AO has created a token minting model for developers, namely developer minting, which is different from the token minting for miners in Bitcoin and Ethereum. Developers can lock aoETH by developing smart contracts and obtain the AO tokens minted by them, thereby realizing developer minting. As of July 15, the $stETH bridged and deposited in the AO network has exceeded 500 million US dollars. This model provides developers with a new way of financing, attracting investors with aoETH to join the project and promoting the development of the AO ecosystem.
Author: outprog
Review: 0xmiddle
Source: Content Association - Investment Research
Conclusion first: Bitcoin and Ethereum token minting is for miners, who provide security and computing power for the network to obtain newly minted tokens. In contrast, AO has created a token minting model for developers, changing from miners to developers. This article will briefly introduce AO's token model and explain how developers make profits in the entire token minting process.
Token Model
Total quantity: 21 million, same as Bitcoin.
Casting cycle: Casting is performed every 5 minutes.
Halving mechanism: Halving occurs approximately every 4 years. Bitcoin will suddenly halve once every 4 years. The AO halving mechanism is linear, that is, the number of coins minted will gradually decrease every 5 minutes.
Distribution mechanism: 33.3% of tokens are allocated to AR holders; 66.6% of tokens are allocated to eligible cross-chain bridge assets.
AR Holder
The total amount of AR is 66 million. When you have 1 AR in your wallet, the AO token minting rate is roughly estimated to be:
33.3% * 1 / 66,000,000
Cross-chain bridge assets
Not all cross-chain assets can obtain the right to mint AO tokens. AO has a strict definition of cross-chain bridge assets for minting tokens, which must meet the following two points:
High-quality assets have sufficient liquidity in the market, such as assets of large public chains.
It must be an asset with annualized returns, a token that has been rigorously tested and has liquidity staked, such as stETH.
Taking stETH as an example, as of now, AO has locked about US$530 million of stETH, or 159,580 stETH, in Ethereum’s lock-up contract.
If you cross-chain a stETH, the AO token minting rate is roughly estimated to be:
66.6% * 1 / 159,580
For the current pledge, please check Etherscan: https://etherscan.io/address/0xfe08d40eee53d64936d3128838867c867602665#tokentxns.
After the cross-chain, stETH will generate aoETH tokens on AO. There is a 1:1 mapping relationship between aoETH and stETH. Users holding aoETH can cross the chain back to Ethereum to obtain stETH at any time. If you hold aoETH, the wallet will receive minted AO tokens every 5 minutes.
It is worth noting that the aoETH generated by users after stETH cross-chain will not obtain the native benefits of stETH, that is, the balance will not automatically increase like stETH. The value of cross-chain aoETH is equivalent to ETH, and aoETH also increases the AO minting capacity.
For example, a user holds 1 stETH on Ethereum, and the current annualized rate of return of stETH is 3.2%. After one year, the user's stETH holdings will automatically increase to 1.032 (for ease of understanding, compound interest is not calculated), of which 1 stETH is used for principal and 0.032 is the annualized rate of return. When the user crosses stETH to aoETH, the 0.032 return will no longer belong to the user. aoETH loses the original return of stETH and becomes the token minting return of AO. Readers must be wondering, where did the return of stETH go? Please see the figure below:
Among them, the yellow circle entity represents stETH, the green entity represents aoETH, and the orange represents the annualized income asset. After stETH is pledged across chains, an equivalent amount of aoETH is mapped in aoETH. After the cross-chain, the income of stETH is handed over to the Permaweb Ecological Development Guild (PEDG for short), and the PEDG Guild will decide how to use these income. The AO tokens minted by aoETH will be sent to the wallet of aoETH holders.
PEDG introduction from AO white paper:
PEDG is an AO ecosystem organization and a consortium of builders dedicated to developing, growing, and maintaining the infrastructure required for the AO network. PEDG is funded by native revenue generated during the use of cross-chain assets on the AO network. These revenues will not fund a single core team, but will be distributed to a diverse group of teams and builders who are contractually committed to promoting the growth of AO. At the time of the AO token launch, PEDG consists of 5 ecosystem partners who collaborated in the AO network launch, and more partners will join as the protocol matures and grows.
The mind map of AO’s minting and distribution is shown below:
When the economic model was first announced, many people criticized the minting of AO tokens, saying that it was good for stETH and bad for the AR/AO ecosystem. Most people believe that more minting rights should be allocated to AR holders rather than stETH. The author's views are as follows:
Cross-chain bridge assets are not limited to stETH. In the future, there will be more assets such as stSOL. As long as these assets meet the two requirements mentioned above, they will have the right to mint AO tokens after the cross-chain. When other assets enter the minting system, the minting rights allocated to a single currency will be diluted. When the number of cross-chain tokens of two tokens is basically the same, the minting rights of a single token are 33.3%. When the number of three tokens is the same, the minting rights of a single token are 22.2%. As the number of tokens increases, the minting rights will continue to be diluted.
AO is an open global supercomputer and a unified blockchain computer protocol. The AO ecosystem is broad and should not be limited to the Arweave ecosystem. AO needs to accept more assets from existing excellent public chains in order to grow and develop in a more long-term and stable manner. If a large number of incentives are used to incentivize the original small-scale AR holders, development will be restricted.
More importantly, AO is creating a new token minting model, which is also the focus of this article. Developer minting, please continue reading below 👇
Developer coin minting
From the above, we have learned that AO token minting and cross-chain bridges are closely related. In this process, a cross-chain asset aoETH is generated and circulated on AO (in the future, there will be more assets such as aoSOL). During the AO token minting process, 66.6% of the assets were distributed to the holders of the cross-chain asset aoETH. In this way, isn't AO a cross-chain farming system? But we must know that aoETH is liquid, so where will these circulating aoETH go?
The answer is: up to 400 million US dollars of aoETH will flow to ecosystem developers!
This flow does not mean that aoETH will be paid to developers, but that AO minted by aoETH will flow to developers.
We know that in the DeFi field, everyone pays attention to the total locked value (TVL). It is an indicator that measures the total value of all assets on a decentralized finance (DeFi) platform. TVL is often used to evaluate the scale and health of a DeFi protocol or platform, reflecting the total value of all crypto assets locked in smart contracts on the platform.
When developers develop a Uniswap-like trading system on AO, liquidity needs to lock the native tokens and various cross-chain assets on AO. Native tokens must establish liquidity with various cross-chain assets, otherwise AO native tokens will be worthless, and high-quality cross-chain assets will bring better liquidity and value to AO native tokens. As mentioned above, AO cross-chain assets must be high-quality assets with sufficient liquidity in the market. At this time, native cross-chain assets such as aoETH will become the preferred liquidity targets. When users use aoETH and AO native assets to establish liquidity, aoETH will be locked into the smart contract developed by the developer, and the AO tokens minted by aoETH will also be transferred to the developer contract. In the end, developers can have the right to use these AOs. This is the developer minting emphasized in this article.
The current locked amount of stETH is still growing at $400 million, and it is expected to reach billions of dollars in the future. After the official launch of the AO mainnet in February next year, these cross-chain assets will be officially circulated. It can be foreseen that billions of dollars of cross-chain assets need to be used and consumed on AO, and the smart contracts developed by developers are the consumption scenarios of cross-chain assets. In the process of circulation and locking of cross-chain assets such as aoETH, the coinage rights of AO will eventually come to the hands of AO developers. Only when AO developers continue to create more valuable applications can the AO ecosystem rise.
Another way to invest?
To get investment, a project needs not only a good idea, but also a good deck and a good pitch. Venture capital firms also face huge risks when selecting projects (otherwise why is it called venture capital?). A project with a good idea, deck and pitch does not mean that they can actually produce a product, and producing a product does not mean that the product can truly meet market demand. The traditional investment process is lengthy and inefficient.
Now there is a better option. As an investor, use your annualized income to invest instead of the principal. Developers do not need to rush to beautify Ideas, make Decks, and learn marketing skills. Instead, they should build the project from a prototype and MVP (minimum implementation). At the beginning, developers should consider staking and staking to get investors with aoETH to join your project. When the application prototype begins to be built, developers will receive financial support from AO tokens minted by aoETH.
If the project grows bigger, more and more aoETH will be staked, and developers will get more benefits. Isn't this a new way of investment? Investors will not lose their principal, developers can build lightly, and everything is in line with the principles of agile development. This is an agile investment.
An application with real market demand will never lack funds. The market will determine where aoETH will flow, where it will be staked or locked. Finally, please check the "nesting doll" diagram above for readers to think about. This may be an opportunity for AO projects and developers.
references
AO Whitepaper: https://5z7leszqicjtb6bjtij34ipnwjcwk3owtp7szjirboxmwudpd2tq.arweave.net/7n6ySzBAkzD4KZoTviHtskVlbdab_yylEQuuy1BvHqc
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Disclaimer: This article does not represent the views or positions of PermaDAO. PermaDAO does not provide investment advice and does not endorse any project. Please abide by the laws of your country and conduct Web3 activities in compliance with regulations.
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