*Note, SWOT is an analysis of operational/fundamental elements. This is not a model to be used for technical or trading purposes. (NFA, DYOR)
Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for evaluating the state of a project’s well-being through the lens of a birds-eye view.
It can help formulate decisions on what areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.
Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.
💪Strengths (Internal) (Helpful)
1. Subnet System
Interoperability was, is, and will be a fundamentally important aspect of technological innovation. Avalanche utilizes an interchain architecture using subnets. Subnets are individual blockchains launched for their own purposes, by their own communities. The ability to deploy chain on-demand is attractive to new entrants to the marketplace with its modularity and flexibility around dictating the operational specification (finality, transaction throughput, consensus model, etc.). By abstracting away the immense infrastructural necessitations for building blockchains from scratch, Avalanche becomes capable of attracting enormous amounts of economic value. When adding customization to the interoperability and tieing it together with security and scalability, Avalanche seems like a perfect solution for many startups.
2. Triple-Stack Architecture
Avalanche is actually a single system that is composed of three different underlying blockchains. The project initially set out to solve the single biggest technological problem in the industry called the “Blockchain Trilemma”. To do this, they developed an architecture that splits the computational logic into three distinct components with each form of logic getting its own dedicated blockchain; X-chain, C-chain, and P-chain. The X Chain stands for exchange chain and is explicitly designed to handle trade-related functionality. C-Chain stands for contract chain and is designed to deal with decentralized applications. P-chain is the platform chain that deals with the coordination and management of nodes and subnets.
3. Growth in crypto-stablecoin (Btc.b)
Bitcoin being the reserve asset of the industry, nearly all advanced protocols are always building up their treasuries or actively pursuing the injection of BTC into its on-chain ecosystem via wrapped assets. Avalanche is among the few leading projects that have been able to attract Bitcoin into its ecology via the BTC.B protocol (Bridged Bitcoin). Despite the presence of tumultuous macro market conditions, the amount of BTC.B reserves has actually been growing. Interest of this type shows strong levels of confidence in the security of the technology.
4. Business Development is Excellent
The core team of Avalanche is not just technically gifted, they are keenly aware of foundational socio-economic principles underlying successful implementation and express this through their devotion to Business Development.
5. Avalanche Consensus
Another technical element that makes Avalanche stand out is its own distributed consensus mechanism called Snowman. The genius of its design is found in how neatly it extrapolated the most desirable properties for distributed systems by combining the highly secure, decentralized, leaderless Nakamoto consensus with a novel stake-based DAG (directed acyclic graph) consensus transaction model. Most notable about its consensus model’s security is the claim that it is resilient against the strongest network attack that even Bitcoin cannot protect against, the 51% attack. Considering such lofty security guarantees are coupled with its throughput of 6,500 tps and sub-second blocktime, the technology is almost too good to be true… But it works!
6. Thorough Documentation
So many projects, especially from the newer generations, lack providing the intellectual infrastructure of well-made documentation. Few projects go the extra mile to cement their thought leadership in this domain; Avalanche is the absolute hallmark of excellence when it comes to this. They have a breadth of organized, orderly, easily accessible, documentation (in the form of blogs, whitepapers, developer guides, and other resources) that succinctly describes every individual element of their thinking. When comparing documentation repositories of the top 100 projects on CoinMarketCap, AVAX easily belongs in the top 5.
😞 Weaknesses (Internal) (Harmful)
1. Loose AVAX Tokenomics
Despite the brilliant architecture, Avalanche’s ecosystem is not hard tied to the token. Being able to capture the delta of value from different networks for their individual and cross-chain needs seems like an obvious win. However, the current tokenomic design does not require subnets to pay for their activities in AVAX; they actually allow subnets to specify which token they want to use (and many opt for their own).
2. Low Circulating AVAX Supply*
Being a tier-one project, it is interesting to find two shortcomings that are related to the token of the project. One thing about AVAX that stands out is its low circulating supply. Marked at ~48% as of this writing, the circulating supply of AVAX is the lowest among the top 40. This could be due to imperfections in the accounting methodologies, but in any case, having a sub-50% circulating supply (especially for a project that is ~3 years old) does result in potentially undesirable price suppression and excessive volatility.
🧐 Opportunities (External) (Helpful)
1. Major Protocol Integrations
Many of the industries leading projects including, UniSwap, OpenSea, LayerZero, Balancer, Tokeny, UnoFarm, and The Graph, among others, have expressed support for the Avalanche ecosystem. Considering that AVAX is already home to a few tier-one protocols (AAVE and TraderJoe) the influx of interest from other prominent protocols will lead to a positive feedback loop for on-chain TVL with interchain, interasset composability.
2. Attracting a new generation of GameFI
Defi Kingdoms is considered to be one of (if not the) most successful blockchain-based games thus far. Their experimentations have led to results so positive that some of the most powerful gaming entities becoming attracted to launching their own subnets for their gaming communities. Team SoloMid (TSM), one of the gaming industry’s more recognizable esports organizations will be launching their Blitz Subnet and using AVAX as their gas token. GREE, a Japanese gaming and media conglomerate has joined the ecosystem. LOCO, an Indian Streaming platform has signed on and also agreed to deploy its own dedicated subnet. In addition to all of the incoming participants, Avalanche has been putting in substantial efforts in hosting metaverse gaming events by attending/sponsoring gaming expos.
3. Partnerships with Dominant Web 2 Giants
Amazon Web Services (AWS) partnership program to promote the adoption of blockchain technology and one-click AVAX node deployment. Tencent Cloud partnership for providing Avalanche Subnets to institutions, enterprises, and governments. Relationships with Web 2 technology companies of this caliber hint at broader adoption and potential for building new partnerships with greater ease moving forward.
😳 Threats (External) (Harmful)
1. On-Chain Metrics are stale
Key data points that leading base layer blockchain projects use to distinguish themselves and establish prominence such as the amount of active verified smart contracts, active developer count, active addresses, and transaction volume are surprisingly laggy and have not had the same rate of change in the positive direction as other networks of similar level.
Avalanche is a technological powerhouse. The level of innovation happening at the base layer protocol and the unique angle that the project has taken, positions it to outgrow many of its potential competitors. While the lackluster tokenomics and on-chain metrics may present themselves as unfavorable, once they are addressed, nothing is stopping AVAX from setting industry-breaking records.
I rarely regard documentation as a metric for gauging a project's health, (this should just be a given), but in my opinion, Avalanche strikes the perfect balance of informational provision.
This SWOT most likely has been skewed by my bias. I do hold some AVAX and believe in the project. Fundamentally, Avalanche might just be the only solution on the market that might be able to solve the blockchain trilemma; if this happens, then the project will be inducted into the technological hall of fame and leave its mark on the industry for eternity.
If you know something that I don’t or feel as though I might have missed anything worth noting, please do share, I would tremendously appreciate some feedback.
Thank you so much for reading,
I hope this serves you well on your journey.
Live long and prosper 🥂