AVAX

1. What is Avalanche AVAX?

1.1. Avalanche Platform:

Avalanche (AVAX) is a network of blockchains that uses the Snowman Consensus Protocol, a proof-of-stake (PoS) consensus mechanism. The blockchain allows developers to create and deploy third-party decentralized applications.

Launched in 2020, Avalanche aims to be fast, versatile, secure, affordable, and accessible. It is also an open-source project, meaning anyone can view and contribute to the platform’s code.

1.2. AVAX Token:

AVAX is the main token of the Avalanche platform, serving multiple critical functions within its ecosystem as will be detailed later. The total supply of AVAX is capped at 720 million tokens, with 360 million available at the mainnet launch.

2. Avalanche Consensus Mechanism

The Avalanche consensus mechanism is a novel approach that combines the strengths of classical consensus protocols^[1] and Nakamoto consensus^[2] to provide high throughput, low latency, and scalability. The Avalanche platform utilizes a family of protocols called Snow, which are designed to achieve consensus through a lightweight network sampling mechanism. This allows the system to operate efficiently without requiring all nodes to communicate with each other directly. The consensus mechanism is basically a Delegated Proof-of-Stake (DPoS) mechanism.

Here’s how they interact:

1. Validators: Validators stake their AVAX tokens to secure the network and validate transactions. They are responsible for producing new blocks and maintaining the integrity of the blockchain. Validators must meet certain requirements, including a minimum amount of staked tokens, to participate in the consensus process.
2. Delegators: Delegators can delegate their AVAX tokens to a validator of their choice. This allows them to contribute to the network’s security and earn rewards without the technical overhead of operating a validator node.
3. Reward Distribution: When a validator successfully validates transactions and earns rewards, these rewards are shared with their delegators based on the amount of AVAX they have delegated. This incentivizes both validators and delegators to work together: validators benefit from having more staked tokens, while delegators earn rewards from their delegated stake.

3. Use Cases of Avalanche Blockchain

The Avalanche platform offers a versatile environment for various applications due to its flexible architecture and high performance. Key application types include:

1. Decentralized Finance (DeFi): Supports DEXs, lending platforms, and yield farming, enabling fast transactions critical for DeFi operations (e.g., Trader Joe, Pangolin).
2. Non-Fungible Tokens (NFTs): Facilitates the creation and trading of unique digital assets, allowing efficient minting and marketplace development.
3. Gaming: Hosts blockchain-based games with fast transaction speeds, enabling in-game assets as NFTs and smart contract integration (e.g., Crabada).
4. Asset Tokenization: Enables the tokenization of real-world assets for fractional ownership and easier transfers.
5. Supply Chain Management: Builds applications for tracking goods, enhancing transparency and efficiency.
6. Identity and Access Management: Develop solutions for secure digital identity verification and access control.
7. Governance and Voting Systems: Allows for decentralized governance applications where communities can vote on proposals.
8. Cross-Chain Interoperability: Supports interaction with multiple blockchains for asset transfers and communication.
9. Enterprise Solutions: Offers private subnets[3] for customized blockchain solutions meeting regulatory needs.
10. Social and Community Platforms: Enables the creation of networks for content sharing and monetization, ensuring user data ownership.

4.  AVAX Functions

AVAX token’s primary functions within the Avalanche network include the following:

1. Network Security: AVAX is used to secure the network through staking.
2. Transaction Fees: AVAX is utilized to pay for transaction fees on the platform. Notably, instead of being distributed to validators, these fees are burned, which increases the scarcity of the token.
3. Unit of Account: AVAX serves as the basic unit of account between the multiple blockchains deployed on the Avalanche network, facilitating interactions and transactions across different subnets.
4. Governance: The token is also involved in governance, allowing holders to participate in decision-making processes regarding key system parameters, including the reward rate and other economic conditions.
5. Subnetwork Creation: To create or join a new subnetwork (subnet), participants must pay a fee in AVAX. This incentivizes the use of the token and helps maintain the network’s economic model.
6. Atomic Swaps: AVAX facilitates trustless atomic swaps, enabling users to exchange different assets directly on the platform without the need for intermediaries.

5. Shariah Screening

This Shariah screening is based on Avalanche platform 30/06/2020 and Avalanche Native Token (AVAX) Dynamics 2020/06/25 documents.

To determine the viability of the Avalanche platform and its token AVAX from the Shariah standpoint, we shall examine the following points:

• Project:
  • The legitimacy
  • Purposes of Avalanche Platform
  • Uses of the platform
• Does AVAX have a value?
• Relationship between Avalanche partners

5.1 Project:

5.1.1 The legitimacy:

The Avalanche platform website and documentation offer detailed information about its projects, operations and status. Avalanche whitepaper provides detailed information about the technical aspect, while Avalanche Native Token (AVAX) Dynamics Paper provides detailed insights on the economics of AVAX. The network and affiliated products undergo regular third-party audits. Third-party audit is engaged to conduct audits of its code and consensus mechanisms. These audits are essential for identifying vulnerabilities and ensuring that the platform adheres to best practices in security.

5.1.2 Purposes of Avalanche Platform:

Avalanche platform’s mission is “to provide a high-performance, scalable, customizable, and secure blockchain infrastructure that enables the creation, transfer, and trade of digital assets. Avalanche aims to facilitate a decentralized ecosystem where users can interact seamlessly, leveraging the platform’s unique consensus mechanism to achieve fast transaction speeds and high throughput without compromising security or decentralization”.

As seen above, Avalanche platform objectives do not conflict with Shariah. Those objectives concur with Islamic Shariah objectives, which aim at preserving wealth with is promoted by the above mission.

5.2 Does AVAX have a value?

An asset in Sharia “is everything of value whose damager is obliged to guarantee or compensate for”^[4]. This definition can be applied to AVAX. Therefore, AVAX doesn’t violate this first element. It also can be seen as a currency “نقد “and shall be treated as such and takes into account the provisions of Islamic Shariah for currencies.

5.3 Relationship between Avalanche partners:

In the Avalanche ecosystem, delegators participate in a staking mechanism that involves setting an agreement with the validator while retaining control over their tokens and allowing the validator to use the delegated tokens for staking purposes without the delegator losing ownership of those tokens.

The tokens remain in the delegator’s wallet, and they are not transferred to the validator. Instead, the validator is granted permission to stake the delegated amount on behalf of the delegator. This means that the validator can include the delegated stake in their overall staking amount, which contributes to their ability to validate transactions and earn rewards. However, unlike other platforms that adopt PoS, there is no risk of slashing. The platform document states: “the staked tokens are not at risk, even in the presence of software or hardware flaws”.

We believe that this relationship is a Paid Wakala (Agency) for doing work وكالة بالأجر في العمل whereby the validator acts as an agent in doing work for the token owner, and the agent’s reward is an agreed upon percentage of work’s return, which is valid from a Shariah standpoint.

5.4 Uses of the platform:

As clarified above, Avalanche platform supports a very wide range of applications^[5], some of which can be purely halal while others are originally Halal but may be used or applied in a haram usage. If it is used in a haram issue then this particular use will be haram, and that will not turn the whole platform to haram unless the haram usages turn out to be the majority use. For the time being, we have no evidence that the haram uses are the majority, then we will apply the Sharia principle “The basic principle is that things are permissible”^[6] So to prove the opposite – a thing is haram- we need evidence for this which doesn’t exist within the available data we have. Therefore, in light of the data we have, we cannot conclude the overall use of AVAX is haram.

6. Conclusion of Shariah Opinion

We approve using the AVAX token on the Avalanche platform, and exchanging it for that purpose, based on the information provided in the platform. This conclusion is subject to regular reviews, especially in relation to the platform’s use cases and applications.

[1] Classical Consensus Protocols are a fundamental concept in distributed systems, which are systems where components located on networked computers communicate and coordinate their actions by passing messages.
[2] Nakamoto Consensus is a revolutionary consensus mechanism introduced by Satoshi Nakamoto, primarily known for its implementation in Bitcoin. It is designed to operate effectively in decentralized, trustless environments like blockchain networks. Proof-of-Work (PoW) is a key component of it.
[3] We mean by private subnet within the Avalanche platform a specialized segment of the blockchain network that is designed for specific use cases, often with a focus on privacy, security, and regulatory compliance.
[4] Islamic Jurisprudence and Its Proofs, Dr. Wahba El-Zohaily (4/2877)
[5] See section 4 (AVAX Functions).
[6]Al-Wajeez in the Fundamentals of Islamic Jurisprudence (Introduction – Sources – Sharia Ruling)
Author: Professor Dr. Muhammad Mustafa Al-Zuhaili (2/450)