Avalanche: Financials

Blockchain Financials

Network Revenue for Avalanche consists of Network REV (Real Economic Value) generated by the C-Chain, P-Chain, and X-Chain in addition to PAYG (Pay-As-You-Go) Fees paid by other L1 blockchains to be connected to the Avalanche Ecosystem.

REV is a standardized metric that tracks blockchain value accrual generated by user activity. REV is calculated separately for individual blockchains, including the C-Chain, P-Chain, and X-Chain. The metric tracks in-protocol transaction fees and any out-of-protocol tips that users pay for transaction execution. Therefore, it measures the monetary demand to transact on a blockchain. Today, REV on the C-Chain, P-Chain, and X-Chain is generated solely by in-protocol transaction fees, and 100% of these fees are burned.

Other L1 blockchains in the Avalanche Ecosystem pay a fee to the Avalanche Network known as PAYG (Pay-As-You-Go) Fees. While not considered a part of REV given the payment is for a specific service rather than generalized blockspace, PAYG fees are burned and are a meaningful line item for token holders.

The operating expenses, or Operator Payments, consist of the value allocated to the infrastructure providers responsible for running the network, such as miners or validators. The payments aim to cover the real-world costs of maintaining the network plus some margin to incentivize participation. Validators of the Avalanche Network charge this fee via a commission on AVAX inflation.

Therefore, Token Holder Income is the remaining value distributed to the token holders, net of any Operator Payments.

AVAX Financials

Value accrual in the Avalanche Network is multifaceted, with revenue generated from activity on the Primary Network (C-Chain, P-Chain, and X-Chain) and from additional services offered to the other L1 blockchains in the Avalanche Ecosystem.

Network Revenue

REV is a standardized metric that tracks blockchain value accrual generated by user activity. REV is calculated separately for individual blockchains, including the C-Chain, P-Chain, and X-Chain. The metric tracks in-protocol transaction fees and any out-of-protocol tips that users pay for transaction execution. Therefore, it measures the monetary demand to transact on a blockchain. Today, REV on the C-Chain, P-Chain, and X-Chain is generated solely by in-protocol transaction fees, and 100% of these fees are burned. REV does not include any AVAX Token Issuance distributed to stakers.

In-protocol transaction fees on the C-Chain consist of Base Fees and Priority Fees. Base Fees are the minimum fee required to execute the transaction and an additional Priority Fee to prioritize ordering a transaction within a block.

Other L1 blockchains in the Avalanche Ecosystem pay a fee to the Avalanche Network known as PAYG (Pay-As-You-Go) Fees. While not considered a part of REV, given the payment is for a specific service rather than generalized blockspace, PAYG fees are burned and are a meaningful line item for token holders.

All REV and PAYG Fees are collected in AVAX and burned.

Operator Payments

Payments to operators refer to the value allocated to the infrastructure providers responsible for running the network, such as miners or validators. These payments generally cover the real-world costs of maintaining the network plus some margin to incentivize participation. These are independent operators with unique setups, so operator payments are not uniform across the operator set. Therefore, Operator Payments are the amount of value that does not flow to token holders.

In this model, inflation is not a cost in its entirety -- only the portion that does not flow to token holders is a cost. The portion that does flow to token holders is simply a value transfer from non-stakers to stakers. So from the perspective of the aggregate token holders (stakers and non-stakers), only the value distributed to Operators are a cost to the token holders.

Avalanche validators are required to self-stake a minimum amount of AVAX and are compensated by commission on the delegated staking issuance.

Token Holder Net Income

Token Holder Net Income = Network Revenue - Operator Payments. It measures the value that accrues to the token holders after considering payments to operators.

Importantly, Token Holders reflects the aggregate position of both stakers and non-stakers, and these positions have noticeably different return profiles. Stakers receive both token burn and staking payments, while non-stakers only receive token burn. Furthermore, the exact method a staker uses to stake will impact their return profile (e.g. native vs liquid staked).