What's Driving Token Prices? December 18, 2024

AVAX (-7%) - Layer-1 protocol Avalanche released its Avalanche9000 upgrade on Monday, which instituted new tokenomics for the project. Avalanche uses a modular architecture whereby it has three main chains that execute the core smart contract functions; subnet chains can be launched on top of these three main chains (think of them like layer-2s) to achieve greater speeds and lower costs. Previously, to launch a subnet, users had to stake 2,000 AVAX and sync with all three of the main chains. The new upgrade eliminates this stake amount and only requires subnets to communicate back to one of the main chains, reducing overhead for teams to build on Avalanche. Avalanche also announced a $250M raise from Galaxy, Dragonfly, and Parafi in support of the Avalanche9000 upgrade.
AI16Z (-4%) - This week, Stanford University’s Future of Digital Currency Initiative (FDCI), announced it has partnered with the AI agent project ai16z. AI16Z was originally created to be an on-chain venture fund (hence the name) but has found product-market fit as the Eliza Framework, the most widely used AI agent framework, has been forked thousands of times with the explosion in AI agents. AI16Z accepts donations from teams that create AI agents using Eliza and has since built up a healthy pool of assets valued at ~$21.3M. The partnership means that researchers at Stanford can more closely study AI agents to develop trust mechanisms and how agents can self-govern and coordinate with each other.
POL/AAVE (-17%/+22%) - Last week, a governance proposal on Layer-2 protocol Polygon sparked outrage across DeFi and triggered an opposing governance proposal on DeFi protocol Aave. The initial proposal from Polygon recommended that assets in the project’s bridge (sitting on the Ethereum mainnet) should be made “productive” by depositing them into DeFi protocols such as Morpho and Yearn Finance. The problem with this idea is that the $1.3B in assets technically serves as the backing for pegged assets on Polygon’s L,2 leading to a double-dipping problem. In response to this proposal, lend/borrow protocol Aave, which is deployed on Ethereum and Polygon, proposed dropping all LTVs on Polygon to 0%, essentially shutting off the Aave protocol on Polygon. As we’ve discussed in the past, bridged assets are super risky, and there have been several high-profile bridge hacks over the years that have drained users' assets. As a result, the entire crypto community has become involved in this conversation. Nothing has been finalized in either community, but expect the debate to continue over the coming weeks.
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