Popular decentralized exchange (DEX) SushiSwap is the latest decentralized finance (DeFi) project to join Avalanche’s $180 million incentive program. Avalanche Rush has already attracted lending protocol Aave and automated market maker (AMM) Curve.
Avalanche is a proof-of-stake blockchain that was built by Ava Labs. It claims to process 4,500 transactions per second without the security tradeoffs usually associated with blockchains that can transfer data quickly.
Avalanche Rush has no doubt boosted investors’ confidence in the layer 1 blockchain that launched its mainnet last September, as the price for AVAX, Avalanche’s native token, rose by more than 300% in the last seven days, according to data from Messari.
The addition of SushiSwap adds another degree of functionality to what Avalanche can offer DeFi users.
DeFi building blocks
Avalanche is not the only blockchain jumping into the booming DeFi market.
Other layer 1 blockchains like Solana and Terra have also been grabbing headlines as they attempt to capitalize on the multibillion-dollar DeFi market. Layer 1s are the blockchain networks on which financial applications are built, and Ethereum is the leading network for doing that.
The DeFi sector has caught more attention from institutional investors, and many top venture capital firms have invested heavily in alternatives to Ethereum that offer a better ability to expand. Solana, for example, recently raised $314 million in a token sale from investors, including Andresseen Horowitz (also known as a16z) and Polychain Capital.
Avalanche is backed by financier Mike Novogratz’s Galaxy Digital, Beijing-based crypto mining machine maker Bitmain, a16z and Dragonfly Capital, with about $60 million in funding through both private and public token sales.
Battle for the base layer
With the large amount of investment in the sector, the layer 1 competition has been heating up as platforms begin offering lucrative incentives to attract both DeFi projects and users.
The incorporation of SushiSwap in Avalanche’s Rush program will allow SushiSwap and the Avalanche Foundation to each allocate up to $7.5 million worth of AVAX and SUSHI tokens to liquidity mining incentives over the next three months, according to a press release shared with CoinDesk.
Liquidity mining refers to when DeFi users are rewarded with fresh tokens for committing assets to a protocol. Those rewards have become the vehicle of choice for DeFi projects seeking to attract new users since last year’s DeFi Summer.
While SushiSwap has been deployed across several blockchains, Avalanche is one of the new platforms that provides SUSHI token incentives outside of the Ethereum network, according to Tuesday’s release.
“The Avalanche community is one of the most compelling reasons to align incentives with the Avalanche chain,” Sushi’s lead contributor, 0xMaki, said in a statement.
In late July, Solana, another blockchain, announced the launch of staking pools, where holders of SOL tokens can earn rewards and help secure the Solana network by staking their holdings. Some of the rewards can be used in DeFi protocols built on Solana, including Raydium, an AMM that just started an incentive campaign where users can earn extra native tokens, called RAY, in addition to the existing rewards.
“Incentives are just the easiest way to attract interest for now,” Ryan Watkins, research analyst at Messari, told CoinDesk. “So everyone does it.”
With more than 200 protocols, Ethereum remains the king of layer 1. According to DeFi Llama, the total value locked in Ethereum was around $119.8 billion at the time of writing – more than five times of the total value locked on Binance Smart Chain, the second biggest blockchain by that metric, which refers to the total amount secured on a blockchain.
“Blockchains seem to be very sticky, as it is both unintuitive and cumbersome to switch between ecosystems and in its current state interoperability between chains is quite weak,” said Nate George, crypto asset analyst at Cumberland, the Chicago-based crypto trading unit of trading firm DRW Holdings.
“As interoperability infrastructure advances, I imagine there is an argument that the lines of which chain you are on will blur and be abstracted away from the end-user experience.”
Avalanche announced a new cross-chain technology called Avalanche Bridge at the end of July to replace its previous Avalanche-Ethereum bridge. The new connector, according to a Medium post by Avalanche, will provide “seamless” user experience for DeFi platforms to join Avalanche with better security and cheaper transaction fees.