and a lot of this technology is still evolving as we go through so it’s kind of like a wait and see. We just focus on what we think is very important and work with those goals.
John Nahas (55:10): I just think it’s just apples and oranges. An L2 is an L2, Avalanche could be considered an L1 or even an L0, so I don’t think there’s really a head-to-head competition or comparison that is fair. In the future, stuff, well, I guess we’ll wait and see when that comes.
Nick Mussallem (55:28): lt relies on the L1, so, if the L1 has problems, the L2 is going to have problems. You can get into levels of technical details further than that but that’s just one of the struggles. All the technologies have their own challenges and there’s a lot of smart people trying to solve those problems. Again, I think we’ll see how it plays out.
Chase Devens (55:51): It’s truly an industry of trade-offs, next question has to do with regulation and there’s like three different questions in here so I guess broadly, “Has Avalanche been working with regulators, how are you guys approaching that space?”
Nick Mussallem (56:17): The main thing here is our general counsel, Lee Schneider, he’s fantastic. He’s very connected into this space, he’s one of the oldest attorneys in the business. He’s formerly at EOS, and he’s very connected into the regulatory circles. He’s always paying attention [and] constantly reading and sending us updates and summaries with his team on what’s happening. In the most recent reports an executive summary goes out to everybody; it says here’s what’s going on, here’s what we’re learning, and then they give a point of view on what’s happening.There’s certainly relationships behind that, too, I know Goon has specific relationships with regulators. We’re always trying to kind of stay on the cusp of what’s happening, it’s definitely a changing landscape and so you know we just try to see what the latest information is and then make decisions based on that.
John Nahas (57:12): I think to the next point, whether on the legal side, or on the leadership side we’re not a lot of people in this space. You’re always playing catch up to what regulations come, if and when they do. We tend to kind of skate where we think the puck is going. We’re always being proactive, looking ahead, wondering what if and what could happen, and positioning ourselves in a more compliant way in the future and working with regulators to educate them. I think Ryan does a great job of this daily on Twitter, whether they read it or not is a different question. Regulators for the most part love the sound bytes. Policy makers love the sound bytes but aren’t aren’t really putting in the time and effort to learn, so part of our job more than just being compliant or hoping to or kind of skating to where the pucks going in terms of compliance is also sitting down working with regulators, teaching them, and educating them, and to their credit some are very proactive and helpful, champions of the industry. Lydia.
Lydia Chiu (58:18) We spend a lot of time thinking about how we can best educate and get the regulators to better understand all of the different use cases without throwing out a blanket statement saying that all cryptocurrencies are securities or all cryptocurrencies are commodities. There’s obviously nuances so we definitely want to make sure that we’re putting our best foot forward as representatives of the industry to provide them with all the resources that they need. Ultimately it comes down to working together to grow the space as opposed to trying to constrict the growth of blockchain as a whole just because we could have done a better job educating everyone.
Chase Devens (59:04): Yeah, I love that point, all of us working together you know, it’s not necessarily one network versus another network. We’re all playing this game trying to get regulators to understand what all this is ultimately about; as Selkis always does on Twitter for us.
John Nahas (59:22): I want to jump on this because this is something that we try to focus on. Look within Crypto Twitter, we’re all fiercely competitive, as we should be—like steel sharpened steel, all that great stuff. We should compete against others and everything else but at a core level, you know, I like to use this analogy, it’s probably not the best one but, were like mice feeding off little crumbs when there’s an entire kitchen out there. What we’re building, what all of us in this industry are doing, is trying to move this industry forward. If people are too busy fighting amongst themselves on the basic things that we need to work together on, as an industry to move forward, we’re trying to go after the incumbents. We’re trying to go after TradFi, we’re trying to change the way that these systems are right now and make it more accessible, faster, cheaper, easier, less opaque, more transparent, every other buzzword you can set. If we’re too busy saying “No, ETH. No, AVAX. No, BTC.”. Whatever it is, we’re fighting each other instead of at some level working together to move all of us forward against the way that we’re trying to fight.
Chase Devens (1:00:32): Totally, couldn’t have said it better myself, it looks like we’re at the top of the hour now. Thank you to everyone who tuned in, asked questions, and participated in the chat. I thought this was a really great conversation. If anyone has additional ideas or metrics that they’d like to see in future quarterly reports please feel free to pass them our way. Find us on Twitter, or go through the Messari website, we’d love to chat with you. Selkis, you got any parting words?
Ryan Selkis (1:01:08): Thank you, and we’ll do it again next quarter.
John Nahas (1:01:10): One thing real quick guys, we’re having the Avalanche Barcelona summit 22nd to 29th, we’d love to have everybody on this call or all this cast join us in Barcelona to learn more about the Avalanche ecosystem, meet partners; Ryan, we’d love to have you up on stage, on a panel or something. This is an official invitation, we’ll follow up with you and the rest of the team. We look forward to seeing you there too.
Ryan Selkis (1:01:35): I appreciate that and I’m sure we’ll have at least some representation there. I basically just go where my team tells me, so we will see what the calendar looks like. A lot of great people on our team as you can see from this report and this call itself, thank you everyone and we’ll be in touch soon, hope everybody enjoyed this latest quarterly call. If you have any comments on the report itself, the substance of this call, what would you do better, what we could automate and what we could ultimately do to scale this, we are all ears. We’re early on in this beta for Massari’s quarterly initiative, so thanks again everyone and really excited to run it back in April. Thanks so much, thanks everyone, everyone take care.
