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Evergreen Subnets Announcement

So far in 2023, there has been an acceleration in institutional blockchain deployment and participation in the DeFi ecosystem. However, the solutions for institutions have been divided into two camps, either utilizing private blockchains that offer permissions and controls or leveraging public blockchains through walled protocols that limit interoperability and composability. Avalanche has developed the Evergreen Subnets solution, which offers the essential permissions and controls associated with private blockchains while enabling the liquidity benefits of interoperability. This solution enables institutions to experiment with their controlled, out-of-the-box environment for R&D initiatives and production-ready use while accounting for company-specific and regulatory requirements.

Avalanche's Evergreen Subnets solution could significantly accelerate institutional participation in DeFi by providing a solution that solves the liquidity, composability, and interoperability issues associated with traditional enterprise blockchain deployments. Institutions that are more comfortable with transacting on-chain can now do so without waiting for additional capital, which could encourage further capital allocation on-chain. The initial cohort of institutional partners, including T. Rowe Price Associates, WisdomTree, Wellington Management, and Cumberland, will be leveraging the Spruce testnet to assess the benefits of on-chain trade execution and settlement across a variety of applications. The success of the initial cohort is expected to lead to subsequent cohorts, furthering the on-chain capital onboarding efforts.

In the future, Avalanche's Evergreen Subnets will have to compete with alternative solutions, such as Layer-3 blockchain deployments to the Ethereum network, which will leverage DeFi protocols and parameter customization to replicate the Evergreen solution. Overall, the development of innovative solutions such as the Evergreen Subnets is crucial for driving the growth and adoption of blockchain technology by institutions.

What Are Subnets?

In addition to Avalanche’s three blockchains and the Primary Network (which validates the X-, P-, and C-Chains) the platform also lets anyone create application-specific blockchains called “subnets.” These subnets are Avalanche’s scaling solution similar to the layer-2s seen in Bitcoin and Ethereum. Application-specific blockchains are highly customizable, can be permissioned or permissionless, and are interoperable with one another when using the same subnet. 

Visualizing Avalanche subnet WAGMI. Source: Avalanche Today

Avalanche defines a subnet as a dynamic set of validators that achieve consensus on a set of blockchains. Throughout Avalanche, each blockchain is validated by one and only one subnet, though multiple blockchains can be validated by the same subnet(s). Avalanche’s P-Chain acts as a special subnet that validates all of the blockchains across the Avalanche ecosystem (including the X- and C-Chains). 

Subnets provide developers the flexibility and customization to support a wide range of use cases to fit their specific needs. While other networks are designed with a single VM in mind (such as Ethereum’s EVM), subnets support different VMs like Ava-VM, EVM, WASM, and more, as well as multiple programming languages. Additionally, subnets benefit from Avalanche’s fast finality guarantees, entrenched network effects, liquidity, and can easily communicate with other subnets. Anyone can create a subnet by burning one AVAX token and paying some small additional fees. 

Subnets are similar to side chains in Ethereum and zones/hubs in Cosmos but do have important differences. In the Cosmos design, each zone/hub has its own validators, whereas a subnet, built under the P-Chain, can validate one or many blockchains with a single validator set. Subnets can set their own:

• Virtual machine(s)
• Programming language(s)
• Tokens used
• Fee structure
• Validator set limit, KYC-requirements, rewards, hardware requirements, etc.
• Validator uptime requirements and slashing penalties
• Shared security (optional)

This last point on security is a crucial distinction from Polkadot’s shared security design or Ethereum and rollups. In Avalanche, subnets are independent chains without shared security, which requires bootstrapping a new consensus network. Avalanche subnets must handle consensus, data availability, and execution internally. This design makes them singular monolithic entities with worse security guarantees than a primary Avalanche chain similar to Polygon or Skale in Ethereum’s ecosystem. 

Additionally, limitations such as having to manually add validator sets to your subnet and friction with sending assets from one subnet to the other remain. Nodes validating custom subnets must also be members of the primary network, which requires staking 2,000 AVAX. Therefore, adoption of subnets will generate demand for AVAX. As of 2023, there are 100+ subnets in development on the Fuji Testnet. When they ultimately launch, each subnet will contribute to the overall network's security (expanding infrastructure). If 100 subnets go operational in 2023, the amount of cash required to safeguard the network would be ~$3 million based on AVAX's closing price of ~$11 at the end of 2022.

Each subnet will require security for its individual subnets. Each subnet must also connect to between three and all P-chain validators, in addition to supplying its own validator. These validators may overlap over multiple subnets or be specific to a single subnet. 

As the network of subnets grows in the future, interoperability across subnets will become crucial. The configurability of Avalanche’s blockchains makes bridging between them non-trivial. Cross-chain transfers between subnets are executed via bridges that enable assets and data to move between subnets without having to transact via the X-Chain. 

Distinct blockchains in the same subnet can transfer assets almost instantaneously, while communication between separate subnets is handled via bridges (such as those built on ChainSafe Chainbridge). Avalanche’s network of overlapping validators currently enables secure sharing between chains in the primary network and soon between the chains in different subnets directly without a need for a bridge. So, the more subnets with overlapping validators (who have shared interests in both subnets), the higher security guarantees their communication can have. In general, overlapping validators between different chains (like merged mining in proof of work) can provide more secure inter-chain communication.

Comparing Avalanche Subnet and Polygon Edge/Supernet as of July 2022. Source: TheTie.io

Avalanche’s Subnet model enables the creation of a plethora of chains built to satisfy different use cases. This approach features both performance isolation and customizability benefits. In the event that a subnet reaches capacity or starts to reach its usage limits, users can create new subnets (thereby mitigating the risk that one popular application makes others more expensive or otherwise less usable). 

One upside of subnets being siloed from one another is that one subnet’s performance won’t be affected by network-clogging events, like a popular NFT or token sale, as they’re not competing for the same network resources. Previously, the C-Chain has experienced network congestion and the resulting high transaction costs associated with high traffic. In this design, subnets would remain unaffected.

GameFi applications and any dapps involving high volumes of micropayments could make good use of this technology. Subnet customizability lets developers build networks specifically designed to meet their purposes; this could involve virtual machine configurations, network-specific token incentives, fee structures, or adherence to regulatory requirements.  Since subnets allow for practically any token to be used for the network’s consensus process, the creation of a new subnet involves the decision to include staking AVAX for network security or some native token.