It’s Over 9000! Avalanche’s Next-Level Upgrade
Executive Summary
- Market trading color: BTC and ETH remain strong post-sell-off, ETF inflows surge, derivatives mature, supporting a bullish 2025
- Theme of the week – Avalanche9000 upgrade launched mainnet December 16th, redesigning and reducing a variety of features
- Links of the week: Crypto markets surge with record Bitcoin rallies, ETF anticipation, convertible bonds, stablecoins, and rising institutional interest
Market Trading Color (Eric Rose)
Despite a vicious, Fed-induced sell-off yesterday that affected risk assets across the board, zooming out reveals healthy trading activity in spot majors. Both BTC and ETH touched 52-week highs in the past week—BTC at $106,400 and ETH at $4,050. With current prices around BTC $102,000 and ETH $3,700, and funding and open interest levels having materially reset over the last few days, the rally should resume shortly.
ETF inflows for the month have remained incredibly strong, with BTC ETFs taking in over $6.4b and ETH taking in almost $1.9b. ETH has certainly been notable, as the initial launch was viewed as and subsequently priced as a “sell-the-news” event. Early ETF inflows were weak, exacerbating the negative price action and the perception that ETH wasn’t interesting to the institutional community. We believe this recent reversal is sustainable as our conversations with industry players and asset managers show renewed interest in the ETH ecosystem (see DeFi protocol performance from AAVE & LDO).
Source: Coinglass
Turning to derivatives markets, we have observed an intriguing shift in IBIT volatility surfaces since their launch on November 19th. Initially call skew was quite inverted, as positive spot price action, and significant call volumes added to an already historically inverted curve from offshore options markets. Initial trading volumes had calls over puts trading approximately 3:1 in volume. As we’ve reached new highs, with a couple of short term 2-4% drawdowns, put volumes have increased, with recent data showing calls trading over puts ~2:1. The effect on IBIT vol surfaces has been to reduce the inverted call skew, and push downside vols up materially.
Source: Bloomberg
Overall option volume in IBIT remains strong, with average daily volumes exceeding 350,000 contracts and total open interest up to almost 2,000,000 contracts. The addition of options on ETH ETF’s would be welcomed by all industry participants.
Looking ahead, it’s hard not to be medium term bullish on the asset class. We note increased institutional and retail awareness, the potential for new ETF products, both single asset and multi-asset, as well as a perceived friendly administration for both regulation and continued elevated spending, to be tailwinds to price action in 2025.
Avalanche9000 Upgrade
Since its mainnet launch in September 2020, Avalanche has pursued a vision that seeks to balance performance, flexibility, and interoperability in a manner conducive to mass adoption. With Avalanche9000, the network is effectuating its most comprehensive set of infrastructure modifications to date. These changes break from the conventional layered designs found on networks like Ethereum, offering an integrated environment wherein multiple L1s can coexist, communicate, and leverage the inherent resources and liquidity of the broader Avalanche ecosystem.
Motivation and Rationale
Blockchain ecosystems have historically faced challenges in scaling without compromising on security, user experience, or interoperability. The trade-offs are pronounced: single-layer architectures often lead to congestion and escalating transaction costs, while layered solutions can generate fragmented liquidity and complexity in cross-layer communications. Avalanche9000’s integrated model attempts to mitigate these inefficiencies by enabling L1 chains to directly access shared liquidity, infrastructure, and validation without requiring developers to navigate multiple constrained layers.
Source: AvaxNetwork
Reduced transaction costs, streamlined validator economics, and enhanced interoperability can foster greater capital efficiency within decentralized finance (DeFi) markets, improve institutional readiness, and incentivize enterprise adoption. By lowering the capital barriers and complexities associated with launching and maintaining L1 chains, Avalanche9000 may be what it takes to drive adoption that other chains have seen as of late.
Key Components of Avalanche9000
- Customization of L1 Chains:
Avalanche9000 redefines “subnets” as fully independent L1 blockchains. This new shift grants developers the autonomy to configure staking economics, tokenomics, and regulatory constraints. By diminishing the reliance on the core Avalanche P-Chain and C-Chain and allowing decentralized or specialized validator sets, the upgrade reduces overhead costs and enables bespoke chain-level governance. - Interchain Messaging (ICM):
The introduction of ICM facilitates seamless cross-chain liquidity sharing and communication. Interchain Messaging ensures that even as each L1 is optimized for particular use cases—whether stablecoins, tokenized securities, or complex derivative structures—these networks remain part of a unified liquidity pool. In practice, this reduces frictions commonly associated with bridging assets across layers or networks, thereby improving capital mobility and potentially increasing market depth.
Source: AvaxNetwork
- Core Integration and Tooling Enhancements:
Avalanche9000 integrates the Core wallet system, improving the user experience, development environment, and interoperability of newly formed L1s. By streamlining bridging and transaction flows, Core integration lowers barriers to entry for both retail users and institutional participants accustomed to advanced financial platforms. Alongside incentives such as Retro9000 and Bounty9000, the upgrade encourages early builder experimentation, fostering an ecosystem of developers driven to produce innovative financial primitives on Avalanche. - Economic and Technical Proposals (ACP-77, ACP-125, ACP-103, ACP-113, ACP-20, ACP-118, ACP-131):
The Etna Upgrade and its associated Avalanche Community Proposals (ACPs) represent granular enhancements to fee structures, randomness generation, validator requirements, and cryptographic standards. Notably, ACP-77 replaces the one-time 2000 AVAX validator stake requirement with a continuous, nominal AVAX-denominated subscription fee. This shift is economically significant, effectively lowering the entry cost for L1 validation and thereby broadening the pool of potential participants. Meanwhile, fee optimization proposals (ACP-125 and ACP-103) aim to align fees with network utilization, potentially enhancing resource allocation and user satisfaction. Enhancements such as ACP-113 (randomness generation) and ACP-20/ACP-118 (improved cryptographic and messaging standards) further bolster the network’s technical rigor, crucial for complex financial contracts and sensitive data operations.
Market Implications
The ability to rapidly and affordably instantiate specialized L1s reduces friction for financial innovation, allowing market actors to design chains that cater to particular asset classes or regulatory frameworks. This specialization, combined with native interoperability, could lead to a proliferation of niche financial markets unified within a single liquidity meta-ecosystem, improving price discovery and risk sharing.
There is also reduced hardware requirements, dynamic fee adjustments, and cryptographic optimizations mitigate concerns about centralization risks and scaling bottlenecks, which have historically hindered the institutional adoption of blockchain-based financial instruments. By encouraging decentralized and distributed validation, Avalanche9000 aligns blockchain infrastructures more closely with the principles of financial market resilience and integrity.
Links of the Week
- StoneX Digital Top 10 Links of the Week
- Bitcoin ($BTC): Bitcoin Traders No Longer Chasing Record Price Rally Like Before, Options Data Show (link)
- Bitcoin ($BTC): Bitcoin Soars to Record High Above $106K, Then Retreats as Hawkish Fed Rate Cut Looms (link)
- How MicroStrategy and Others Are Taking on Billions in Debt to Buy More Bitcoin (link)
- Bitcoin-exposed convertible bonds comprise 6% of the total convertible universe and have produced 20% of the YTD Returns: Barclays (link)
- BlackRock Bitcoin ETF Put Options at $30, $35 Price Levels See Volume Spike (link)
- Ethereum ETF staking yields could drive institutional adoption if regulatory barriers ease under Trump: analysts (link)
- Bloomberg analysts expect 'a wave of cryptocurrency ETFs' next year, including Solana and XRP funds (link)
- Ripple’s RLUSD Stablecoin Attracts Frenzy Bids for 800 XRP Ahead of Release (link)
- Trump-crypto CEO meeting about appointments, BTC reserve (link)
- Pudgy Penguins PENGU Token Debuts at $2.3B Market Cap (link)
