AO is about to be released: Will Arweave regain momentum?

Original author: ArringtonCapital

Original text compilation: Yuliya, PANews

Reprint: Luke, Mars Finance

On February 8, 2025, the AO mainnet is about to go live, which is an important milestone for the AI and cryptocurrency community. AO aims to provide a highly parallel computing layer for decentralized applications, with the underlying permanent data storage network Arweave playing a key role. This article will delve into the permanent storage architecture of Arweave, the ultra-parallel computing model of AO, and how both drive the future development of on-chain autonomous agents. At the same time, it will also explore the challenges and market dynamics faced by AR and AO, as well as how to participate in them.

Arweave Overview

Arweave is a decentralized permanent data storage network. Users only need to pay storage fees once to get permanent data storage services. Unlike other storage networks that require continuous payment of fees (such as Filecoin), Arweave uses a unique block structure called the “blockweave.” Each new block not only links to the previous block, but also randomly links to earlier historical blocks, ensuring that miners must hold the complete historical data to generate new blocks, thus achieving long-term data preservation.

Arweave’s native token AR is used to pay for storage fees and reward miners. When users upload new data and pay the fees, approximately 85% of the tokens are stored in a fund for future miner rewards. This design ensures that miner incentives are independent of user activity and enhances confidence in permanent data storage.

Growth trajectory

Since its launch in June 2018, the usage of Arweave has significantly increased in 2021. The following chart tracks the weekly data uploads since the network’s launch:

The data storage reached its peak in September 2021, hit bottom in June 2023, and has since steadily climbed. The following figure breaks down the data types uploaded each month.

Arweave usage varies over time (divided by size)

In 2021, the rise of NFTs has driven the first significant increase in Arweave’s data storage demand. Creators are starting to upload JPEGs and images to Arweave instead of relying on centralized hosting services, a trend that has led to a surge in Arweave usage. Due to its permanence and decentralized nature, Arweave has become the ideal choice for storing data related to NFT artwork.

Since 2023, a series of new use cases have emerged. Among all categories, applications occupy the most storage space. These are mainly packer applications that bundle multiple transactions and data together and publish them on Arweave. These include Bundlr (which has been renamed to Irys.xyz and will also launch its own data chain in addition to packer applications) and Ardrive Turbo. The data packaged by these applications includes content that was previously classified as images, videos, or other blockchain data. In addition to these packer applications, other projects are also leveraging Arweave’s permanent storage capabilities, including Lens’ social app Hey, content publishing platform Mirror, and AI application scenario Ritual.

From the perspective of transaction volume, although Arweave charges based on the size of stored data, the increasing number of use cases may indicate the future direction of Arweave.

Arweave usage over time (by number of transactions)

Trading volume data shows that the two fastest growing use cases in the blockchain ecosystem are Redstone and AO.

Redstone

Redstone is one of the fastest growing oracle networks in the crypto space, providing price data for a variety of assets across all major EVM chains. The rapid expansion of this network is attributed to its continuously expanding partnerships and product functionalities.

AO

AO is a parallel computing and proxy messaging layer built on Arweave. Although it is still in the testnet stage, its mainnet is planned to be launched in February 2025. The design goal of AO is to provide efficient computing infrastructure for proxy applications, leveraging Arweave’s permanent storage capability to support on-chain autonomous proxies.

Criticism of Arweave

Despite Arweave’s recognized storage model, it also faces some criticism, especially its lower fee income. The following is a comparison of the PE ratios of different blockchains:

In terms of price/cost ratio, Arweave’s performance on L1 chain is only slightly better than Avalanche. The lower ratio indicates that users have paid higher fees relative to the fully diluted value (FDV) of the network. These data reflect the total fees generated, but do not take into account miner payments or Arweave’s donation fund contributions. Due to Arweave’s allocation of a larger proportion of fees to miners, its short-term profit may appear smaller compared to other chains.

AR Token Performance

In 2024, after the AO project was announced, AR saw significant growth. Following the announcement, the price of Arweave tokens surged from less than $10 each to over $40. The market showed strong interest in the potential brought by AO for cryptocurrencies and the expected growth of Arweave activities.

From February 2024, AR holders can accumulate AO tokens by holding AR in their wallets. Currently, 33% of newly created AO is circulating to holders, and these tokens will be available for transfer when the AO mainnet launches in February 2025.

After the mainnet launch, AR holders will continue to receive one-third of the total AO token issuance until the creation limit of 2.1 million AO tokens is reached. These rewards are calculated every five minutes at a monthly rate of 1.425% of the remaining supply, which means the token issuance will decrease over time.

AR price (USD)

As the overall market declines, the price of AR also falls in the summer. Compared with tokens such as RENDER, TAO, NEAR, which have AI value attributes, AR’s performance is relatively lagging behind. The flow of funds on the chain may be an important factor contributing to this phenomenon.

Since September 2024, the market has observed a large holder continuously selling a large amount of AR tokens. Although there are clues to the identity of this investor, it has not been confirmed yet. The wallet address dRFuVE-s6-TgmykU4Zqn246AR2PIsf3HhBhZ0t5-WXE received over 10 million AR tokens in November 2021 (the total supply of AR is less than 66 million). This wallet had transfer records before 2023 and still holds 5 million tokens in 2024 (valued at approximately 80 million USD at the current price of 16 USD).

On September 6th, the wallet transferred the remaining 5 million tokens to two new addresses. These addresses subsequently transferred the tokens to the exchange, indicating that they may be market maker addresses. Out of the 5 million tokens, approximately 1.35 million tokens are still held in addresses speculated to be market maker addresses, waiting to be transferred to the exchange.

The behavior of transferring to the same target address from two addresses to the exchange indicates that this is likely the operation of the same market maker. This wave of selling pressure accounts for a relatively large proportion of the circulating supply, exceeding 7% of the total AR token supply. Market analysis believes that once the remaining tokens are sold, the downward pressure on the AR market may be relieved.

AO Overview

AO is a decentralized ‘hyper-parallel’ network that breaks through the traditional limitations of on-chain computing scale and types while maintaining verifiability of all operations. The core of AO is a message-passing layer that supports independent and parallel processes and utilizes Arweave for permanent data storage, ensuring that all updates and interactions are permanently recorded.

“AO” stands for “Actor Oriented”, and developers can build modular programs (actors). Each actor can choose its own virtual machine (VM), consensus mechanism, and payment model, and communicate with other actors through standardized messaging formats. This design allows cloud applications (such as Amazon EC2) to access AO’s decentralized network, cooperate with decentralized smart contracts, and achieve common goals.

AO Feature Highlights

Existing applications

Some AO agents have been put into use. For example, an agent can continuously optimize the yield of encrypted assets between multiple lending protocols; another agent can automatically execute dollar-cost averaging strategies on DEX according to user-defined parameters. These agents utilize a trusted execution environment (TEE) to protect user privacy, allowing users to host private keys and achieve fully autonomous operation without additional instructions.

Automatic wake-up function

Unlike other Layer1, AO’s program can autonomously ‘wake up’ without external calls. This design supports fully autonomous services. For example, the revenue optimization agent can reallocate assets to higher-yield strategies while the user is asleep, without the need for manual triggering.

AO Architecture

1. Processes:

The process is equivalent to a single “actor” on AO, starting from the initial state and recording all received messages. Data is stored on Arweave to ensure that it is not lost or censored. By separating data recording from actual computation, AO can handle tasks larger than typical blockchains.

2. Messages:

Messages are the means by which processes and users interact, transmitted over the network with a unique ID for traceability. Message delivery must be accurate to ensure permanent records and provide flexible traffic control.

3. Scheduler Units (Scheduler Units):

The scheduling unit adds an incremental time slot number to the message and ensures that it is uploaded to Arweave, maintaining a consistent record of message sequencing. It can be centralized or decentralized depending on the use case requirements.

4. Compute Units:

The computing unit is responsible for the actual operation of the process, and can freely choose the process to be calculated, forming a competitive market for computing services. After completing the work, they will return a signed proof of process state change.

5. Messenger Units:

The message delivery unit is responsible for message transmission in the network, ensuring that the message is passed to the computing unit after being recorded on Arweave by the scheduling unit until all operations are completed.

Challenges facing AO

The AO project faces some significant challenges. Every network eventually needs to establish dominance in one or two verticals. For example, Arbitrum focuses on DeFi, Solana excels in meme coins and DePIN, IMX specializes in gaming. Arweave, on the other hand, revolves around content storage, blockchain archiving, and oracle data permanence. AO aims to redefine decentralized content and DeFi, particularly in the challenge of advancing AI agents’ application in the DeFi field.

1. The adoption challenge of DeFi

Although AO is committed to promoting the integration of DeFi and AI, the AI agents in the DeFi field adopt a relatively slow speed and breakthrough applications have not yet emerged. The closest attempt is to introduce machine learning models on-chain for yield optimization. However, these models are usually relatively simple and mainly used for yield prediction and cost comparison of strategy switching. In contrast, large language models have highly nonlinear and non-deterministic characteristics, and still face difficulties in basic calculations.

2. Background of non-DeFi chains

Arweave is not a traditional DeFi public chain in the traditional sense, and previous attempts to build DEX projects on it have not been successful. Therefore, AO needs to attract the existing Arweave community and new user groups. The token economics designed by the team reflects a deep understanding of this challenge, such as rewarding users bridging DAI and stETH to attract funds. Currently, AO’s TVL has reached $5.78 billion, and maintaining the activity of this capital is key.

Token Economy and Participation Methods

After the mainnet launches in February 2025, anyone can contribute computing resources or deploy their own processes and agents. Cross-chain bridges will be open to support the transfer of any token to the AO network. As more people join and develop advanced AI or automation services, AO’s decentralized and efficient architecture will unlock new possibilities for trust and high computational power demand.

Airdrop mechanism

Token total supply and release plan: The total supply of AO tokens is 21 million, released in halves at set intervals.

Airdrop eligibility: AR holders receive AO airdrops based on their holding ratio; Users bridging DAI and stETH can also receive allocations.

Distribution method: Since February 27, 2024, 1.03 million AO tokens have been distributed to holders and bridgers; AR holdings are counted every 5 minutes for distribution ratio calculation.

Participation method

Hold AR tokens: One-third of the newly issued AO tokens are allocated to AR holders.

Cross-chain transfer to DAI or stETH: Currently, two-thirds of the AO tokens are allocated to cross-chain users

Using the AO mainnet application: After the mainnet is launched, it will provide multiple trading and lending platforms.

Provide computing resources: Anyone can contribute computing power to various processes on AO without permission

*Disclaimer: The author Arrington Capital is an early investor in Arweave and holds AR and AO tokens.