Layer by Layer: Avalanche Feels Impact of Bear Market

The Avalanche network has been a consistent participant in the blockchain scaling debate ever since it first gained prominence in the second half of 2021, kicking off a wave of incentive programs that helped propel the total value locked (TVL) in its DeFi ecosystem to a peak of $12.2 billion by the end of the year. This rapid growth of the Avalanche ecosystem coincided with a time when concerns over Ethereum gas prices had reached a fever pitch. During the last two months of 2021, gas fees for a single Ethereum transaction reached an average of $39.50, underscoring the limits to blockchain scalability that become increasingly untenable with spikes in blockspace demand. 

Layer 1 (L1) alternatives to Ethereum initially appeared to be feasible solutions to issues such as long confirmation times and high gas fees. EVM-compatible L1s like BNB Chain, Fantom, Avalanche, and others were especially well positioned to capture the flow of users and developers from Ethereum looking for a familiar experience in a low-cost environment. However, it was not long before the transaction execution limits for these L1s started to be pushed as well, revealing the reality that monolithic blockchains utilizing the EVM would be largely bound by the same scaling issues as Ethereum when blockspace is in high demand. For example, we saw in March how average transaction fees on Fantom quickly spiked to all-time highs amidst a sudden influx in network usage driven by anticipation of a new DEX model being released by former DeFi developer Andre Cronje at the time.