Avalanche (AVAX) price is off to a meteoric start to 2023, with a 98% gain in 30 days, and traders are curious if the rally will extend throughout February. AVAX’s year-to-date gains have outpaced those of Bitcoin (BTC) and Ethereum (ETH).
The recent reasons for AVAX’s rally can be attributed to the announcement of a partnership with Amazon on January 11. The partnership is intended to easily deploy nodes on the Avalanche blockchain with Amazon Web Services (AWS). Ava Labs, which supports Avalanche’s ecosystems, hopes the partnership will increase the use of blockchain by businesses and governments.
Although the AVAX price has benefited from the news, some analysts are predicting that the move could have been a bull trap.
Let’s dig into the fundamentals to see if on-chain network activity supports AVAX’s recent rally.
AVAX commissions for DeFi protocols increase
Following the AWS news, the AVAX price was not the only metric that experienced a rapid rise. On January 14, the Avalanche Network reached a year-to-date high of $31,218 in AVAX commissions received. The increase in commissions compared to the previous 30 days is 59%, indicating that positive price appreciation helped increase the commissions received by the network.
Although Avalanche’s base fees are increasing, they still lag behind major EVM-supported blockchains such as Ethereum, Binance Chain (BNB), Optimism (OP) and Polygon (MATIC). In the last 30 days, the fees generated by Avalanche rank 9th among all blockchains.
Notably, Tier 2 competitor Polygon earned close to 4 times the amount of commissions compared to Avalanche. Even with the staggering growth Avalanche has experienced in 2023, the network will need to substantially increase fees to outperform more blockchains.
Addresses and active users are down
A sign of the health of the blockchain is the number of addresses, users, and transactions that take place on it. Even though January 18 hit its year-to-date high of 1.84 million transactions, Avalanche’s number of transactions is trending downward.
A similar downward trend is observed when analyzing active addresses in the Avalanche ecosystem. Active addresses denote transactions made on unique wallets on a given day. After reaching a year-to-date high of 54,978 active addresses on January 31, only 34,624 active addresses were recorded the next day.
The downward trend in Avalanche activity is creating further separation between other blockchains. According to TokenTerminal, Avalanche’s all-time high for daily active users is 131,000, dwarfed by Polygon’s all-time high of 737,000 users. Avalanche is now far from its all-time high for daily users, with just 44,000.
For blockchain networks to create sustainable fees, there need to be daily active users participating in the network.
AAVE dominates Avalanche DApps
Active Avalanche users seem to have a preference for using Aave (AAVE) on the AVAX network. More than 36% of all Avalanche transactions flow through the Aave protocol. Investors have locked over $353 million in the Avalanche version of Aave, far exceeding the next verified total value locked (TVL), which is decentralized exchange (DEX), Trader Joe’s.
While Aave and Trader Joe lead the Avalanche blockchain, when looking at DEX activity on other blockchains, you see a much lower volume of trade. The DEX volume is directly related to the commissions that a protocol receives.
DEX activity on Ethereum tops the list with over $1.6 billion in daily volume, while Avalance only sees about $104 million.
Although Avalanche is seeing immense growth since the AWS announcement, the blockchain is still small compared to its competitors. The goal of the partnership with AWS was to help increase network activity by lowering barriers to entry. Hitting the target may increase Avalanche adoption, but other ecosystems seem to have a big, early lead.
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