Avalanche has recently captured significant attention within the blockchain space. The catalyst behind this surge in interest is the Avalanche Foundation's announcement of a $180 million liquidity mining incentive program. This initiative has led to a remarkable increase in Total Value Locked (TVL) on the chain.
As an active participant in the Avalanche ecosystem, even during quieter market periods, I've gathered insights into its user base and future potential. This article explores the ecosystem's structure, key early projects, and possible investment avenues.
Understanding the Avalanche Network Structure
The DeFi activity on Avalanche primarily occurs on its "C-Chain," the Ethereum Virtual Machine (EVM) compatible layer. It's crucial to understand that the Avalanche protocol consists of three interconnected blockchains: the X-Chain, C-Chain, and P-Chain.
Exchanges often use the X-Chain for deposits and withdrawals. Users can transfer assets between exchanges using the native Avalanche wallet and then withdraw to a MetaMask wallet on the C-Chain. Alternatively, the platform's newer bridge offers a more streamlined experience for moving assets.
Historically, the user experience on the C-Chain and the original AVAX bridge was costly and somewhat cumbersome, which initially limited user adoption. The early user base consisted mostly of blockchain-native individuals holding AVAX tokens and yield farmers chasing high annual percentage rates (APR).
Key Early Projects on Avalanche
A core group of users persisted through the first six months, building a foundation for the community. During this time, participants enjoyed substantial APRs, sometimes reaching triple or even quadruple digits, though they also witnessed periods of rapid capital flight.
The recent incentives have accelerated growth. Here are some of the notable early projects that form the backbone of Avalanche's DeFi ecosystem:
Snowball
This was one of the first yield farming aggregators on Avalanche. It has evolved into a robust platform offering auto-compounding, Initial DEX Offerings (IDOs), and stablecoin vaults. Think of it as a native Curve-like protocol with additional yield-enhancing products.
Penguin Finance ($PEFI)
A long-standing project offering IDOs, compounded yield farming, and a locking model with xPEFI for enhanced rewards. Its roadmap includes a sports prediction market and a gaming platform called "Penguin Arena."
Pangolin ($PNG)
As the first decentralized exchange (DEX) to attract a significant user base to Avalanche, Pangolin served as a major initial catalyst. It has matured over recent months, establishing strong community governance and remains one of the highest-valued dApps on the AVAX C-Chain.
Trader Joe ($JOE)
A newer DEX that gained traction due to perceptions that Pangolin's development pace had slowed. It has become a favorite among yield farmers and integrates well with other ecosystem projects like Snowball and Penguin Finance.
BENQI
This is the first native lending market on Avalanche. It is expected to improve capital efficiency significantly in the coming weeks and months.
Sherpa Cash
Positioned as a privacy solution for Avalanche, similar to Tornado Cash on Ethereum. Please note that its product had not launched at the time of writing.
Yield Yak ($YAK)
An auto-compounding service whose prominence within the ecosystem has fluctuated.
Other early projects like $LYF, $GDL, $ZERO, and $BAG (a DEX) have also seen activity, though they may be less familiar to new users.
Evaluating the Investment Landscape
For newcomers, many of these projects may appear small or confusing. It's challenging to pinpoint which will ultimately capture lasting value. The coming months will likely see a surge of new projects and products on Avalanche DeFi.
It's important to state that not every project represents an obvious "early" opportunity. The ecosystem's TVL skyrocketed from $250 million to over $800 million in a 48-hour period, demonstrating both immense interest and potential volatility.
Based on direct experience, projects like $SNOB, $PEFI, $JOE, and $PNG have built unique moats within the early AVAX-native DeFi landscape. $PEFI and $SNOB, in particular, have presented considerable opportunities since April.
Pangolin and Trader Joe are often considered core ecosystem bets, but their risk profiles differ. JOE can appear more attractive due to its circulating market cap, fully diluted valuation (FDV), and token emission rate. However, it also carries higher risk compared to the more established PNG.
Pangolin has overcome early growing pains, restructuring its team and governance with strong community involvement. Historically, its volume dwarfed JOE's, though recent data showed JOE's volume in top farming pools nearly ten times higher in a 24-hour window.
Identifying Potential Opportunities
A useful case study is Polygon (MATIC). Its ecosystem experienced explosive growth following a $40 million liquidity mining program. Avalanche has launched an incentive program over three times larger, coupled with improved accessibility and lower fees.
Naturally, holding the native $AVAX token is a straightforward and potentially solid investment choice.
A next-tier option could be a JOE/PNG token pair, but this depends heavily on daily active users and sustained trading volume. I have exposure to both, with a larger personal allocation to $JOE.
I also see significant potential in $PEFI and $SNOB. Their communities and teams are highly active and engaged, making them hard to overlook. The Pefi team, in particular, has been impressive.
For BENQI ($QI), any debt instrument that unlocks capital represents a major on-chain investment opportunity. Furthermore, the cycle of yield farming is likely to continue, given the history of strong APRs. New projects, users, and capital will likely flow through AVAX's typical cycle. Identifying the "real" projects in the next wave could be highly profitable.
👉 Explore more strategies for identifying early ecosystem opportunities
Frequently Asked Questions
What is the Avalanche C-Chain?
The C-Chain is the EVM-compatible chain within the Avalanche network where most DeFi applications, like decentralized exchanges and lending protocols, are deployed. It allows users to interact with dApps using MetaMask.
How do I start using Avalanche DeFi?
You first need to acquire AVAX tokens from an exchange. Withdraw them to your Avalanche wallet address on the C-Chain (using the Metamask network). You can then use a bridge to transfer assets from other chains or use the built-in Avalanche bridge.
What makes Avalanche different from other blockchains?
Avalanche aims for high scalability and fast transaction finality through its unique three-chain architecture (X, P, and C Chains). Its consensus mechanism is designed to be lightweight, enabling high throughput and low costs.
Is yield farming on Avalanche safe?
While the technology itself is robust, all DeFi activities carry risks, including smart contract vulnerabilities and market risks associated with farming lesser-known tokens. Always conduct thorough due diligence on any project before providing liquidity.
What was the impact of the $180M incentive program?
The liquidity mining incentive program directly catalyzed a massive increase in Total Value Locked (TVL) on Avalanche, attracting new capital, users, and developers to its ecosystem almost overnight.
Which Avalanche project has the highest TVL?
TVL rankings change frequently. At the time of writing, Trader Joe and Pangolin were among the dominant dApps, but new protocols quickly emerge. It's best to check a live TVL tracker like DeFi Llama for the most current data.
Conclusion
We appear to be at the beginning of a longer-term breakout for AVAX. I maintain a full allocation to early projects on this network and plan to actively participate in the yield farming opportunities spurred by the liquidity mining news.
Engaging with these early Avalanche ecosystems has been a fascinating adventure, separate from the volatility of major assets. However, the window for these alternative opportunities may be narrowing. The market is waking up to Avalanche DeFi, and it's time to get back in the game.