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In an explosive move reminiscent of the growth of Binance Smart Chain (BSC) and Polygon earlier this year, the Avalanche blockchain is attracting a flood of new deposits into its decentralized finance (DeFi) ecosystem.
Despite the signs of strength, however, not all analysts are convinced the Ethereum competitor has staying power.
At the end of July, Avalanche’s DeFi ecosystem accounted for just $180 million in total value locked (TVL) – a figure that has since ballooned 1,000% to over $1.8 billion at the time of writing. Likewise, Avalanche’s native token, AVAX, has rallied from $13.41 to a high of $55.42 earlier this week.
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Money market Benqi is leading the way, cracking the $1 billion TVL threshold Tuesday – less than a week after its Aug. 19 launch. By comparison, Aave, among the first DeFi lending protocols when it launched in 2019, took more than eight months to reach the same mark on Ethereum.
In an interview with CoinDesk, Ava Labs Director of DeFi Luigi Demeo said that a number of factors, including a revamped token bridge and a $180 million incentive program, are chief catalysts for the surge.
“We’ve kind of seen all these things culminate at once, between the bridge, lending, a massive incentive program and a lot of things the team has been working on very deeply, heads down, for six months,” he said.
However, Mewny, a self-described “Internet Couch” and a pseudonymous member of the angel investing collective eGirl Capital, cautioned that the burgeoning ecosystem could be due for an eventual pullback.
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“It could go one of two ways,” Mewny told CoinDesk, speaking to the roving horde of DeFi investors. “The [liquidity mining] incentives kickstart a flywheel effect around their ecosystem, or enthusiasm dries up and the hot ball of money moves to the next pot of honey.”
Incentives and catalysts
The timing of Avalanche’s emergence is something of a surprise, given that the layer 1 went live on mainnet in September 2020 and had a functioning (if clunky) bridge as early as February of this year.
“The UX wasn’t great,” Ava Labs’ Demeo said of user experience. “It was slower, more extensive … it was a temporary solution, frankly.”
Additionally, Demeo said the ecosystem was missing “key infrastructure pieces,” including oracles, a faster bridge, a lending platform and stablecoin support.