Avalanche, the fourth-generation proof-of-stake (PoS) blockchain, incurs significant costs to incentivize its validators. Token Terminal data from December 7 shows that the smart contract platform was launched within the past year paid more than $275 million to AVAX to compensate its validators, despite generating only $11.5 million in user fees.
Avalanche pays a premium to incentivize validators
While it appears that Avalanche pays a premium for validators, this is critical to securing the network and ensuring that all transactions are confirmed. Overall, and because it is a proof-of-stake network that relies on node operators for security and decentralization, Avalanche’s decision to pay validators a premium, as the users demand, is to maintain a robust network of nodes .
According to CoinMarketCap factsthe network has a market capitalization of over $9.8 billion. It currently ranks in the top 10 in terms of liquidity, surpassing Polygon and Polkadot, competing low-cost alternatives. By incentivizing validators with generous rewards, Avalanche ensures that a strong pool of nodes is available to maintain the network’s operations.
Through these validators, AVAX holders can stake and receive rewards. As of December 7, it’s over 1,539 validators currently betting over 248 million AVAX and earning 7.84% APY. At the same time, statistics show that Avalanche has a betting ratio of 57.11%. Most AVAX in circulation is used to secure the network at this level.
While AVAX boosting could attract more validators, Avalanche documentation also states that the network does not require complex hardware to run a node. At the same time, unlike Ethereum, the blockchain states that AVAX stakes are not at risk of being downgraded (or penalized) by the network, provided all network requirements are met. This characteristic could explain the steady increase in sales validator count in the past three years.
AVAX is up 200% and trading at its 2023 high
As Avalanche grows the number of validators, AVAX prices have also risen steadily, following the general market. Year to date, AVAX is changing hands above $26, up more than 200% in the last three months. At spot prices, AVAX is trading at new 2023 highs and in a bullish breakout formation, watching price action on the daily chart.
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Looking at how AVAX is doing, bulls could break above $30. If the associated rise is accompanied by growing trading volume, it could set the stage for another surge that could take the coin to $90 or higher in the coming sessions. When AVAX peaked in 2021, it rose to $145.
Feature image from Canva, chart from TradingView
