One of Ethereum’s biggest rivals had good news on Wednesday: Ava Labs, the team behind the Avalanche blockchain, has partnered with Amazon Web Services (AWS), the world’s leading cloud computing provider. As you’d expect, crypto investors liked the announcement, with Avalanche’s AVAX token pumping 25% on the day. But before you YOLO in with the rest of them, let’s take a step back and ponder why it might be positive for Avalanche’s long-term prospects.
Why would Amazon choose Avalanche?
Like Ethereum and other “layer-one” projects, Avalanche is a smart-contract blockchain. That means developers can code programmable rules into it – allowing them to build all kinds of decentralized applications (dapps) on the network. Avalanche has the usual roster of layer-one use cases (DeFi, NFTs, blockchain gaming, decentralized data storage, and so on). But here’s where it stands out: it allows people, businesses, and governments to create and manage their own customized blockchain networks (called “subnets”) within its ecosystem. A blockchain of blockchains, if you will.
As for how it works, Avalanche splits itself into three core blockchains to make it fast, secure, and scalable. First, there’s the X-Chain, its primary network, which handles token creation, management, and transactions. This part is actually a “directed acyclic graph” (DAG), which looks more like an interconnected web of transactions than a chain of transaction blocks (i.e. a blockchain). Then there’s the C-Chain, which is only for smart contracts and is basically a copy of the Ethereum Virtual Machine (EVM). That makes it quick and painless for developers to transfer any Ethereum dapp onto Avalanche. Finally, there’s the P-Chain – and that’s where the subnet magic happens.
What does the partnership mean for Avalanche, and for Amazon?
Quite a lot, actually. AWS has well over a million active customers, ranging from small business startups to big government agencies – the same caliber of clientele that Avalanche is looking to onboard. And by integrating with AWS, it could make that onboarding process a whole lot easier. The general idea is that customers will be able to launch their own Avalanche subnets at the click of a button through the AWS marketplace. That could lead to a lot more dapp activity on the Avalanche blockchain.
Consider too that AWS chose Avalanche out of all the other layer-one projects. That’s a big stamp of approval, which could reel in more projects to the network. Sure, a number of blockchains (including Ethereum) already use AWS to power their networks, but this is Amazon’s first mutual business partnership with a blockchain.
As for Amazon, AWS generates about 16% of the company’s total revenue, according to its latest quarterly earnings report. And by making it easier to build dapps on the Avalanche network, it too could grow its user base – earning bigger bucks from the ever-increasing adoption of blockchain technology.
So what’s the opportunity here?
While the partnership could be good for Amazon, it could be really good for Avalanche, which is where I think the better (albeit, riskier) long-term play is. That’s because every dapp that’s created through AWS will be built on Avalanche. On top of that, the partnership is a testament to Avalanche’s business development team, which could rack up more big partnerships in the future.
Among other things, the AVAX token is used to pay transaction fees on the Avalanche network. So as more dapps get built on top of it, the demand for AVAX should go up. But there is a caveat here: it’s possible that Avalanche subnets can have their own customized tokens, which could be used for fees instead.
According to the DeFiLlama data dashboard, Avalanche currently has $850 million worth of user deposits locked in its decentralized finance (DeFi) ecosystem. That’s a sliver of what Ethereum’s got: it’s the biggest with $25.5 billion. And the “fully diluted” market size of Avalanche – i.e. the value of all its tokens multiplied by its maximum supply – is around $11 billion right now, compared to Ethereum’s $170 billion. Based on those numbers, AVAX is about twice as expensive as ether right now.
But if you look closely at AVAX’s technicals, you’ll see three things of interest.
Source: chart drawn with TradingView.
First, there’s potential price support between about $10 and $13 (blue strip), so you’ll want to manage your risk if it breaks below it. Second, AVAX looks to be breaking out of a downward channel (black diagonal lines) that it’s been ping-ponging within since August. And third, between the price and the Relative Strength Index (RSI, blue line), there are two drives of “bullish divergence” – that might suggest AVAX is setting up for a longer rally. As you can see, the RSI is making higher lows while the price has made lower lows, which suggests sellers are running out of steam, and buyers are gathering steam. I wrote a full rundown of how the RSI works here.
Keep in mind the price has already rallied quite a bit since the announcement, so as always, consider using dollar-cost averaging if you’re jumping on this train. It can help spread your risk.
