Will AO Mainnet's launch bring Arweave back to its peak?

AO is an upcoming artificial intelligence agent coordination platform, less than a month away from the Mainnet launch, which is an important milestone for the Arweave and AI x Crypto communities. This article provides an in-depth analysis of Arweave’s permanent data storage design, interprets AO’s super-parallel computing architecture, and elucidates how the two networks are driving the next wave of on-chain autonomous agents.

We outlined the challenges facing AR and AO, as well as the current AR token market dynamics - revealing that, starting from September, a whale is liquidating the AR supply, and they have almost completed the sell-off. Finally, we will also introduce how to participate in the AR ecosystem and have the opportunity to participate in the upcoming AO.

Introduction

On February 8, 2025, the AO Mainnet will officially launch - a major event for the AI x Crypto community, which will change the way everyone interacts with on-chain agents. AO brings a new form of parallel computing layer to the market, designed specifically for agent applications. This is also an important milestone for Arweave, the permanent data storage network behind AO, making the implementation of AO possible.

This article will provide a detailed analysis of the technology behind Arweave and AO, delve into their token economics, and explore the emerging AO ecosystem.

Important statement: We were once investors in Arweave and as holders of AR tokens, we have also accumulated some AO tokens.

What is Arweave?

Arweave is a decentralized, permanent data storage network. Users pay a one-time prepayment fee based on the required storage capacity and ensure that the data will always be available. Arweave does not have a centralized permission management mechanism, and the fees will be dynamically adjusted according to the storage needs of the miners, ensuring that the miners can continuously receive compensation for data storage. Arweave is a “one-time payment, permanent storage” 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”. While many blockchains follow a linear chain structure of blocks, 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 a standard blockchain, as they must prove possession of correct data fragments from the most recent block and a randomly selected historical block in order to create each new block. This requirement ensures the long-term permanence of data - nodes must maintain the entire historical dataset in order to mine new blocks and continue to receive rewards.

The token AR of Arweave 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 will be deposited into the Endowment, which is used for future miner reward payments. Miner rewards are calculated independently of network fees, ensuring that miners are continuously incentivized to participate in the network regardless of user activity. This smooth mechanism for fee collection and distribution enhances confidence in Arweave’s storage guarantee.

Development momentum

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

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In September 2021, data storage surged and reached its lowest point in June 2023, steadily increasing since then. The following chart shows the amount of different types of data uploaded each month.

Arweave Usage Over Time (Categorized by Data Size)

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In 2021, the NFT craze swept the world, leading to a significant increase in data storage on Arweave. Creators began storing their JPEG images and other graphics on Arweave instead of linking to centralized hosting services, which is the main reason for the surge in Arweave usage during this period. Arweave is an ideal choice for storing NFT artwork data due to its permanence and decentralization.

From 2023, some new use cases have emerged. Among all the use cases, the category that consumes the most storage space is applications, mainly “bundler” applications, which bundle multiple transactions and data together and publish them to the Arweave network. These applications include Bundlr (the team has been renamed to Irys.xyz and has launched its own data chain in addition to the bundler application). Applications that bundle these data, including content that would originally be classified as images, videos, or other blockchain data, are being permanently stored via Arweave. In addition to these bundler applications, some other projects are also leveraging Arweave’s permanent storage capabilities. These projects include Lens’ social applications, content publishing platforms, and some AI use cases, etc.

The figure below shows the activity divided by transaction volume. Although the fees charged by Arweave are based on the size of the stored data, the increasing number of transactions may indicate the future development direction of Arweave.

Arweave Usage Over Time (by number of transactions)

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The two fastest-growing use cases in terms of transaction volume are Redstone and AO. Redstone is one of the fastest-growing oracle networks in the cryptocurrency industry, providing price data for all major assets on-chain in the EVM. We have made private investments in Redstone and are optimistic about their growth prospects in expanding new partnerships and adding product features.

AO is a parallel computing and proxy messaging layer built on Arweave. We will discuss AO in more detail later, but it is worth noting that AO is still in its early stages. Currently, AO is running on the testnet, and Mainnet is expected to launch in February 2025. The current growth trajectory of Arweave is encouraging, and we will closely monitor whether this growth trend can continue.

The latest indicators for Arweave can be viewed through this link:

Criticism

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

Source: DeFiLlama, December 2024

In terms of the ‘Price / Annual Fee’ metric, Arweave is only better than Avalanche among all L1s. A lower ratio means that users pay a higher fee relative to the network’s fully diluted valuation (FDV). These data reflect the total fees generated by on-chain transactions – that is, the fees paid by users for on-chain transactions. However, this does not take into account miner rewards or, in the case of Arweave, the contribution of the funding pool. Since Arweave allocates most of the fees to miners, its short-term profits may appear smaller than some other blockchains.

AR Token Performance

In 2024, AR ushered in a landmark year. Especially after the announcement of AO, the price of Arweave tokens surged from less than $10 per token to over $40. The market is very excited about the potential brought by AO and the expected increase in Arweave activity. Since February 2024, AR holders have been minting AO tokens simply by keeping AR in their wallets. Currently, 33% of the newly minted AO tokens are being distributed to AO holders, and these tokens will become transferable after the AO Mainnet launches in February 2025. After the Mainnet release, AR holders will continue to earn one-third of the AO tokens until 21 million AO tokens are created. Rewards are distributed every 5 minutes, and the monthly reward ratio is 1.425% of the remaining supply. This means that the token issuance will gradually decrease over time.

AR token’s USD price trend:

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As the entire market is in a downturn, the price of AR has fallen during the summer. However, compared to other tokens with AI value propositions such as RENDER, TAO, NEAR, etc., AR has lagged behind. We believe that on-chain capital flow plays a role in this story.

Since September, a whale has started selling a large amount of AR tokens, which is quite considerable. We believe 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 (the current total supply of AR is less than 66 million). There have been transfers before 2023, and by 2024, the wallet still has 5 million tokens (valued at $80 million at today’s price of $16).

On September 6th, 2024, the wallet will transfer the remaining 5 million tokens to two addresses:

i3gk39KyYCEjiylhBO9lM8DQVRtwaIG59llf2QL14Fg and

jcRNRYfbIfaj_YrjN8he864KBT_4D13DL7fmj6txZgA. These two addresses will subsequently send tokens to the exchange, implying that they are market maker addresses. Out of these 5 million tokens, approximately 1.35 million are still in the hands of these (possibly) market makers, ready to be transferred to the exchange.

These two addresses transfer tokens to the same two addresses on the exchange, indicating that this is likely the same liquidity provider. This selling pressure accounts for a very large proportion of the circulating AR tokens, exceeding 7%. Once the remaining tokens are all sold, the AR market may see a decrease in downward price pressure.

AO Overview

AO is a decentralized, ‘hyper-parallel’ network that breaks the scale and type limitations of on-chain computing while maintaining the verifiability of all content. The core of AO is a message passing layer for independent and concurrent processes. AO leverages Arweave for permanent data logging, so any updates or interactions with processes are permanently recorded. The name AO stands for ‘actor-oriented,’ which means you can build and run modular programs (actors) that can choose their own virtual machines (VMs), consensus methods, and payment models, while still being able to communicate with other actors using standardized message formats. In practice, this means that cloud applications like Amazon EC2 can access AO’s decentralized network and collaborate with decentralized smart contracts, all working towards a common goal.

Some AO agents are already in operation. One agent continuously seeks the best yield obtained by encrypted assets in multiple lending protocols, while another automatically makes periodic investments on decentralized exchanges (DEX) based on user-defined parameters. These agents use Trusted Execution Environments (TEEs) to protect user privacy and allow users to surrender their private keys, enabling the agents to act autonomously without further instructions or commands.

One important difference between AO and other Layer 1 blockchains is that AO’s programs can automatically ‘wake up’ at a set time without waiting for external function calls. This makes true autonomous services possible, without relying on centralized triggers. They can run completely on their own schedule, and the applications that depend on them do not need to rely on centralized participants to ensure their survival. In the example of the profit optimization agent mentioned earlier, this means that the agent can automatically wake up while you sleep and reallocate your investment to higher-yielding strategies without any prompts.

AO Architecture

Processes

The process is similar to a single ‘agent’ on AO. Each process starts from an initial state, and then records every message it receives. All of this data is stored on Arweave, so it will not be lost or audited. By separating data logging from actual computation, AO can scale to handle tasks on a larger scale than traditional blockchains.

消息（Messages）

Messages are a way of interaction between processes and users. Messages are sent over the network and have a unique ID for tracking. If a message is not forwarded correctly, it will not be delivered - providing flexibility for traffic flow while still ensuring that all successfully delivered messages are permanently recorded.

Scheduler Units

Scheduling Units (SUs) are slot numbers for incrementally attaching messages to ensure they are uploaded to Arweave, thus maintaining the consistency of message order. Depending on the requirements of the actual application, Scheduling Units can be centralized or decentralized.

Compute Units

Compute Units (CUs) are responsible for executing actual computing tasks. They can freely choose which processes to execute, forming a competitive computing service market. After completing the work, the compute unit will return a signed proof of state change - as well as any new messages or processes triggered by the state update.

消息传递单元（Messenger Units）

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

Challenges AO Faces

AO is not without challenges. Each network ultimately defines itself through outstanding performance in certain areas. For example, Arbitrum has emerged in the field of DeFi, Solana focuses on memecoins and DePin, while IMX is dedicated to gaming. However, Arweave has always focused on content storage, blockchain archiving, and the persistence of oracle data. AO aims to redefine decentralized content storage and DeFi, but it still faces many challenges, especially in promoting the application of AI agents in DeFi.

The application of AI agents in DeFi is developing slower elsewhere. We have not yet seen a breakthrough application that can effectively integrate AI into the field of DeFi. So far, the closest example is the introduction of machine learning models on-chain to optimize the yield of the liquidity pool. However, these machine learning models are often very simple algorithms, mainly used to predict yields and compare with the trading costs of switching strategies. These models are simple and linear, which helps reduce overfitting and the ‘illusion’ phenomenon. In contrast, models like large language models (LLMs) are highly nonlinear, non-deterministic, and often encounter difficulties in basic calculations (such as numerical operations). It may take some time before we see a truly AI agent managing our funds, rather than just user-defined intentions packaged in the form of agents.

Arweave has not been a DeFi chain historically. Although there have been some attempts to build decentralized exchanges (DEX) on Arweave, none have successfully achieved breakthrough growth. Considering that Arweave’s initial purpose was to store content such as images, this situation is not surprising. As AO attempts to attract existing Arweave community and users, as well as new users on-chain, the future development will be very worth watching. The team has obviously considered this challenge, as reflected in AO’s token economics. Participants who transfer DAI and stETH to the AO network will receive AO token rewards, and they can also use these bridged tokens to earn profits in the AO Mainnet. As of now, AO has attracted approximately $5.78 billion in TVL (total value locked). It is crucial to retain this capital and interact with emerging DeFi applications.

Airdrop Mechanism

Token Supply: A total of 21 million AO tokens will be halved at scheduled intervals.

AO Token Minting Qualification:

• AR token holders will receive AO tokens based on their AR balance.
• Users bridging DAI and stETH will also receive token allocations.

Distribution Method:

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

How to Participate

If you’ve read this far, it means you might be interested in participating in the AO ecosystem. Here are some best ways to get started:

• Holding AR Tokens: Holding AR tokens is a good way to gain exposure to AO tokens as one-third of the new AO tokens will be distributed to AR holders.
• Bridging DAI or stETH: Currently, two-thirds of the AO tokens will be allocated to users who bridge DAI or stETH to AO. This is also a good way to earn AO tokens without taking the risk of AR price volatility.
• Using the AO Mainnet Application: The AO Mainnet will be launched in February, when there will be multiple trading and lending platforms available for use. You can check out the AO ecosystem for more information.
• Provide computing resources: Anyone can provide computing resources for various processes in the AO network without permission. For people with strong technical backgrounds, this may be one of the best ways to understand the AO ecosystem and participate directly in it.

Future Prospects/Summary

AO Mainnet will go live in February 2025, when anyone can provide computing resources or set up their own processes and agents. Token bridging functionality will also be open, allowing any token to enter the AO network. As more people join and build advanced AI or automation services, AO’s decentralized and massively parallel architecture will unlock a range of new possibilities—especially in areas requiring trustlessness and efficient computation.

The launch of AO Mainnet will be an important milestone for the Arweave and AI x Crypto community. We will closely monitor this ecosystem.