Research Unlock: Unlocking Avalanche Layer 1s with ACP-77

Avalanche has long been a proponent of horizontal scaling with the use of “subnets”, which are now rebranded as Avalanche Layer 1s (L1s). Avalanche L1s are sovereign and often application-specific blockchains that can be customized to meet the specific needs of different use cases. 

This infrastructure has attracted many crypto-native and institutional clients to host their own Web3 platforms using Avalanche L1s, including Japanese gaming giant Konami’s NFT platform and Intain’s security tokenization platform.

Numerous upgrades were introduced over the years to strengthen the offerings of Avalanche L1s. For instance, The Banff upgrade enabled cross-subnet communication via Avalanche Warp Messaging (AWM). Meanwhile, Evergreen provides a framework for enterprises launching privacy-preserving and regulation-compliant permissioned Avalanche L1s.

Still, the existing requirement for validating Avalanche L1s poses a high barrier to entry. Current Avalanche L1 validators are required to simultaneously validate the Primary Network of Avalanche comprising the Contract Chain (C-Chain), the Platform Chain (P-Chain), and the Exchange Chain (X-Chain).

For reference, a Primary Network validator must allocate at least 8 AWS vCPU, 16 GB RAM, and 1 TB storage for network validation. They also need a minimum stake requirement of 2,000 AVAX. 

This stake requirement was modest at the network's inception. However, due to the appreciation of token valuation throughout the years, it peaked at over $250,000 at the zenith of the previous market and now equates to $41,000 as of this writing. This high overall operational cost hinders the decentralization of Avalanche L1 validator sets, which could hamper the reliability and adoption of the Avalanche ecosystem in the long run.

Figure 1. Cost to stake AVAX in USD

ACP-77

ACP-77 is a community proposal that would overhaul the design of the creation and management of Avalanche L1s to bring in more flexibility and autonomy to Avalanche L1 validators. 

Sovereignty

Under the proposal, Avalanche L1 validators would no longer be required to simultaneously validate the Primary Network. They would only have to sync with the P-Chain, which tracks changes in the validator set of their own Avalanche L1 and handles cross-L1 communication via AWM. This change significantly lowers the operational and staking costs of participating in Avalanche L1 validation. 

This separation would also permit regulated entities to validate only their permissioned Avalanche L1s as they can now opt out of validating the permissionless Primary Network, which may contain transactions that are potentially high-risk or non-compliant from their perspectives.

Besides, Avalanche L1s can dictate and implement their own validation rules and staking requirements, and the P-Chain would no longer support the distribution of staking rewards for Avalanche L1s. In other words, the sovereignty of Avalanche L1s is returned from the P-Chain to the L1s themselves, which is a milestone toward achieving horizontal scaling where multiple sovereign blockchains operate concurrently.

Dynamic Fee

On the other hand, the proposal would transform P-Chain’s fee mechanism from a fixed per-transaction fee to a dynamic fee that is more aligned with a user-pay principle. This change aims to ensure the network’s long-term economic sustainability after removing the aforementioned 2,000 AVAX staking requirement.

The new dynamic fee mechanism involves continuous payments by Avalanche L1 validators based on several factors, such as the total number of Avalanche L1 validators registered on the P-Chain. The fee would be adjusted based on network utilization. It would increase when the number of total Avalanche L1 validators exceeds a target utilization and vice versa.

The rationale is that each additional Avalanche L1 validator adds load to the P-Chain. P-Chain is responsible for storing properties of Avalanche L1 validators in memory, such as IP addresses, BLS keys, etc.

In practice, Avalanche L1 validators would have balances on the P-Chain that deplete continuously, which requires periodic refills to maintain uninterrupted operations. This approach reduces the barrier to entry by reducing upfront staking and hardware costs while ensuring an ongoing contribution to the network’s economic sustainability. 

Takeaways

In a nutshell, ACP-77 aims to redesign the relationship between Avalanche L1s and the Primary Network. In particular, Avalanche L1s would be given more flexibility and sovereignty as Avalanche L1 validators are no longer required to adhere to stringent demands imposed on validators of the Primary Network, such as a minimum stake requirement of 2,000 AVAX. This massively reduces the operational cost of Avalanche L1 validators.

Avalanche L1 validators would instead pay a dynamic fee to the P-Chain for continuously storing essential metadata of the validators for communication purposes. This ensures that the Primary Network gets fairly compensated for the crucial work it provides to each Avalanche L1 validator, Avalanche L1, and cross-L1 communication.

This proposal would make regulatory compliance easy to implement for enterprise L1s, while retail-focused L1s can benefit from a more decentralized validator set. These advantages would foster a more vast and diverse Avalanche ecosystem and scale up the blockchain ecosystem.