Avalanche (AVAX): Crypto That Smartly Avoided SEC’s Security Label

Last month, the US Securities and Exchange Commission (SEC) declared that dozens of popular cryptocurrencies fall under its definition of “security”. Bitcoin and Ethereum were spared, but the majority of other high-cap cryptos based on Proof of Stake blockchains – SOL, ADA, MATIC, BNB, and more – were classified as securities. However, one such high-cap coin – Avalanche (AVAX) – was nowhere to be seen on the SEC’s hit list. This was largely thanks to the smart preemptive actions taken by the project’s management team back in 2020 at the crypto’s Initial Coin Offering (ICO).

Let’s take a closer look at this major crypto and blockchain platform, whose intelligent moves at the launch can serve as a textbook case for crypto projects hoping to avoid the SEC’s at times intense attention.

What Is Avalanche (AVAX)?

Avalanche (AVAX) is a smart contract-capable blockchain platform that features industry-leading transaction confirmation times.

Avalanche is designed for high levels of scalability. Transactions on the network are confirmed within less than 2 seconds on average. It aims to attract business users, primarily from the financial sector, by offering a highly scalable and efficient processing environment.

While many industry analysts use transactions per second (TPS) as the primary measure of blockchain’s speed, another measure – the time to finality (TTF) – is arguably a more accurate indicator of a network’s true processing efficiency.

TPS simply indicates how many transactions a blockchain is capable of accepting for processing per second. On the other hand, TTF indicates the average amount of time it takes for a transaction submitted to the network to be completely processed, validated, and written permanently to the ledger of records.

For most business users, TTF is the more relevant measure, as it indicates how long you are likely to wait for your transaction to be confirmed and finalised. Avalanche’s development team has often claimed that the platform is capable of TTF speeds unmatched by any other blockchain.

Avalanche achieves its stellar TTF speed without sacrificing its decentralisation. A total of over 1,000 validators are busy on the network, processing transaction blocks.

Avalanche uses a 3-chain architecture to operate. Each chain has its own key functionality. The three chains are:

1. The Exchange Chain (X-Chain). This chain is used for crypto asset transfers and storage. It could be compared to the standard Bitcoin chain, which is also limited to cryptocurrency transfers and storage, without any smart contract functionality.

2. The Contract Chain (C-Chain). This is the smart contract-capable chain, which is used to create and process smart contracts that enable decentralised apps on the network.

3. The Platform Chain (P-Chain). The “meta-chain” that manages the underlying key processes, such as staking and coordination between the validator nodes.

Avalanche’s crypto coin, AVAX, is used for staking and transaction fee payments on the network.AVAX is among the top 20 highest-capped cryptos, currently in the 17th position, with a market cap of $4.7 billion.

Avalanche’s History and Team

The Avalanche platform’s concept was first introduced in 2018 by a group of developers who are only known by their online name - “Team Rocket”. The concept was further developed into a functioning blockchain by computer scientists Emin Gun Sirer and Kevin Sekniqi.

In late 2018, Sirer and Sekniqi founded Ava Labs, a company to support the Avalanche development. Sirer is the CEO of Ava Labs, while Sekniqi is the Chief Protocol Architect.

Ava Labs conducted an ICO for Avalanche in July 2020, and the blockchain’s mainnet was launched in September 2020.

How Has AVAX Avoided Security Classification?

The steps that Ava Labs took during Avalanche’s ICO could be described as a textbook manual for avoiding security classification by the SEC. Firstly, Ava Labs was careful not to offer AVAX to any US-based investor during the sale. Secondly, the company registered its ICO intent with the SEC, filing for an exemption from the security classification. Not offering AVAX to US investors was among the key reasons why AVAX’s ICO satisfied the SEC’s exemption requirements.

As an additional measure, Ava Labs applied a generous 4-year “vesting period” to AVAX funds allocated to the project’s own team. Any member of Ava Labs, including co-founders, cannot touch the AVAX they’ve been issued at the launch for at least 4 years, i.e., until mid-2024. This measure ensured that the coin’s launch projected a certain level of accountability, transparency, and lack of manipulative intent. This is something that many (the majority?) of other crypto projects could use as a “best practice” initiative to avoid suspicions of rug-pulls and setups during their launches or large-scale sale rounds.

It’s likely that this vesting requirement had little direct bearing on the SEC’s decision to exempt AVAX from the security classification. However, this measure might have helped ease any regulatory concerns left after Ava Labs’ key actions above.

AVAX continues to feature among the leading cryptocurrencies, while Avalanche is viewed as a robust, scalable blockchain with significant potential. With the security classification turmoil stirred up by the SEC this summer, AVAX’s exempt status might act as a catalyst for the coin’s significant price appreciation. However, this is not a certain future scenario. So far, AVAX hasn’t been able to capitalise on these recent regulatory developments.

We wouldn’t argue for or against investment in AVAX. However, while AVAX might not be a sure bet for investors, its ICO is a textbook case for crypto projects on how to raise capital while avoiding the dreaded security classification from the SEC.