What is Subnet? All about Avalanche's scaling solution

Avalanche, Polkadot and Cosmos are projects that deploy the Multi-chain Network model for scalability. Each solution has a different implementation method, and this article will focus on Avalanche’s scaling solution: Subnet.

thaonguyen

Published Mar 12 2022

Updated Oct 24 2024

4 min read

What is Subnet?

Subnet, or subnetwork, is the scalability solution on Avalanche that allows anyone to create their own L1 blockchain.

A subnet can be a blockchain or a group of blockchains with separate customizations, validated by a mutual group of validators. All subnet validators must be members of Avalanche's Primary Network by staking AVAX.

Subnet leverages the Avalanche consensus protocol to provide a scaling solution that inherits Avalanche’s transaction speed and security, the secret weapon to expand this network. The specific reason will be mentioned in the next section.

The Avalanche network structure

Avalanche is developed under the "Internet of blockchain" concept. Launching mainnet in Q3 2020, Avalanche introduced a special design, using the Avalanche Consensus to interact and transmit information within the network in a free, trustless way.

Avalanche aims to become an open-source platform for building decentralized applications with instant transaction speed and high scalability. In addition, Avalanche is special for having 3 main chains, each with a different task:

X-Chain: is the exchange chain that acts as a decentralized platform, allowing creating and trading X-Chain assets with other digital assets with their own set of rules. All transactions on this chain are paid with AVAX (X-Chain).
C-Chain: is the contract chain, allowing to create smart contracts using C-Chain's API, which runs smart contracts compatible with the Ethereum Virtual Machine (EVM). Avalanche DApps are built on the C-Chain.
P-Chain: is the platform chain, coordinating validators and monitoring subnets. Subnets are created on this chain.

The P-Chain and the C-Chain both use the Snowman consensus mechanism, which is optimized on-chain with high throughput and suitable for smart contracts. Only the X-Chain uses the Avalanche consensus mechanism.

These 3 chains are all secured and transactions are confirmed by the main network (Primary Network).

The Primary Network is a special subnet, in which all other subnets’ members can take part by staking at least 2000 AVAX. This is why Avalanche is rated as one of the highly secure networks with more than 1,200 validators.

Subnets’ features

Subnets have a lot of special features that open up unlimited expansion opportunities for the network, including:

Designed to scale horizontally, i.e. multiple blockchains that can connect to each other.
Assets on different subnets can interact and be transferred between each other without bridges. This eliminates the risk of bridge hacks/bugs, or high bridging fees.
Subnets are a tool for scaling Avalanche, which are separate blockchains that can connect to virtual blockchains: EVM, Bitcoin Script, Cardano's UTXO model, Solana's engine, ...
The number of subnets that can be created is unlimited. Not only DApps, but also an entire blockchain can become a subnet.
This means that major Ethereum DApps or blockchains like Solana, Cosmos, etc. can create another version that works on Avalanche, with low gas fee and high transaction speed.

Subnets give developers the freedom to create, fork, or even bring any blockchain or protocol to Avalanche. Theoretically, it is possible to open a crypto world with different blockchains and DApps running on Avalanche.

Subnets allow developers to decide on tokens and transaction fee structure:

Fees on subnets can be any stablecoin or token chosen by the subnet owner. This allows projects to increase use cases for their tokens, reducing the supply in the market.
Furthermore, subnet owners can choose the gasless transaction option, allowing users to interact with these subnets without paying fees.

Subnets also have advantages that helps in complying with regulations:

Allows complex rules to be applied to subnet validators.
For example, when creating a subnet, the creator can require validators to be in certain countries, perform KYC checks, or decide whether the subnet is permissioned, semi-permissionless or entirely permissionless.

This paves the way for large institutional funds to move closer to the DeFi world, since they always need to strictly comply with regulations (KYC: Know Your Customer, KYB: Know Your Business, AML: Anti Money Laundering, etc.).

How Subnets affect the Avalanche network

For the AVAX price: The birth and growth of Subnets may impact the AVAX price in the long run. As the model works effectively, more and more subnets will be created, leading to more AVAX being staked in the Primary Network, meaning more validators.
Reduce pressure on the C-Chain, increase transaction speed and expand the network.
Attract cash flow from institutional investment funds and large companies.
Bring projects from other ecosystems to the network, create incentives to attract new users to Avalanche, therefore increasing the ecosystem’s TVL.

The impacts made by subnets are quite large, but there are still a few questions that needs proper consideration to evaluate the effectiveness of these networks, including:

When gas fees on these chains are no longer paid with AVAX, how will subnet projects capture value for AVAX?
Currently, the number of subnets created is still small, therefore, the actual effectiveness still needs some time to verify. Avalanche needs more creative builders to make the most out of this model.

That is the basic information about subnet and how it works within the Avalanche ecosystem. With the development of subnets, Avalanche may experience strong growth, and the “Internet of Blockchain” race will be more exciting in the future.