Quarterly report: Blockchain Avalanche grows from a small snowflake

Ava Labs — the development team behind Avalanche ($AVAX), the tenth-largest crypto by market cap — is reportedly raising $350M at a $5B valuation.

This funding would turn Ava Labs into one of the most US valuable crypto startups after last week’s announcement of Near Protocol’s $350M round.

From a snowflake into an Avalanche

Avalanche — a proof-of-stake smart contract platform — is the fourth-largest blockchain behind Ethereum ($ETH), Terra ($LUNA) and BNB Chain ($BNB).

There are over 250 active applications on Avalanche — but the ample opportunity is to bring the blockchain to existing institutions:

• January 2022: Avalanche partnered with Turkish electric vehicle manufacturer Togg to build smart contract-based mobility services.
• November 2021: Avalanche formed a strategic alliance with Deloitte to enable a disaster recovery platform.

CB Insights pointed out 65 big industries blockchain could transform — but adoption has been slow. It took three years for Washington State to pass a bill to expand blockchain adoption across financial and industrial sectors.

$AVAX is up 106% in the past year — but has struggled in 2022 along with the rest of the market.

Quarterly report: Growing in a harsh environment

Avalanche is another “Ethereum killer” — competing with cheaper and faster fees. But unlike many other blockchains, Avalanche has users, revenue and transactions to back up its $30B market cap.

Despite the poor performance in the crypto market, Avalanche saw moderate growth in the first quarter:

• Revenue grew 72% to $52M — lower than the 323% growth it saw in the previous quarter (Messari Q1 report).
• $AVAX’s price-to-sales (P/S) ratio fell from 160x to 91x compared to the previous quarter (Comparison: Ethereum has an 81.5x P/S ratio).

Ecosystem developments: In the past few months, Avalanche announced several programs — a $290M Multiverse incentive program and a $100M Culture Catalyst fund to support new projects on its platform.

Boomer talk: Why all the focus on blockchains?

In the past five years, investors performed much better placing their bets on Layer 1 blockchain protocols instead of applications (i.e., Gaming, NFTs).

Investing in crypto is much different from investing in the stock market — where applications have seen more significant returns:

• Web2: The most prominent companies are applications (i.e., Netflix, Google and Amazon) that have produced more substantial returns.
• Web3: Infrastructure/protocol projects including Ethereum, Solana and Terra have produced higher returns than applications so far.

The infrastructure Layer has generated the overwhelming majority of crypto space’s revenue — while applications (i.e., Gaming, NFTs) are still trying to find sustainable business models.

• Example: Axie Infinity ($AXS) was one of the first major blockchain games to break out — with a massive spike in its token price and revenue in 2021 — but has struggled since.

It’s uncertain how long crypto infrastructure will continue to accrue value — but we’ll need to see some killer applications to flip this dynamic.