Introduction to Avalanche Subnets

By Andrew Allen, Protocol Specialist

Most people know Avalanche as an EVM-compatible blockchain that has gained significant traction. However, there is much more to Avalanche, including many more blockchains!

Many Avalanche users are only familiar with the C-Chain, which forked the Ethereum Geth client to add support for the Ethereum Virtual Machine (EVM), but there are actually 3 chains in Avalanche’s Primary Network. But in addition, one of Avalanche’s core innovations is the ability to create highly scalable and customizable blockchains called Subnets.

With limited blockspace and demand rising, fees have risen on the C-Chain. And while there are improvements that can be made, scaling to meet demand requires more blockspace or more efficient use of existing blockspace (i.e. off-chain computation via Layer 2s). Subnets are Avalanche’s solution to this problem.

Instead of forcing all transactions to take place on a single, shared state, Subnets allow developers to launch their own blockchains– creating more blockspace and computation to meet demand.

Subnets, or subnetworks, are a dynamic subset of Avalanche validators that reach consensus on their own blockchains. This definition can feel somewhat formal, so jargon aside, Subnets are effectively ‘Blockchain-as-a-Service’ secured by some portion of Avalanche validators. Put another way, a Subnet is not a blockchain; a Subnet is a group of validators. Today, all Subnets (other than the Primary Network) run a single blockchain, but it is possible for future Subnets to run multiple blockchains.

Avalanche validators don’t automatically run blockchains for any Subnet. Instead, Subnets need to incentivize Avalanche validators separately for their support. Since Subnets can have their own economies with their own native tokens and fee markets, it is likely that Subnet validators will stake and be rewarded in a Subnet’s native token.

Once an Avalanche validator creates a Subnet, the Subnet can create rulesets for their validators and launch their own blockchains with customized virtual machines. Since the developers are able to customize various aspects of how the underlying chain operates, they can also implement features like sending gas fees to a treasury smart contract or requiring all users of a chain to pass through KYC before interacting with applications on the Subnet. 

It was originally envisioned that Subnets would be a hub for financial markets to launch highly customized and permissioned systems. However, in practice many of the current teams interested in launching Subnets are looking to scale their existing applications, which might be limited by their current chain. 

These live projects limited by their current chain might not be as interested in modifying the underlying blockchain. For these builders, they can simply run a copy of an existing virtual machine, deploy their existing contracts, and let users interact with nearly identical applications on their own blockchain. This approach requires little incremental development on the part of the application developers, and the application immediately unlocks further throughput at low transaction costs.

Launching an EVM Chain on your own Subnet as viewed by Avascan

The Avalanche ecosystem has grown popular over the past year for a number of reasons and quite a few of Avalanche’s strong points are directly applicable to prospective Subnets. Each of the following functionalities can be leveraged by Subnets launching their own blockchain:

• Fast finality: Avalanche’s consensus mechanism is unique in that it reaches finality on a transaction within a single block, which typically takes 2 seconds on the C-Chain. Similarly, Subnets can achieve this fast finality on their blockchains by using Avalanche’s consensus mechanism.

• Unbounded number of validators: Allowing more validators on a network means more decentralization. Avalanche’s consensus mechanism is able to maintain fast block times while increasing to an unbounded number of validators. This is in contrast to many other PoS consensus mechanisms that slow down as the number of nodes in the network increases.

• Future Subnet Interoperability: Most Subnets will likely want to connect to existing blockchains in order to onboard users. While native interoperability within the ecosystem isn’t available yet, the Ava Labs team is in the process of building out Cross-Subnet Transfers, bridging Avalanche’s Primary Network (P, X, and C Chains) and Subnets alike. In the meantime, each Subnet can choose a 3rd party option to support bridging to and from their ecosystem.

Each Subnet validator must also validate on Avalanche’s Primary Network by staking a minimum of 2,000 AVAX. Teams have two potential routes for meeting this requirement: 

• A team that is already connected with the Avalanche ecosystem can have their community spin up Avalanche validators with the necessary AVAX on their behalf

• A team that is new to the ecosystem needs to find existing Avalanche validators that are also willing to validate on their Subnet.

Teams new to the Avalanche ecosystem can get started by reaching out to validator operators like Coinbase Cloud, which already validates on the Primary Network. As more Subnets launch, there will likely be further opportunities to connect with a broader set of Avalanche validators.

With Subnets being new, bootstrapping one can be difficult. In order to incentivize new Subnets, the Avalanche Foundation created a $290M fund for helping teams launch. Projects can submit their applications directly to the foundation for review.

It’s also important to note that Subnets do not inherit the security or decentralization of the broader Avalanche network. Not all Avalanche validators are likely to validate on any given Subnet and the percentage of a network controlled by any one Subnet validator will depend on the Subnet's staking dynamics. Subnets will need to incentivize their validators separately from the Avalanche network to enhance their security, decentralization, and stability. Also, if a validator misbehaves on a Subnet, the validator is not slashed or otherwise punished on the main Avalanche chain.

As of today, two Subnets are live. The first to launch was DeFi Kingdoms: Crystalvale. DeFi Kingdoms is a play-to-earn MMORPG game that originally launched on the Harmony blockchain. As the game became popular, the team wanted more control over the underlying infrastructure and the ability to manage validation and transaction fees through their native token. Subnets offered exactly this. Since launch, the DeFi Kingdoms Subnet executes around 200k transactions per day, and transaction fees have remained low even during peak usage.

DeFi Kingdoms: Crystalvale Daily Transaction Count

Crabada, another play-to-earn game, launched its Swimmer Subnet, on May 9, 2022. Crabada is native to the Avalanche Ecosystem and had previously taken more and more of the C-Chain’s transaction capacity. By launching its own Subnet, Crabada reduces the cost of playing the game, utilizes a native token for transaction fees, and can modify the blockchain to better suit the game. Further, the launch of Swimmer Subnet has redirected traffic from the C-Chain, leaving more room for other applications and reducing gas fees for users.

Crabada’s % of C-Chain Transaction Fees by Week Prior to Swimmer Subnet Launch

Dexalot is a decentralized, central limit order book (CLOB) exchange on Avalanche’s C-Chain. As demand has risen on the C-Chain, transaction fees have increased, so Dexalot users are stuck competing with all other applications for blockspace. 

The Dexalot team expects that launching a Subnet will enable a better trading experience on multiple fronts: easier transaction completions with fewer reversions due to gas price fluctuations, an increase in transaction speeds, and lower transaction costs. Also, by building their own blockchain the team will have more freedom in designing new features and functionality.

As decentralized applications have gained traction, popular applications have been limited by the blockspace and fees of the chain they currently call home. In response, app-specific blockchains have become increasingly popular. 

Subnets can also be permissioned, unlocking use cases for more traditional institutions. In the recent announcement of the Avalanche Foundation’s Subnet incentive program, Ava Labs shared that they will be collaborating with a number of other teams to create a Subnet designed for institutions leveraging DeFi with native KYC functionality. 

Additionally, Ava Labs, a core developer of the Avalanche client, will collaborate with the Aave Companies, Golden Tree Asset Management, Wintermute, Jump Crypto, Valkyrie, Securitize and others to build the first horizontally-integrated blockchain specifically engineered for Institutional DeFi with native KYC functionality. This will enable regulated institutions to leverage the power of Subnets to access DeFi primitives at scale and accelerate the institutional adoption of DeFi. - Announcement of the Avalanche Foundation Subnet Incentive Program

Coinbase Cloud has a public validator that delegators can easily and securely stake their AVAX. By staking tokens, delegators can contribute to validators that do the important work by validating the chain. In order to get started, delegators will need a minimum of 25 AVAX to stake, plus additional funds to cover the gas fee. Coinbase Cloud offers a step-by-step guide to delegating AVAX tokens.

For those wanting to run their own dedicated validators on Avalanche, they can use our Participate product. It’s easy for anyone to spin up a validator in a couple of steps with no coding required.

Coinbase Wallet

Coinbase Wallet gives developers easy access to the Avalanche ecosystem as well as expanding their app’s reach to millions of Coinbase users. It offers first-class support for the Avalanche C-Chain and the Fuji testnet, as well as EVM-compatible Subnets. Integration can be completed within a few minutes with minimal amount of code. Get started with the Coinbase Wallet SDK documentation on Coinbase Cloud’s website. 

Query & Transact

But that’s not all. Our Query & Transact infrastructure is being built to have developers access data more seamlessly from the Avalanche blockchain. Easier access to data means building more impactful dapps. 

For more information, check out Coinbase’s blog post: Participate and build on Avalanche with Coinbase Cloud.

• Ease of use: Despite the robustness of the underlying technology, the user experience of managing your nodes is very intuitive. You can spin up your nodes in minutes from your dashboard, and easily manage your infrastructure. 

• Non-custodial: Our infrastructure is non-custodial, meaning you can retain custody of your tokens.

• Reliable: Our multi-cloud, multi-region infrastructure offers 99% uptime guarantee, giving you peace of mind that your nodes are live and validating transactions.

• Enterprise-grade security: Coinbase Cloud team are experts in decentralized infrastructure, and embed security best practices through the design, implementation, and deployment for all our products and services. We continuously verify the stability, and security of our platform and underlying systems. 

• Dedicated support: We have a dedicated customer success team to ensure you have a seamless experience every step of the way, from onboarding to managing your infrastructure. 

• Protocol Specialists: Coinbase Cloud customers also have access to the industry’s first team of Protocol Specialists who specialize in network dynamics, strategy, governance, etc. on Avalanche and other protocols.

Contact us to learn more about running an Avalanche validator