AO’s trillion dollar opportunity lies in AI.
Written by: Teng Yan
Compiled by: Luffy, Foresight News
Earlier this month, SpaceX successfully launched Starship, its most powerful rocket to date, for the fourth time.
This engineering marvel features a Super Heavy booster that houses 33 Raptor engines with a total thrust of 72 teraflops. To put that in perspective, that’s twice the thrust of the rockets that flew the Apollo moon missions and three times the thrust of NASA’s space shuttles.
I have always been fascinated by the growth of technology companies. Years of hard work and huge R&D investments ultimately lead to seemingly overnight success. But those in the industry know that for a high-tech company to succeed, countless low-probability events must come together perfectly. SpaceX, founded 22 years ago as a startup with a big dream, is the epitome of this journey - the result of hard work and continuous improvement.
Such huge successes are rare in the cryptocurrency space.
Only a handful of crypto companies that emerged during the ICO boom of 2017-2018 remain relevant today. Cryptocurrency is a young, emerging industry, and people have very short attention spans, which often influences how founders think about their companies.
That’s why it’s exciting to see the OG project grow to the next level.
Arweave is closely connected to the AO computer
It took Arweave more than 5 years to break the 10 million transaction mark (November 16, 2023). Source: https://viewblock.io/arweave/stat/tx
Arweave is a decentralized, permanent data storage protocol launched in 2018. Despite its critical importance, data storage has struggled to find compelling use cases and adoption.
Data storage is not sexy, it is a commodity. The AO computer is Arweave’s most ambitious project.
AR=Storage Layer
AO = Computational Layer
AO aims to be a scalable, secure, trustless, and customizable computing platform - a hyper-parallel computer.
The core concept of AO is deterministic virtual machine + permanent data storage = reproducible state. This idea has been in place for four years, but it has only been realized in AO now.
I want to emphasize that the AO computer is very different from most other blockchains available today. It exists thanks to the foundational work done by Sam (founder) and the Arweave team over the years. Just like a high-tech startup needs a solid foundation to succeed, the AO would not be possible without Arweave's secure decentralized storage network.
Not Another Ethereum or Solana
Ethereum and Solana are globally synchronized state machines with a shared global state, while the AO Computer is a shared global messaging machine with local state.
Shared global state is the default mode of blockchain today. It enables participants to reach consensus and trust to maintain the integrity of the ledger. However, this is not enough to support future AI applications.
The AO Computer framework is differentiated from Ethereum and Solana by two key features: (1) scalable computing power and (2) a flexible security model.
Scalable computing
In both Ethereum and Solana, adding more computing resources (new nodes) does not increase the throughput of the network. No matter how many validator nodes there are, Ethereum will still only process 12-15 transactions per second.
However, the AO computer framework provides a way to scale dynamically. As more computing resources are integrated into the network, throughput scales accordingly. This is because AO processes run locally in parallel and are not constrained by global state.
Security Model
Ethereum uses a unified security model where every transaction is equally protected across its proof-of-stake (PoS) network. While this ensures consistency, it can be inefficient and costly for low-value transactions such as gaming.
The AO Computer Framework introduces a flexible security model that allows developers to tailor security requirements to the specific needs of their processes.
supercomputer
Imagine that you have a giant supercomputer made up of many smaller computers spread all over the world.
This large networked computer can perform multiple tasks at the same time, such as running games and applications. The smaller computers communicate with each other using a messaging system. The advantage of this is that each small computer is not slowed down by the rest of the network, but still gains the security of the blockchain.
That’s the AO computer in a nutshell.
The AO Computer Framework upgrades the typical blockchain node architecture by breaking it down into smaller modular components. These components include:
process
Messaging Unit
Scheduling Unit
Computational Unit
Each element plays a key role in the overall functionality of the system (full details are provided in the documentation and whitepaper).
Source: Messari
At a high level, AO can be boiled down to three core concepts:
Multiple processes can run locally in parallel
Process maintains individual sovereignty
Asynchronous message passing, allowing coordination and communication between processes
Parallel Processing
The core of the AO framework is the process, which is the application on the platform. These processes run independently and in parallel locally. Each process has no memory and cannot view the local state of other processes.
This isolation allows complex computations to be performed on powerful machines, expanding the design space far beyond the limitations imposed by traditional smart contracts (fees, gas limits, block sizes).
Compute units play a key role here. They provide the necessary computing power to keep AO processes running efficiently.
Application Sovereignty
A distinctive feature of AO is the sovereignty it gives developers.
Each process runs autonomously, allowing developers to choose their computing tasks, virtual machines, and security parameters without interference from other processes.
Developers can adjust security measures based on the value and sensitivity of specific calculations.
Asynchronous messaging
This is the glue that holds the network together. Communication within the AO protocol is managed through asynchronous messaging.
Processes exchange messages to coordinate operations and receive necessary data. All applications follow common messaging standards, ensuring consistency and interoperability.
The messaging unit passes these messages, working with the scheduling unit (similar to the Rollup sequencer) to order the messages and record them on Arweave.
AO’s Trillion-Dollar Opportunity Lies in AI
It is not practical to run large AI models like LLama-3 with billions of parameters directly on Ethereum.
Computational requirements, data storage, and bandwidth: The LLaMA-3 model requires a lot of computational resources (RAM, GPU power). Ethereum is not optimized for the large-scale data storage and high bandwidth required by LLM.
Latency and performance: Ethereum’s transaction speed is not fast enough to meet the low latency and high throughput required by AI models. No user wants to wait 12 seconds (Ethereum’s block time) to get a result.
Cost: On-chain AI computation is very expensive.
So I was very excited when AO announced last week that Large Language Models (LLM) can run on smart contracts, bringing AI directly to the blockchain. This will integrate human-like decision making in a trustless network.
Memory
Running an AI model requires loading model parameters into memory. The more parameters there are, the greater the memory requirement.
Running a relatively small model like LLama-3-8B requires at least 12GB of RAM. GPT-4 has more than 1.76 trillion parameters, and GPT-5 is expected to have 50 trillion parameters. Even more frightening is that AI models will only get bigger.
Source: AO Computer
Current blockchains are very limited in terms of memory. At the protocol level:
Ethereum has 48KB of RAM when executing smart contracts
Solana has 10MB of RAM
Even the Internet Computer (ICP), which is making inroads into artificial intelligence, has only about 3B of RAM.
AO uses WebAssembly in its execution environment and now supports WASM64, which can support high-performance applications. Currently, AO has a memory limit of 16GB and a protocol-level cap of 18 EB. This enables it to run heavy computations such as reasoning on Llama-3 or Phi 3.
data storage
WeaveDrive is a new feature that enables AO applications to access all data in Arweave as if it were a local hard drive.
By acting as a local file system in smart contracts, WeaveDrive improves the efficiency and accessibility of data storage and retrieval. More DApps will be incentivized to upload and store data on Arweave.
The AO computer’s framework fully utilizes the computing power of a single machine to enable direct on-chain execution of large AI models.
By combining an unconstrained execution environment with efficient and accessible data storage, AO significantly expands the design space for on-chain applications, especially those that are computationally intensive and AI-driven. This facilitates the development of autonomous agents with smart contract-like guarantees.
Integrating cron jobs (a feature not natively available on most blockchains) and autonomous agents will significantly facilitate on-chain activity, facilitating more complex and dynamic interactions.
Note: Cron is a computer term that means executing a scheduled task at an agreed time.
As we move toward an era of ubiquitous artificial intelligence, many will underestimate the significance of this breakthrough.
Llamaland serves as a proof-of-concept example: an AI-driven MMO game built on AO computers.
In Llamaland, users can submit petitions to Llama King, an artificial intelligence agent that uses a large language model to review user petitions and decide how much Memecoin to allocate to each user. It is worth noting that the entire process is performed entirely on-chain, which is the first implementation of LLM running entirely on-chain.
Although it's not live yet, you can sign up to be a waitlist user.
Building a permanent network
Odysee is a video sharing platform
On June 6, Arweave made 3 important announcements aimed at expanding its market reach:
Forward Research Acquires Odysee
Autonomous Finance Launches AgentFi
AO Ventures provides $35 million in funding for AO ecosystem builders
The most notable acquisition from my perspective was the Odysee acquisition. Most people underestimate its value, Odysee is the largest Web3 social app that few people have heard of. It has 7+ million monthly active users (20x that of Farcaster) and 2.2 million site visits per month.
Source: Similarweb
Odysee is an open version of YouTube that uses blockchain technology to give creators greater control and freedom. Unlike YouTube, which relies on traditional advertising revenue, Odysee rewards creators with LBRY Points (LBC).
Odysee is more like Reddit, a dark corner of the internet that emphasizes free speech and less content filtering. Its "Wild West" category is particularly notable for hosting more controversial and unfiltered content.
SimilarWeb says a significant portion of its users are from Europe, especially France, Spain and Germany. While Odysee can’t match YouTube’s scale, it still attracts a large number of users who could be potential users of the AO app.
Odysee will now build on the Arweave infrastructure, adding its platform to the permalink web and giving creators full control over their content.
Applications on AO
Source: ao.link, data as of June 19, 2024
AO has currently launched a testnet with a Proof of Authority (PoA) security mechanism. Most applications on the mainnet will use the Proof of Stake (PoS) mechanism. The mainnet launch date has not yet been determined.
Over the past three months, the testnet has had approximately 7,000 active users per day, with 3,000 to 4,000 processes and 182 million messages sent. While these numbers are not staggering, it indicates the presence of a small but active community.
Dexi
Dexi automatically collects and manages data on asset prices, swaps, liquidity, and more. Think of Dexi as a blockchain-based Bloomberg. It is managed by a network of autonomous agents, hosted on Arweave, and connected to all available liquidity pools.
Dexi is permissionless, and users can extract data directly from the Dexi aggregation agent. It is censorship-resistant and all information can be verified on-chain.
0 orbit
0rbit is a decentralized oracle network consisting of two main components: the AO module and a network of nodes that fetch data from anywhere on the Internet. 0rbit is a critical infrastructure for building applications on AO.
The AO module interacts with the 0rbit node to send data requests and receive results. Anyone can run a node and contribute to the network. Data is obtained asynchronously from the internet, which means that the process does not have to wait for a response.
Currently, 0rbit can fetch news from user-defined website APIs and price information from Coingecko’s API.
As I explored, I discovered some other interesting things on AO, including AMMs (Bark, Permaswap, ArSwap), Trunk (an AO meme coin), and Astro (an overcollateralized stablecoin that uses AR as collateral). AO is still in its early stages, and many projects have not yet been tested in production environments or accumulated a large number of transactions.
Focus: AO Token Economics
AO tokens were launched on June 14th, with a minting date retroactive to February 27th, 2024. I like its fair launch model, with no special allocations for investors and the team.
The AO token minting plan is similar to Bitcoin, with no pre-mining and a total of 21 million. The rate of new minting of tokens is halved every 4 years, but unlike Bitcoin, this is a smooth, slow process of reducing production.
New AO tokens will be distributed as follows:
Arweave token holders (36%)
StETH, SOL and other asset pledgers (64%)
So far, about 1 million tokens have been minted, most of which have been distributed retroactively to AR token holders. AR token holders will continue to receive new AO tokens every 5 minutes. The testnet token AOCRED can be exchanged for AO at a ratio of 1000:1.
Important: AO tokens are not transferable or tradable until 15% of the total supply has been minted (approximately February 8, 2025). This allows time for the emerging ecosystem to develop and the mainnet to launch, where AO tokens will be used to secure the network.
Hold AR to get AO
Below I have done some calculations on the expected return of holding AR tokens, assuming 1 AR = $30.
Holding 1 AR will receive approximately 0.016 AO tokens over the next 12 months.
There will be approximately 4.2 million AO in circulation within 12 months
The APY for holding AR is modest, ranging from 2.5% to 50%, depending on the expected FDV, which in turn depends on market conditions when the token becomes tradable next year. Assuming good market sentiment in 2025, a FDV of $10 billion might be quite reasonable, implying an APY of 25%.
Obtain AO by staking assets (e.g. stETH)
A user holding 0.01% of the total locked value (TVL) would accumulate approximately 210 AO tokens in 12 months.
As of June 25, stETH is valued at ~$320M across chains, with a very respectable APY of 33% - 600% based on TVL and FDV. The estimated APY is volatile and is heavily influenced by the total value of the cross-chain assets (TVL) and the expected token FDV.
This is a very attractive low-risk yield opportunity for anyone holding stETH today.
As more users realize this and stake their stETH, the APY will go down. The idea of stETH mining is a win-win situation for the AO team and its users.
Staked stETH generates a significant amount of revenue ($1 billion in deposits, or about $30 million per year) which will be used to fund ecosystem projects and other development activities.
Source: Dune@zkayape
It is crucial to keep an eye on the TVL of the staked assets, as it may eventually balance out with the returns on AR. If the TVL remains relatively low, more people may sell AR to mine using the staked assets, and vice versa.
The total supply of AR is 66 million, of which 65 million are in circulation. AR has a potentially deflationary nature because AR used for data storage goes into an endowment fund, which only releases AR tokens when mining becomes unprofitable.
My thoughts on AO
When thinking about whether a protocol will be successful, I like to break it down into smaller problems.
I asked myself: What are the most important things that AO needs to do well in order to achieve the same success as Solana?
There is a high demand for AI agents and applications in the cryptocurrency space: given the rapid development of AI in the past two years, this seems to be the current trend. Other blockchains are developing off-chain computation using technologies such as zkML/OpML, but currently only AO supports full AI computation directly on-chain.
Composability with major blockchains: AO must be tightly integrated with other major blockchains. It is unrealistic to expect existing developers and applications to fully migrate to AO. Therefore, it is critical to build bridges and communication channels with the existing ecosystem.
Developing a social layer: Ultimately, the success of a blockchain is not about transaction speed or low fees. Cultivating a passionate developer community and attracting users is key to widespread adoption.
I will keep an eye on all three and adjust my confidence accordingly.
Some other thoughts
The AO computer approaches decentralized computing in a very different way than traditional blockchains. This may be a success or a failure. But the ability to perform large computations on-chain is a key to the age of artificial intelligence.
AO takes an actor-oriented approach. Such platforms are used for systems that require high concurrency, modularity, and scalability. While the actor model has theoretical advantages, its widespread adoption and large-scale success remain to be proven. Challenges include handling unexpected failures and maintaining consistency among decentralized actors.
AO is still in a very early stage. When I was on the testnet, I found that users were mainly trying text chat and games. AO needs to build tools, which takes time. It is not easy to directly port applications from other chains because of the different architectures and languages used. Overall, AO feels like Solana in early 2021, when it had only a few applications and more skeptics.
Long-term conviction required: AO requires high conviction. Short-term traders may have difficulty finding an immediate catalyst as the token will not be tradable until 2025.
Arweave Demand: AO will create continued demand for AR, both as a growth catalyst and as a new platform for application development. Every process on AO will write data on Arweave and drive AR’s utility.
AI and cryptocurrency are undoubtedly the two most important technological paradigm shifts of this century. The intersection of AI and cryptocurrency will be transformative. My gut tells me that AO will be a key project leading the way forward.
