Arweave officially released the AO token economics at 23:00 on June 13th, Beijing time. Based on the currently available information, this article will analyze how to obtain AO tokens from the perspective of maximizing efficiency. This article is only used for cryptocurrency economics analysis and does not provide any investment advice!
Interpreting the AO Token Economics Model
According to AO token economics, AO is a 100% fair launch token that follows the Bitcoin economic model. Like Bitcoin, AO has a total supply of 21 million tokens. Similar to the halving cycle of 4 years, AO is distributed every 5 minutes, and the monthly distribution is 1.425% of the remaining supply. However, unlike Bitcoin, although AO is halved every 4 years, there will not be a sudden "halving event". It is well known that Bitcoin is halved every 210,000 blocks (an average of one block every 10 minutes), which is about a dimension of four years. However, the halving of AO tokens is a relatively stable process. The token issuance is to reduce the supply on a monthly basis. Although this will not have a significant impact on the efficiency of obtaining AO, the acquisition of early AO cannot be ignored. The earlier the acquisition, the greater the benefit.
At the same time, the official has been mentioning that the AO token is a 100% fair launch token. At present, the official understanding of "100% fair launch" is that AO tokens can only be obtained by holding specific assets (currently $AR, $AOCRED, $stETH). Even if the official has not reserved shares for its own team, investment institutions, ecological community projects, etc., this point is more prominent compared to many encryption projects on the market. The overall pattern of the project party also declares that the acquisition of AO depends entirely on the amount of funds and the type of token assets held. What we have to do is to seek the most efficient way to obtain AO tokens with a limited amount of funds.
AO token acquisition is currently divided into two phases, the first phase ended on June 18, and the second phase started at the same time. The acquisition of the first phase was also known to everyone when the token economics was announced on June 13, but it is also reasonable. From February 27, 2024 (the day the AO public test network was launched) to June 18, 100% of the AO tokens minted will be issued to $AR token holders, based on their respective balances held every 5 minutes. As of June 13, 2024, each $AR can obtain approximately 0.016 AO tokens, and a total of more than 1 million AO tokens will be issued in the entire first phase.
Strategies to maximize AO token acquisition
The circulation volume in the first phase is only about 5%, and the second phase is the highlight. Our focus is also on how to maximize the acquisition of AO tokens in the second phase. 33.3% of AO tokens will be distributed to AR token holders, 66.6% of AO will be used to pledge other assets in AO (currently only stETH), and AOCRED will be exchanged for AO at a ratio of 1000:1 (this part of AO will be provided from the AO tokens generated by AR held by Forward Research).
After the launch of the second phase, each AR can obtain 0.016 AO in the first year, and the number of AO tokens obtained by depositing other qualified cross-chain assets (non-AR assets) into the AO network is determined by the trading volume of the cross-chain assets multiplied by the ratio of their annual staking yield to the total amount of cross-chain assets. Currently, stETH is the only qualified cross-chain asset, so 66.6% of AO is used to distribute to other assets pledged in AO. The shares will be given to the stETH fund pool, so you can simply understand that the exact number of AO tokens received by staking stETH depends on the ratio of the value of your staked stETH to the total asset value of the fund pool.
If the assets you pledge account for 0.01% of the total assets in the fund pool, you can get 210 AOs after staking for one year. The current pool is more than 20 million US dollars (you can see it here). If the TVL of the fund pool is 1 billion US dollars after the second phase is opened and remains constant within a year, if you pledge stETH worth 1,000 US dollars, then you can get 2.1 AOs after one year; if the market value of AR is 2 billion US dollars and remains constant within a year, if you hold 1,000 US dollars of AR in your wallet, then you can get 0.485 AOs after one year. It seems that staking stETH is more cost-effective, which is true at present, but the market value of the stETH fund pool and AR cannot remain unchanged within a year. It is still necessary to always calculate based on the ratio of the TVL of other asset fund pools to the market value of AR (calculated in USD):
When the TVL / AR market value of the fund pool ≈ 2, the AO obtained by staking other assets of the same value is similar to that obtained by holding AR of the same value;
When the TVL / AR market value of the fund pool is > 2, holding the same value of AR will gain more AO than staking other assets of the same value;
When the fund pool TVL / AR market value < 2, staking other assets of the same value will earn more AO than holding AR of the same value;
Please note that the AO tokens minted after the launch of the second phase will not be unlocked until February 8, 2025, when the circulation rate will be 15% and the total circulation will be approximately 3 million.
In addition, we can also calculate the risk and cost of obtaining AO, which also greatly affects the subsequent price of AO. AR holders only need to hold it, and stETH is obtained by staking ETH in Lido. The current APR (annualized rate of return) of stETH is 3.3%. Since stETH needs to be pledged in AO, this part of the annualized interest is equivalent to the AO project party, and this part of the income is originally the vested interest of stETH holders, so the APR of stETH can be regarded as the cost of stETH pledgers. If the TVL of the fund pool reaches 1 billion, the cost of stETH pledgers to obtain AO is US$15.7, but this is the calculation result under the control of variables. The specific calculation formula is (only considering the current situation where stETH is the only cross-chain asset):
For short-term investors, both staking stETH and holding AR need to bear the risk of falling coin prices. Of course, many CEXs provide 0-leverage borrowing services, and the borrowing interest rate is usually not higher than 1%. However, considering the long payback period for obtaining AO incentives, please make your own decisions after weighing the pros and cons. At the same time, the current cost of exchanging AOCRED for AO is about US$50-60 per AO (please make sure to exchange AOCRED for AO before June 27, 2024, otherwise it will be invalid). It also needs to wait until February 8, 2025 to unlock, so the price of 1000*AOCRED can be regarded as the AO futures price, but after the release of the AO test network, the market value of AR will increase by far more than 1 billion, and the total circulation will be only more than 3 million by then, so there is still a lot of room for imagination in the price of AO.
For long-term investors, using time to eliminate the risk of market fluctuations can not only obtain dividends from the increase in principal, but also continue to earn AO interest (including AO growth dividends).
summary
The above is the analysis of AO tokens. To sum up, we should pay attention to the changes in the TVL and AR market value of the fund pool, and adjust the strategy based on the acquisition cost of the token to maximize the efficiency of funds. In addition to considering the cost, the potential risk of currency price fluctuations cannot be ignored. Strategies such as 0 leverage borrowing can avoid some risks, and the cost of exchanging AOCRED for AO and the unlocking time are also important factors to consider when making decisions. Of course, long-term holding of coins only requires waiting for the flowers to bloom.
