In this paper, we present strong numerical evidences that the $3$D incompressible axisymmetric Navier-Stokes equations with degenerate diffusion coefficients and smooth initial data of finite energy develop a potential finite time locally self-similar singularity at the origin. The spatial part of the degenerate diffusion coefficient is a smooth function of $r$ and $z$ independent of the solution and vanishes like $O(r^2)+O(z^2)$ near the origin. This potential singularity is induced by a potential singularity of the $3$D Euler equations. An important feature of this potential singularity is that the solution develops a two-scale traveling wave that travels towards the origin. The two-scale feature is characterized by the property that the center of the traveling wave approaches the origin at a slower rate than the rate of the collapse of the singularity. The driving mechanism for this potential singularity is due to two antisymmetric vortex dipoles that generate a strong shearing layer in both the radial and axial velocity fields. Without the viscous regularization, the $3$D Euler equations develop an additional small scale characterizing the thickness of the sharp front. On the other hand, the Navier-Stokes equations with a constant diffusion coefficient regularize the two-scale solution structure and do not develop a finite time singularity for the same initial data. The initial condition is designed in such a way that it generates a positive feedback loop that enforces a strong nonlinear alignment of vortex stretching, leading to a stable locally self-similar blowup at the origin. We perform careful resolution study and asymptotic scaling analysis to provide further support of the potential finite time locally self-similar blowup.