AO mainnet is about to be launched. Can Arweave return to its peak?

AO is an upcoming AI agent coordination platform, and with less than a month until mainnet launch, this is a major milestone for Arweave and the AI ​​x Crypto community. This article deeply analyzes Arweave’s permanent data storage design, parses AO’s hyper-parallel computing architecture, and sheds light on how both networks are driving the next wave of on-chain autonomous agents.

We outline the challenges that AR and AO will face, as well as the current AR token market dynamics - revealing that a whale is liquidating the AR supply from September and they are almost done with the sell-off. Finally, we will also cover how to participate in the AR ecosystem and get a chance to participate in the upcoming AO.

Introduction

On February 8, 2025, the AO mainnet will be officially launched - this is a major event in the AI ​​x Crypto community and will change the way everyone interacts with on-chain agents. AO brings a hyper-parallel computing layer to the market, designed for agent applications. This is also a major milestone for Arweave, which is the permanent data storage network behind AO and makes the implementation of AO possible.

This article will analyze the technology behind Arweave and AO in detail, explore their token economics in depth, and explore the emerging AO ecosystem.

Important Disclaimer:We were venture investors in Arweave and have accumulated some AO tokens as holders of AR tokens.

What is Arweave?

Arweave is a decentralized permanent data storage network. Users pay a one-time upfront fee based on the amount of storage required, and are guaranteed that the data will always be available. Arweave has no centralized authority management mechanism, and fees are dynamically adjusted based on miners' storage needs to ensure that miners can continue to be compensated for data storage. Arweave is a "pay once, store forever" solution. This is different from other popular data storage networks (such as Filecoin), which require users to pay ongoing fees for storage and have limited storage time.

Arweave's architecture is based on a unique design called "blockweave". Many blockchains follow a linear chain structure of blocks, while Arweave connects each new block to the previous block and a randomly selected early block in the historical chain. This design forces miners to retain more historical data than standard blockchains, because they must prove that they hold the correct data fragments from the most recent block and a randomly selected historical block to create each new block. This requirement ensures long-term permanence of the data - nodes must maintain the entire historical data set in order to mine new blocks and continue to receive rewards.

Arweave's token AR is used to pay fees and reward miners. When new data is published to the Arweave network and fees are paid, about 85% of the tokens go into the Endowment for future miner reward payments. Miner rewards are calculated independently of network fees, ensuring that miners are continuously incentivized to participate in the network without being affected by user activity. This smoothing mechanism for fee collection and distribution increases confidence in Arweave's storage guarantees.

Momentum

Although Arweave has been running since its launch in June 2018, its real user growth began in 2021. The following graph shows the weekly data uploads since the network was launched:

Source:

https://viewblock.io/arweave/stat/dataUploaded?time=week

In September 2021, the amount of data stored climbed sharply, reaching its lowest point in June 2023, and has been growing steadily since then. The following graph shows the amount of different types of data uploaded each month.

Arweave usage over time (classified by data size)

Source: https://stats.dataos.so/arweave

In 2021, the NFT craze swept the world, driving the first major increase in Arweave data storage. Creators began storing their JPEG pictures and other images on Arweave instead of linking to centralized hosting service providers, which was the main reason for the surge in Arweave usage during this period. Arweave is very suitable for storing NFT artwork data because it is permanent and decentralized.

Starting in 2023, some new use cases have emerged. Across all use cases, the category that uses the most storage space is applications, primarily “bundler” applications, which bundle multiple transactions and data together and publish them to the Arweave network. These applications include Bundlr (the team has since rebranded as Irys.xyz and launched its own data chain in addition to the bundler application). Applications that bundle this data, including content that would otherwise be classified as images, videos, or other blockchain data, are being permanently stored through Arweave. In addition to these bundler applications, several other projects are also taking advantage of Arweave’s permanent storage capabilities. These projects include Lens’s social application, a content publishing platform, and some AI use cases.

The following chart shows activity by transaction volume. While Arweave charges fees based on the size of the data stored, use cases with increasing numbers of transactions may indicate the future direction of Arweave.

Arweave usage over time (by number of transactions)

Source: https://stats.dataos.so/arweave

The two fastest growing use cases by number of transactions are Redstone and AO. Redstone is one of the fastest growing oracle networks in the crypto industry, providing price data for all major assets on all major EVM chains. We have made a private investment in Redstone and are optimistic about their growth prospects as they continue to expand new partners and increase product features.

AO is a parallel computation and proxy messaging layer built on top of Arweave. We will discuss AO in detail later, but it is worth noting that AO is still in its early stages. AO is currently still running on the testnet, and the mainnet is expected to be launched in February 2025. Arweave's current growth trajectory is encouraging, and we will closely monitor whether this growth trend can continue.

The latest metrics about Arweave can be viewed through this link:

https://viewblock.io/arweave/stats

Criticisms

Perhaps the most common criticism of Arweave is its low fees compared to other Layer 1 blockchains of similar size.

Source: DeFiLlama, December 2024

From the metric of "price/annualized fees", Arweave outperforms only Avalanche among all L1s. A lower ratio means that the fees paid by users are higher relative to the fully diluted market value (FDV) of the network. These data reflect the total fees generated by transactions on the blockchain - that is, the fees paid by users for transactions on the blockchain. However, this does not take into account the rewards of miners, or in Arweave's case, the contributions of the funding pool. Because Arweave distributes most of its fees to miners, its short-term profits may appear smaller than some other blockchains.

AR Token Performance

2024 was a banner year for AR. Especially after the AO announcement, the price of the Arweave token soared from less than $10 per token to over $40. The market is very excited about the potential that AO brings and the expected boost to Arweave activity. Since February 2024, AR holders have been minting AO tokens simply by holding AR in their wallets. Currently, 33% of newly minted AO tokens are being distributed to AO holders, and these tokens will become transferable after the AO mainnet goes live in February 2025. After the mainnet launch, AR holders will continue to earn a third of AO tokens until 21 million AO tokens are created. Rewards are paid every 5 minutes, and the monthly reward ratio is 1.425% of the remaining supply. This means that the issuance of tokens will gradually decrease over time.

AR Token Price Trend in USD:

Source:

https://coinmarketcap.com/currencies/arweave/

AR prices fell during the summer as the entire market fell. However, AR lagged behind other tokens with AI value propositions such as RENDER, TAO, NEAR, etc. We believe on-chain fund flows played a role in this story.

Since September, a whale has started selling a large number of AR tokens, and the amount is quite significant. We think we know who is selling, but this has not been confirmed. The wallet address dRFuVE-s6-TgmykU4Zqn246AR2PIsf3HhBhZ0t5-WXE received over 10 million AR tokens in November 2021 (total supply of AR is currently less than 66 million). There were transfers before 2023, and by 2024, this wallet had 5 million tokens left (worth $80 million at today’s price of $16). On September 6, 2024, the wallet transferred the remaining 5 million tokens to two addresses: i3gk39KyYCEjiylhBO9lM8DQVRtwaIG59llf2QL14Fg and jcRNRYfbIfaj_YrjN8he864KBT_4D13DL7fmj6txZgA. These two addresses subsequently sent tokens to exchanges, suggesting that these are addresses of market makers. Of the 5 million tokens, about 1.35 million are still in the hands of these (probably) market makers, ready to be transferred to exchanges. These two addresses transferred tokens to the same two addresses on exchanges, indicating that this is likely the same market maker. This selling pressure is significant for the number of AR tokens in circulation, exceeding 7%. Once the remaining tokens are sold, the AR market may see a reduction in downward price pressure.

AO Overview

AO is a decentralized, "hyperparallelized" (super-parallel computing) network that breaks the scale and type limits of on-chain computation while keeping everything verifiable. At its core, AO is a messaging layer for independent and concurrent processes. AO leverages Arweave for permanent data logging, so any updates or interactions with a process are permanently saved. AO's name stands for "actor oriented," meaning that you can build and run modular programs (actors), each of which can choose its own virtual machine (VM), consensus method, and payment model, while still being able to communicate with other agents using standardized message formats. In practice, this means that cloud applications like Amazon EC2 can plug into AO's decentralized network and collaborate with decentralized smart contracts, all working together toward a common goal.

There are already some AO agents running in action. One agent continuously searches for the best yield on a crypto asset across multiple lending protocols, and another automatically makes fixed investments on decentralized exchanges (DEX) based on user-defined parameters. These agents leverage trusted execution environments (TEEs) to protect user privacy and allow users to hand over their private keys, which enables the agent to act completely autonomously without further instructions or commands.

An important difference between AOs and other Layer 1 blockchains is that AO programs can automatically "wake up" at set times without waiting for external function calls. This enables truly autonomous services that do not rely on centralized triggers. They can run entirely on their own schedules, and applications that rely on them do not need to rely on centralized actors to guarantee liveness. In the example of the yield-optimizing agent we mentioned earlier, this means that the agent can automatically wake up when you sleep and reallocate your investments to higher-yielding strategies without any prompting.

AO Architecture

Processes

A process is like a single "agent" on an AO. Each process starts from an initial state and then logs every message it receives. All of this data is stored on Arweave so it cannot be lost or censored. By separating data logging from actual computation, AO can scale to handle tasks at a much larger scale than traditional blockchains.

Messages

Messages are how processes interact with users. Messages are sent across the network and have unique IDs for easy tracking. If a message is not forwarded correctly, it will not be delivered - this provides flexibility for traffic flow while still ensuring that all successfully delivered messages are permanently recorded.

Scheduler Units

Scheduler Units (SUs) attach incremental slot numbers to messages to ensure that they are uploaded to Arweave, thereby maintaining the consistency of message order. Depending on the needs of the actual application, schedulers can be centralized or decentralized.

Compute Units

Compute Units (CUs) are responsible for performing the actual computational tasks. They are free to choose which processes to execute, forming a competitive market for computational services. After completing the work, the compute unit returns a signed proof of the process state change - as well as any new messages or new processes triggered by that state update.

Messenger Units

Messenger Units (MUs) are responsible for delivering messages in the network. They first send each message to the dispatch unit, ensure that the message is recorded on Arweave, and then forward the message to the computation unit. If a process generates more messages in response, the messaging unit will continue to forward these messages until all operations are completed.

Challenges facing AO

AO is not without its challenges. Each network ultimately defines itself by its excellence in certain areas. For example, Arbitrum has emerged in the field of DeFi, Solana focuses on memecoins and DePin, and IMX focuses on games. But Arweave has always focused on content storage, blockchain archiving, and persistence of oracle data. While AO aims to redefine decentralized content storage and DeFi, it still faces many challenges, especially in promoting the application of AI agents in DeFi.

The application of AI agents in DeFi has been slower to develop elsewhere. We have yet to see a breakthrough application that effectively incorporates AI into the DeFi space. The closest example so far is the introduction of machine learning models on-chain to optimize the returns of capital pools. However, these machine learning models tend to be very simple algorithms that are mainly used to predict returns and compare them with the transaction costs of switching strategies. These models are simple and linear, which helps reduce overfitting and "hallucination" phenomena. In contrast, models like large language models (LLMs) are highly non-linear, non-deterministic, and often have difficulties when doing basic calculations (such as number crunching). It may be a while before we see true AI agents managing our funds, rather than just user-defined intentions wrapped in agent form.

Arweave is not historically a DeFi chain. While there have been some attempts to build decentralized exchanges (DEX) on Arweave, none of them have successfully achieved breakout growth. This is not surprising considering that Arweave's original use was to store content such as images. It will be interesting to watch as AO attempts to attract Arweave’s existing community and users, as well as new users on other chains. The team has clearly considered this challenge, which is reflected in AO’s token economics. Participants who transfer DAI and stETH to the AO network will be rewarded with AO tokens, in addition to being able to earn yield using these bridged tokens in the AO mainnet. As of now, AO has attracted about $578 million in TVL (total value locked). It is critical to keep this part of the funds and interact with emerging DeFi applications.

Airdrop Mechanism

Token Supply: A total of 21 million AO tokens will be issued in halvings at predetermined intervals.

Qualifications for minting AO tokens:

• AR token holders will receive AO tokens based on their AR balances.

• Users who bridge DAI and stETH will also receive token allocations.

Distribution method:

• 1.03 million AO tokens will be distributed retroactively to holders and bridgers since February 27, 2024. All AO tokens minted during this period have been distributed to AR token holders based on the corresponding balances held every 5 minutes.

How to Get Involved

If you’ve read this far, you’re probably interested in getting involved in the AO ecosystem. Here are some of the best ways to get started:

• Holding AR Tokens:Since one-third of new AO tokens will be distributed to AR holders, simply holding AR tokens is a great way to get exposure to AO tokens.

• Bridging DAI or stETH:Currently, two-thirds of AO tokens will be distributed to users who bridge DAI or stETH to AO. This is also a great way to earn AO tokens without risking AR price volatility.

• Using AO Mainnet Applications:The AO Mainnet will be launched in February, and multiple trading and lending platforms will be available. You can check out the AO ecosystem to learn more.

• Providing Computing Resources:Anyone can provide computing resources for various processes in the AO network without permission. For people with a strong technical background, this may be one of the best ways to understand the AO ecosystem and directly participate in it.

Future Outlook/Summary

The AO Mainnet will be launched in February 2025, when anyone can provide computing resources or set up their own processes and agents. The token bridge function will also be open, allowing any token to enter the AO network. As more people join and build advanced AI or automated services, AO's decentralized and massively parallel architecture will unlock a range of new possibilities - especially in areas that require trustlessness and efficient computing.

The launch of the AO mainnet will be an important milestone for Arweave and the AI ​​x Crypto community. We will keep a close eye on this ecosystem.