Table of Contents

1. Intro

2. Avalanche’s Vision

3. Subnets: The Key to Achieving Avalanche’s Vision

3-1. Subnets Isolate Network Failures and Monopolize Resources

3-2. Unleashing Infinite Scalability with Avalanche’s Dynamic Subnet Creation

3-3. High Flexibility That Satisfies Various Subnet Operators’ Needs

3-4. Native Communication Protocol: Connecting Disconnected Ecosystem

4. Time to Scale the Subnet Ecosystem

1. Intro

"Our goal is to digitize all the world's assets on blockchain. To that end, we design the entire system to have the scale and the structure necessary for digitizing all things." - Emin Gün Sirer, founder of Avalanche

Avalanche is a platform with the ambitious goal of digitizing all of the world's assets on blockchain. To achieve this, Avalanche has introduced the Snowman consensus algorithm, which offers fast finality and horizontally scalable subnets. In this article, we will delve into the technical characteristics of the subnet and assess the feasibility of realizing Avalanche's vision. Additionally, in the next installment, we will examine the current state of the subnet ecosystem, with a focus on on-chain data.

2. Avalanche’s Vision

Avalanche has a bold vision of digitizing (tokenizing) all assets using blockchain technology. The platform aims to bridge the investment opportunity gap by providing public access to assets that were previously limited to a small number of market participants. This will enable individuals to discover new investment opportunities while adding liquidity to the market, providing asset owners with the opportunity for proper price discovery, and giving asset markets a more efficient structure.

To achieve this ambitious goal, Avalanche requires a structure capable of accommodating a wide range of assets and processing a large number of transactions. To address this challenge, Avalanche introduces the concept of subnets. These subnets are infinitely scalable and able to distribute transactions, enabling the platform to handle the high throughput required to tokenize all assets. We will explore the specific characteristics of subnets that make this possible later in the article.

3. Subnets: The Key to Achieving Avalanche’s Vision

Contrary to popular belief, a subnet on Avalanche is not an app-specific blockchain. Instead, it is a group of validators working together to achieve consensus on the state of the blockchain. Every Avalanche validator is a member of the primary network, which is a higher-level concept of subnet. The Primary Network is responsible for validating and securing the Platform Chain (P-Chain), Exchange Chain (X-Chain), and Contract Chain (C-Chain) that comprise the Avalanche platform. In addition to this, validators can form subnets to validate one or more blockchains designed for specific applications, hence the term subnet=appchain.

3-1. Subnets Isolate Network Failures and Monopolize Resources

A subnet is an independent network that operates separately from other subnets including the primary network. It does not share networking, execution, or storage resources, which means subnets can monopolize 100% of network resources, providing a seamless user experience. This is in contrast to the L1 (C-chain) where many dApps compete for limited resources.

For instance, the P2E game Crabada generated a significant number of transactions in the first half of 2022, causing fees to skyrocket on the C Chain. This resulted in non-Crabada users having to pay high transaction fees. However, subnets operate as their own network and are immune to spikes in fees and slowdowns in transaction speeds caused by transactions on the C-chain or other subnets.

Moreover, subnets can isolate network failures. If a network failure occurs in Subnet A, it will have no impact on Subnet B or Subnet C, and even if the primary network fails, subnets will remain unaffected.

This ability to isolate network failures is crucial to the realization of Avalanche's vision. To trade and utilize various assets on Avalanche, it is essential that they are not affected or constrained by the state of other assets.

3-2. Unleashing Infinite Scalability with Avalanche’s Dynamic Subnet Creation

To accommodate a large number of assets on Avalanche, an infinitely scalable structure is required. Avalanche's Subnets can theoretically be created infinitely, and chains within subnets can also be created infinitely. The foundation of this infinite scalability is the Snowman consensus algorithm that all subnets adopt.

• The Snowman consensus algorithm achieves consensus through repeated sub-sampled voting. It randomly selects k (1 < k < n) nodes from a total of n nodes and asks for their opinions. If the same opinion is repeatedly obtained from α (1 < α < k) nodes more than β times (β ≥ 1), the opinion is adopted as their own opinion. The values of k, α, and β can be set arbitrarily, and consensus is achieved by repeating the process. For better understanding, check out a demo of the algorithm at the following link.

The Snowman consensus algorithm achieves fast consensus by only communicating with a subset of k nodes during the consensus process, rather than all nodes. This makes it possible for the consensus algorithm to scale as the number of nodes increases. Additionally, there is no limit to the number of subnets that can be created, since a subnet is a network formed by specific validator(s) rather than all Avalanche validators, and only communicates with those selected validators. Chains within a subnet are also unlimited since the consensus algorithm is separated per chain.

In comparison, Polkadot Parachains, which have similar features to Avalanche Subnets, are limited to 100 slots. When selected as a para-validator to validate a parachain, the computational load increases exponentially with the number of parachains because validators need to validate all parachains and exchange messages with all other validators in the consensus process. As a result, projects need to participate in auctions for limited slots at a high cost. Moreover, since slots are rented for a certain period of time, there are limitations to sustain the ecosystem.

3-3. High Flexibility That Satisfies Various Subnet Operators’ Needs

Subnets have the advantage of being highly flexible on multiple fronts, allowing projects to build chains with parameters that meet the requirements of the subnet operators. This allows for a tailored environment to suit the traits of each asset.

Custom VM Providing Ease of Development and Seamless UX

The most prominent feature of the Avalanche subnet is that it allows projects to choose from a variety of VMs—including not only EVM compatible subnet-EVM but SpacesVM, TimestampVM, and BlobVM—or to develop their own custom VMs. The wider selection of VMs can help boost both ease of development and user base.

• Subnet-EVM: Since projects can build EVM-compatible blockchains, they can leverage existing Ethereum’s programming language (Solidity), tools (Metamask), and development tools (Remix, Truffle) and provide a user experience akin to Ethereum.
• Custom VM: Developers are provided with convenience since projects can either fork the existing VMs, e.g., subnet-EVM, or freely configure third-party VMs, e.g., Solana VM and multiple programming languages, e.g., Go and Rust, are also available. HyperSDK—an SDK designed to make development of custom VMs easier by providing pre-set interfaces that are difficult to configure—was released in February this year, and will be made available on the mainnet after the stabilization phase. 
• SpacesVM, TimestampVM, and BlobVM: Proof-of-Concept VMs developed by Ava Labs to demonstrate that not only EVM but VMs with key-value storage can be implemented. They are currently implemented only on the testnets.

Permissioned/Permissionless Architectures Enabling Control or Decentralized Security Over the Assets

A subnet can adopt either a permissioned architecture, where only certain validators are granted access, or a permissionless architecture, where anyone can participate as a validator.

In the case of a permissioned subnet, the risks of malicious attacks can be minimized as the node with the control key has the authority to add or remove only certain entities as validators, verify KYC/AML compliance to meet regulatory requirements, and avoid performance degradation by checking hardware specs. As such, the company that tokenizes its assets takes control of the assets and can flexibly respond to possible changes in the future, such as regulatory changes.

On Elastic Subnet, on the other hand, anyone can become as a validator by staking the subnet’s native tokens in the Avalanche P-Chain. For projects that have had difficulty attracting validators in the early stages of their subnet, the incentive of staking rewards will make it easier to secure validators, which in turn translates into decentralized security. Elastic Subnet will later be available on EVM subnets.

More Freedom in Tokenomics Design

Subnets also provide a high degree of freedom in designing tokenomics as projects can freely set the type of native token, maximum supply, fee standards, and validator rewards. Unlike C-chain, where transaction fees must be paid with AVAX tokens, subnets can make use of their native tokens, allowing for additional fee income for subnet operators. Moreover, for companies that are hesitant to issue tokens for regulatory reasons, the fact that transaction fees can be set to zero on subnets suggests a more business- and regulation-friendly environment.

3-4. Native Communication Protocol: Connecting Disconnected Ecosystem

As Avalanche accommodates more and more assets, seamless communication between assets becomes increasingly important. This requires fast and secure asset transfers between subnets. Traditionally, subnet operators had to build bridges on their own or use third-party bridge services for such purpose. Released late last year, Avalanche’s native communication protocol, Avalanche Warp Messaging (AWM), enables faster and more secure asset transfers between the primary network and subnets and between subnets themselves. Its capabilities are limited to messaging at the moment but asset transfers are expected to be available by the end of the first half of this year. 

How bridges used to communicate | Source: Avalanche

AWM works as follows:

• Subnet validators register their BLS public key on the P-chain → Subnet A produces a BLS multi-signature → Subnet A sends a message with the BLS multi-signature to Subnet B → Subnet B looks up Subnet A Validator's BLS public key and stake weights on the P-chain → Subnet B verifies the validity of the message by checking a certain percentage of stake signed (e.g., 70% or more stake signed).

How AWM communicates| Source: Avalanche

AWM is able to perform because every subnet validator must validate the primary network, during which all information related to subnet staking is recorded on the P-chain. This way, validators on subnet B can access the BLS public key and stake weights of subnet A at any time.

In the case of Cosmos, zones in the Cosmos ecosystem communicate with each other using the Inter-Blockchain Communication (IBC) protocol, which bears similarities with AWM. Unlike AWM, however, message verification in IBC involves a continuous exchange of headers between the validators of each zone, and zones that do not exchange headers are unable to communicate. Avalanche enables instant inter-subnet communication and message verification without involving a cumbersome process of exchanging headers. 

4. Time to Scale the Subnet Ecosystem

While Avalanche envisions digitizing all assets on the blockchain and has presented subnets as a means to achieve that vision, only the DFK subnet has so far achieved a significant volume of transactions. Even Crabada, which once generated a substantial volume of transactions on C Chain and moved to its own subnet, Swimmer Network, announced its decision to sunset the operation on April 23. Yet, Avalanche’s journey ahead still warrants attention. Subnets provide the technical foundation to fulfill the vision: an infinite amount of space to house numerous assets, a wealth of customizable features to build environments tailored to each asset, and communication protocols that enable secure and instantaneous interaction between assets. Now seems to be the time to expand the subnet ecosystem. In our next report, we'll take a look at the overall state of the subnet ecosystem as well as Avalanche's strategy to expand the ecosystem for the coming years.