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Foresight: How Colony accelerates Ecological development of Avalanche through DAO
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Investment logic
Bet on Avalanche: A highly adaptable consensus mechanism offers unlimited space expansion and huge ecological potential

Choose community: Paradigm shift of market investment, derived from DAO's community spirit

Bound ecology: provides node mobility and long-term development with ecology

Value capture: One-stop access to Avalanche ecological growth revenue

Born in the community
Since 2020, the pandemic has ushered in an era of extremely loose monetary policy, with institutions investing in cryptocurrencies as a macro hedge after receiving huge amounts of capital in the traditional financial system, and tech giants with top resources investing in the crypto market. The influx of investors has made the crypto market even more crowded, pushing up the price of crypto assets and making it increasingly difficult for individual players to gain a foothold in the market.

Colony's proposed Ecosystem Farming gives community members the opportunity to participate in Avalanche's primary market investment, returning the opportunity previously reserved for institutional investors to community members. The rights are returned to the members of the community in the form of DAO, and the value created is transferred to the members of the community.

The hardcore tech team gave birth to Avalanche
Public chain is like the infrastructure of a city, providing energy, transportation, communication and other functions for the operation of the city. It can grow various commercial, social, entertainment and other activities, provide application scenarios for users, and attract users to form an economic system. The team at Avalanche, led by Turing Award winner Professor Emin Gun Sirer, is offering a new public link design solution that opens up new space for performance-hungry developers and users alike.

Foresight: How Colony accelerates Ecological development of Avalanche through DAO

Third generation consensus mechanisms that can adapt to the environment

Avalanche created a new consensus mechanic. The previous consensus algorithm is mainly divided into the Classical Classical consensus mechanism through multi-round voting of all nodes in the network, and Nakamoto Satoshi method based on POW workload proof. The classical consensus mechanism as the network expands, the cost of nodes operating the network also begins to grow in scale (usually proportional to the quadratic power of the number of nodes N), which limits the growth space of the network and cannot support large networks with more users. Decentralized Satoshi consensus algorithm can extend the network to support a large number of users. But at the same time, because the random entry and exit of the miner node affect the block speed, the efficiency is low.

Emin Gun Sirer, a Turing Prize-winning professor at Cornell who specializes in distributed systems; Ted Yi, an Emin professor who contributed to Libra's consensus algorithm as lead author; and Kevin, a cryptography PhD Sekniqi, the founder, designed Avalanche's "third generation consensus protocol" based on metastable states and repeated random sampling. Metastable states are those in which the system does not maintain a particular stable state, but rather requires random sampling and consensus at the time of voting. Therefore, Avalanche's node threshold is relatively low. Anyone can become a node by pledging 2,000AVAX, which ensures decentralization and reduces energy consumption.

Avalanche's consensus is to do random checks based on probability, with the number of checks depending on the size of the network. However, compared to the classical consensus mechanism, the complexity is controllable (proportional to the logarithmic function and less than the order of magnitude function).Pangolin founder Connor Daly has published a paper showing that the probability of a node being sampled repeatedly and reaching an incorrect conclusion is extremely small, less than 0.0000000001%. Spot check is carried out on different node samples continuously. After a certain number of times, these results will be found to be consistent, making the final result impossible to reverse. The Avalanche protocol is named Avalanche, just as it starts with a single snowflake that snowballs into an Avalanche.

The configurable Avalanche consensus mechanism gives developers the opportunity to choose nodes and adjust network parameters to balance security or performance. A large number of developers were attracted by Avalanche's mechanism and joined in the construction of this ecosystem. For example, DEX Pangolin founder Connor Daly raised the security performance of the network to the point that 80% of nodes colluded to threaten the network security, which means that more than 80% of nodes gave different answers.

Three-chain architecture: Inherent capacity expansion

Foresight: How Colony accelerates Ecological development of Avalanche through DAO

Avalanche Network Architecture

Avalanche's network architecture adopts a three-dimensional structure with three parallel chains, namely x-Chain, a transaction Chain for creating and exchanging assets, C-Chain, a contract Chain that bears smart contracts and is compatible with EVM, and P-chain, a platform Chain for coordinating monitoring validators and creating subnets. Avalanche, composed of three interconnected blockchain systems, provides a scalable foundation on the chain from the architecture design of the blockchain. The function of classification prevents the main chain from being overloaded by different demands.

On the premise of not sacrificing decentralization, blockchain can choose two expansion methods:

Vertically expand by providing blockchain transaction processing speed, improve the efficiency of data structures, or require higher performance hardware, but still encounter the bottleneck of the storage required for smart contract invocation.2. In theory, there is no limit to increasing the number of blockchain chains and deploying multiple parallel chains horizontally. However, interoperability between independent parallel chains should be ensured.

Subnets supported by Avalanche's P chain can be expanded horizontally. Subnets need to process transactions through virtual machines, while Avalanche supports EVM, Bitcoin Script VM,Cardano's UTXO model,Solana's transaction engine, etc., to provide users with cross-chain liquidity of assets. While EVM has powerful network effects, we can probably expect developers to innovate.

In contrast to open source public blockchains, the designer of a subnet can customize the security and privacy of the protocol by adjusting the set of validation nodes to determine the visibility and access of the subnet. Only verified nodes that meet the criteria can send transactions, view the content on the chain, and download blocks. In addition, p-chain subnets can customize GAS fee standards and coordinate monitoring of validators and subnets through P-chain to directly obtain efficiency support from the public chain environment.

How Colony becomes the core builder of Avalanche ecology
Colony is the first community-driven project incubator in the Avalanche ecosystem, contributing Beta revenue to the market while increasing the potential revenue of the project.

Foresight: How Colony accelerates Ecological development of Avalanche through DAO

Colony will build its ecology in four directions:

1. Become nodes: Positive cash flows give tokens intrinsic value

Colony is pledging 10 percent of its net asset value, with $2 million available for $20 million in fundraising. Assuming that the nodes all meet the criteria within a year, the stay online rate is up to 80%, and AVAX remains at $119, it can be calculated as follows:

Colony holds 16,806.7 AVAX* according to Avascan's average annual return of 9.82%=1650.42 AVAX(we ignore the possibility that Colony as a node may be entrusted by others to generate revenue).

For convenience of calculation, we ignore the fluctuation of AVAX token:

An investor in CLY can receive 1650.42AVAX* $119 /10,500,000 market flux = $0.018 EPS.

To evaluate Colony purely from the perspective of mining earnings, we can simply compare the EPS of existing mining enterprises and the rolling PE ratio of TTM-PE:

Foresight: How Colony accelerates Ecological development of Avalanche through DAO

Investors are pricing mining types of stocks at 20-130 times earnings, with the market pricing different mining capabilities and strategies. Colony's mining business can be based on the P/E valuation given by the market and superposed with the appreciation space of AVAX tokens, then the HOLDERS of CLY may offer a higher P/E ratio, indicating that investors are willing to pay a higher premium for Avalanche's future growth expectations.

Of course, there are many uncertainties in the profitability of liquidity mining, including the choice of DEX, trading pair, and the fluctuation of AVAX value. Here, it is simply estimated that Colony's income at Avalanche as LP may differ greatly from the actual income, but Colony's future cash flow income is also considerable.

2. Provide liquidity for DEX: obtain funds to buy back tokens to reward the community and enhance ecological value

30% of Colony's net asset value provides liquidity in the Defi market, i.e. $20 million *30%= $6 million. Assuming Colony provides liquidity on Avalanche head DEX,Trader Joe and Pangolin provide $3 million on average.

Assuming Colony is an LP with a large amount of capital, it selects the liquidity pool at the head to obtain stable income. For example, USDC. E-wavax's token income APY is 16.29%, and its fee income APY is 30.59%.

At Pangolin's head of the liquidity pool, such as wews. eWAVAX, Colony earns $570,000 a year from a 15 percent fee plus 4 percent from mining and 19 percent from APY a year.

Based on conservative calculation,Colony can repurchase 1,183,400 CLY tokens at the price of $1.67, accounting for 11.2% of the 10.5 million tokens in the public offering. And the proceeds will continue to be invested in repo tokens.

Also, the value Colony contributes to Avalanche in TVL can be referenced by TVL ratio. As of December 22, according to Defi Llama and CMC,Defi's total TVL is worth us $249.89 billion, of which:

Foresight: How Colony accelerates Ecological development of Avalanche through DAO

TVL ratio is the ratio of market capitalization divided by TVL, which can help determine whether DeFi assets are overvalued or undervalued. Avalanche, as a public chain in the top five TVL, has a higher TVL ratio than Terra, which is the lowest among the five assets, indicating that AVAX is in a relatively undervalued state compared to other assets.

Assuming the AVAX price remains unchanged, Avalanche is a continuously undervalued asset and there is more room for valuation repair from a valuation perspective. If AVAX price rises and TVL Ratio drops, it may be because TVL attracts more capital to join in, resulting in the siphon effect of economic development.

3.Avalanche Ecological Index Fund: Capture market value Beta of Avalanche ecological growth

At present, Colony has not yet launched index fund, so we can estimate the possible business income by referring to the existing business model of index investment.

Index Coop now has 5 types of indices, and Leverage product is an ecologically specific product with Leverage, such as ETH 2X Flexible Leverage Index. The Leverage Product index for ETH has a high similarity with the Avalanche exclusive ecological fund launched by Colony. Avalanche's Eco-fund, which Colony offers, doesn't provide leverage, but covers a more similar group of investors, so we're looking at ETH2X's revenue valuation here.

Index Coop reported November revenues of $723,710, for a total of $1.88 million in the three months from the beginning of the agreement to November. Eth2x-fli, an index fund dominated by a 2x leveraged Ethereum fund, contributed 58% of revenue.

Foresight: How Colony accelerates Ecological development of Avalanche through DAO

Index went from less than 5,000 investors at the beginning of the year to more than 30,000 holders in December, and TVL reached $500 million in the past month. This shows that index-type investment products are gaining more and more investors, more individuals and institutional investors began to consider joining the index investment, obtain stable long-term investment.

As Colony is the first to launch Avalanche Eco-Index Fund, we can expect more first-mover advantage and attract more investors to participate in index investing. It should also be noted that the structure of the index fund, the way it anchors value, and management fees are all issues that Colony's community needs to consider.

4. Primary market investment: focus on ecological investment and cover multiple tracks

Colony is deeply bound to Avalanche ecology, and can obtain more primary market resources and layout each track through official cooperation.

7 projects that Colony has publicly invested in:

Foresight: How Colony accelerates Ecological development of Avalanche through DAO

Based on the market price, Colony's primary market return has been usd 16,833,858.9, which can be airdropped by holding CLY tokens, which costs USD 1.67 according to the current market price, excluding projects without TGE. At the same time, it should be noted that Colony's investment decisions are still centralized for now, and the details of community voting governance need to be paid attention to later.

Colony's four businesses all bring relatively stable cash flow income, endowing CLY tokens with intrinsic value and making CLY tokens an asset that can generate economic returns continuously. However, most crypto assets rely on market heat and narrative, lack intrinsic value, and are driven by speculatively driven traders leading to a lot of price volatility. Colony's three businesses can be seen in real time through open and transparent on-chain data, even without taking into account the returns earned from investments in the primary market
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