Avalanche Subnets Quick Bites

• A subnet in Avalanche refers to an independent network with its own specific rules and token economics. It comprises a subset of Avalanche validators collaborating to reach a consensus on the state of one or more blockchains. Each blockchain is validated by a single subnet, while a subnet can validate multiple blockchains.

• Avalanche has recently launched two initiatives:

  • Avalanche Evergreen: Avalanche Evergreen is a dedicated blockchain and tool designed specifically for Financial Institutions. It combines the characteristics of public and enterprise-grade blockchains.

  • Avalanche Vista: The Avalanche Foundation plans to invest $50 million in purchasing tokenized assets on the Avalanche blockchain. This investment aims to showcase the benefits and capabilities of tokenization on Avalanche.

• Avalanche has clearly taken proactive steps to prepare for potential regulatory compliance of crypto assets. They have also worked on building the necessary infrastructure to facilitate the tokenization of real-world assets smoothly.

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The Subnets Infrastructure

What are The Subnets?

• A subnet in Avalanche is an independent network with its own rules and token economics. It includes a group of validators working together to agree on the state of one or more blockchains. Each subnet validates a single blockchain, but can also validate multiple blockchains.

• Avalanche primary networks are a group of three main blockchains that run on a subnet:

  • The Contract Chain (C-Chain): An implementation of the Ethereum Virtual Machine (EVM). It supports Geth's API and allows for the deployment and execution of smart contracts written in Solidity. The C-Chain operates on the Coreth Virtual Machine.

  • The Platform Chain (P-Chain): Responsible for validator and Subnet-level operations. It supports the creation of new blockchains and Subnets, addition of validators to Subnets, staking operations, and other platform-level operations. The P-Chain operates on the Platform Virtual Machine.

  • The Exchange Chain (X-Chain): Handles operations on digital smart assets known as Avalanche Native Tokens. These are representations of real-world resources with specific rules governing their behavior. The X-Chain supports the creation and trade of Avalanche Native Tokens, including AVAX, which is used to pay transaction fees on Avalanche. The X-Chain operates on the Avalanche Virtual Machine (AVM).

Why Subnets?

• Scaling blockchains has been a big problem due to the rise in transaction volume. Layer 2 (L2) protocols, like "optimistic rollup," have been used to tackle this issue. However, Avalanche offers Subnets as a more effective solution for scalability. Subnets redirect traffic from the Primary Network and offer customizable options that L2 solutions can't provide.

• Subnets address the "blockchain trilemma", which is the challenge of achieving security, scalability, and decentralization simultaneously. With Subnets, Avalanche can support numerous secure, scalable, and decentralized blockchains.

• Benefits of Subnets

  • Easy Scalability: Each Subnet operates independently, allowing for easy addition of new subnetworks.

  • Decreased Gas Fees: Subnets reduce network traffic, leading to lower transaction costs.

  • Increased Transactions Per Second: Faster response times and higher transaction capacity.

  • Interoperability: Enables cross-chain transfers without interacting with the X-Chain.

  • Validator Selectivity: Validators can choose which blockchains they want to validate.

  • Customization: Users can tailor their Subnet according to their needs.

Off-Chain Asset Tokenization

What is Off-Chain Asset Tokenization?

• Off-Chain Asset Tokenization, also known as Real-World Assets (RWA) in crypto jargon, refers to the use of blockchain and smart contracts to create digital tokens representing ownership or rights of an underlying asset. These tokens can be issued, traded, and managed on the blockchain.

• Efforts to enhance capital markets have been consistently ongoing over the past few decades with the objective of reducing fees and increasing the visibility of data. Tokenization plays a significant role in this endeavor.

• However Off-chain tokenization faces several challenges:

  • Regulatory Compliance: Tokenizing off-chain assets often involves navigating complex regulatory frameworks. Ensuring compliance with securities laws and other financial regulations can be a major challenge.

  • Liquidity: One of the main advantages of tokenization is enhancing asset liquidity. However, achieving liquidity for these tokens can be challenging, especially for assets with limited trading activity.

  • Security: Safeguarding the digital tokens representing off-chain assets is critical. Establishing secure custody solutions and protecting against cyber threats is a significant concern.

  • Interoperability: Ensuring that these tokenized assets can interact with different blockchain networks and financial systems is a challenge. Interoperability standards are needed for seamless asset transfers.

  • Market Adoption: The success of off-chain tokenization depends on market adoption. Convincing traditional asset owners and investors to embrace this technology can be a hurdle.

  • Technology Infrastructure: Building the necessary technology infrastructure for tokenization, including smart contracts and blockchain platforms, requires significant investment and expertise.

Avalanche: The Foundation of RWA Infrastructure

Evergreen Subnets and Avalanche Vista

• Avalanche's robust subnets infrastructure will enable the true vision of tokenization. Some initiatives, such as Evergreen and Vista, have recently been launched to support this.

• Avalanche has introduced Evergreen Subnets, which are dedicated blockchains and tools designed specifically for Financial Institutions. These combine features from both public and enterprise-grade blockchains. Evergreen Subnets already include built-in features to support institutions in developing their own products, such as:

  • Seamless EVM-Compatibility

  • Blockchain-level permissioning (KYC, geofencing, etc.).

  • Customized gas token

• The Avalanche Foundation plans to invest $50 million in purchasing tokenized assets on the Avalanche blockchain through their program called Avalanche Vista. This program aims to showcase the benefits and capabilities of tokenization on Avalanche.

• Vista's main goal is to demonstrate the practical applications of blockchain technology in various activities, including issuing, settling, transferring, and managing assets.

• They will delve into different asset categories, such as stocks, loans, property, and assets based on blockchain. By tokenizing assets and utilizing on-chain methods for issuance and administration, they aim to tackle the issues associated with costly procedures and labor-intensive tasks like capital calls and ownership changes. This approach ultimately improves efficiency for both those issuing assets and the investors involved.

The Next Frontier

• The discussion above explores only a few of the numerous possibilities for utilizing blockchain technology to leverage off-chain assets. Avalanche subnets and its initiative are already well-positioned and ready for the significant transformations that lie ahead, which include the incorporation of the traditional finance sector into the realm of cryptocurrencies and the corresponding regulations.

• Tokenizing off-chain assets represents a significant milestone that has the potential to propel the cryptocurrency market to unprecedented levels. However, progress is an ongoing journey, and there will always be new developments on the horizon for those who dare to lead the way.

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