Understanding the AO Token Economics of the Decentralized Supercomputer

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Original translation: PANews Editorial Department

On June 14, the AO Foundation officially launched the token economics of the decentralized supercomputer AO.

8 Key Facts and Dates about AO Token

  • AO is a 100% fair issuance token that follows the Bitcoin economic model.

  • AO tokens will be used to secure messaging within its network.

  • The minting mechanism runs retroactively starting at 13:00 EST on February 27, 2024 (block 1372724). 100% of the AO tokens minted during this period have been awarded to Arweave token holders based on their respective balances held every 5 minutes. If you hold AR on an exchange or custodian, you should ask the exchange how to receive the tokens.

  • In the future, one-third (33.3%) of AO tokens will be minted every 5 minutes to AR token holders based on their ownership. In the future, two-thirds (66.6%) of AO tokens will be minted to transfer assets into AO to strongly stimulate economic growth.

  • The first phase of the bridge contract is live today. During this pre-bridge phase, users’ tokens will remain securely on their native network while they will be rewarded with AO tokens. Once the second phase of the bridge is live, users will be able to deposit assets into the new bridge contract and use them on AO – while earning rewards. Users can deposit staked Ethereum (stETH) tokens into the audited pre-bridge contract here .

  • Transition rewards will begin on June 18, 2024 at 11:00 AM ET.

  • Users can withdraw tokens from the pre-bridge at any time, but will only start earning AO after rewards begin on June 18. Rewards are paid every 24 hours.

  • AO tokens will remain locked until approximately 15% of the supply has been minted. This will occur around February 8, 2025.

Overview: Total 21 million pieces, 100% fair issuance

AO is a 100% fair issuance token modeled after Bitcoin.

Like Bitcoin, AO has a total supply of 21 million tokens, a halving cycle of 4 years, and AO is distributed every 5 minutes, with a monthly distribution of 1.425% of the remaining supply. As of June 13, there are 1,038,700 AOs in stock. This makes them extremely scarce. In comparison, Ethereum has 120 million, Solana has 461 million, and Ripple has 55 billion.

AO’s minting mechanism means that although the number of newly minted tokens will be halved every 4 years, there will be no sudden “halving event”. Instead, the number of new tokens will decrease slightly every month, forming a smooth issuance schedule.

While most token distribution models favor insiders over the community, AOs model upholds the principles of fairness and equal access that are at the heart of the crypto revolution. There is no presale or pre-allocation. Instead, the AO token reward mechanism incentivizes two key aspects of a successful ecosystem: economic growth and base layer security.

Here’s how it works:

~36% (100% in first 4 months + 33.3% thereafter) of AO tokens are minted over time by Arweave token holders, whose tokens incentivize the security of the AO base layer – Arweave.

About 64% of AO tokens are minted over time to provide external benefits and bring assets into AO to incentivize its economic growth. This creates an extremely powerful incentive to increase liquidity in the ecosystem, forming an economic flywheel.

At the same time, without any token sales, the network funds its ecosystem development in two ways:

Permissionless ecosystem financing

Once the bridge is live, developers who attract users to deposit eligible assets in their applications will be rewarded with corresponding AO tokens. This provides developers with a permissionless, long-term source of income without having to apply for grants, external investment, or even tokenize their projects. If they wish, these developers can also choose to share part of the AO rewards with users, allowing users to continue to earn AO tokens when using applications in the ecosystem.

Permaweb Ecosystem Development Association

Additionally, a number of dedicated ecosystem development organizations and builders will also share in the native revenue of assets stored in the bridge. These organizations and builders work on the AOs core protocol, marketing operations, and key infrastructure development. These funds will gradually decrease over time, in line with the decay rate of network minting – allowing the network to bootstrap, but retaining it as a neutral shared protocol.

Calculation method for AO balance of existing AR holders

AO token minting for Arweave token holders has been applied retroactively from the launch of the AO testnet at 12:00 UTC on February 27, 2024. Minting AO tokens since the testnet launch will ensure that there is sufficient circulation of tokens before circulation, with the goal of reaching approximately 15% of the total supply (3.15 million) around February 8, 2025.

If you have held $AR in the months since the testnet launch, you would have accumulated approximately 0.016 AO tokens per AR as of June 13, 2024. Keep in mind that the current supply of AO is 1/65 of that of AR.

Major exchanges are currently investigating whether and how to transfer $AO to users. Please contact your exchange or custodian to find out how they manage this process.

If the user has been self-custodying $AR tokens, they can check their balance by visiting ao.arweave.dev. Click on the Arweave tab and connect a self-custody wallet such as ArConnect.

Hold AR in the future to earn AO

New AO tokens are minted every 5 minutes. Prior to the launch of the pre-bridge on June 18, 100% of all AO tokens were minted by AR token holders. After the launch of the pre-bridge, 33% of AO tokens will be distributed pro rata to AR holders, averaging approximately 36% of the total AO supply minted by AR token holders. This process occurs automatically.

The following list shows approximately how much AO you can expect to accumulate over the next 12 months for a given AR balance:

1 AR: 0.016 AO

10 AR: 0.16 AO

50 AR: 0.8 AO

100 AR: 1.6 AO

500 AR: 8.0 AO

1000 AR: 16.0 AO

The amount of newly minted $AO will decrease over time until all AO tokens have been minted. AO tokens will become transferable starting around February 8, 2025.

Pre-bridge stETH to exchange income for AO

NOTE: AO Transition Award is not available to U.S. citizens

During this initial phase, stETH (ETH staked using Lido) can be deposited to accrue token rewards in the AO. As we begin opening up the AO to more of the ecosystem, other proof-of-stake assets will become eligible as well.

During this initial phase, pre-bridge assets will not be usable in applications on the AO network. Once the Phase 2 bridge goes live, you will be able to use stETH in AO applications while still receiving AO token rewards.

When pre-bridging a users stETH to AO, their original stETH deposit will be retained in an audited contract on the Ethereum network, and native earnings will be distributed among dedicated ecosystem development organizations and builders of the AO ecosystem to promote growth. At launch, these organizations include Open Access Supercomputing Foundation, Forward Research, Autonomous Finance, Warp Contracts, Longview Labs, and ao/acc. More organizations will be added as the ecosystem grows.

Users can withdraw their initial stETH deposit at any time.

New AO tokens will be minted every 5 minutes starting at 11am EST on June 18, 2024, exactly 16 weeks after the AO testnet launch. Once rewards begin, 66% of newly minted $AO will be distributed proportionally to wallets pre-bridged to AO. This process happens automatically.

The exact number of AO tokens that yield providers receive depends on the proportion of total assets deposited into the contract. As AO opens up to more ecosystems and multiple proof-of-stake assets can be offered, the number of AO tokens received will depend not only on the proportion of assets provided, but also on the yield generated by each asset.

The following list shows how many AO tokens you can expect to accumulate over the next 12 months by holding a certain percentage of the total yield pool (assuming the only asset offered is stETH):

0.01% : 210 AO

0.1% : 2,105 AO

0.5% : 10,524 AO

1% : 21,049 AO

5% : 105,243 AO

AO Tokens will become transferable starting approximately February 8, 2025.

How to deposit stETH to get AO

NOTE: AO Transition Award is not available to U.S. citizens

Users can start depositing stETH into the pre-bridge today. Rewards will begin accruing at 11am ET on June 18, 2024. Rewards are paid out once a day, so users may have to wait up to 24 hours to receive their first reward.

Follow these simple instructions to convert your stETH earnings into AO tokens:

  • Go to the coin minting page on the AO website.

  • Click on the Ethereum tab and connect your Ethereum wallet (Metamask or Rabby).

  • Enter the Arweave wallet address where you would like to receive AO tokens.

  • Deposit stETH into the audit contract by entering the amount you want to provide. These tokens will remain in a trustless contract on Ethereum and can be withdrawn at any time. If you do not have stETH in your wallet, you will need to exchange other tokens to get some stETH before depositing.

  • Sign a transaction in your ETH wallet to deposit stETH into the contract.

  • You will receive AO tokens directly deposited into your designated Arweave wallet.

Smart Contract Security

The pre-bridge contract has been extensively audited and is trustless: no one but you can access your tokens. The only perk is that the Open Access Supercomputing Foundation (the organization that coordinated the launch of the AO token with the Arweave Ecosystem Organization) is able to take the tokens out of the contract in the event of a security incident — sending them back to the original owner. This feature provides an additional layer of security without placing the pre-bridge assets under the control of any centralized entity.

The contracts themselves are minor modifications of the MorpheusAI deposit contracts. These contracts are used to provide a battle-tested foundation, thereby reducing any security risks.

in conclusion

The AO token minting process introduces a completely different model that rewards users and developers based on the principles of fairness and equal access. The different teams behind the initiative have drawn inspiration from Bitcoin’s groundbreaking innovations and the fundamental principles established by Satoshi Nakamoto.

The crypto industry has experienced tremendous growth over the past fifteen years. However, this expansion has not always been aligned with the broader social good. In order to truly advance the mission of creating a permissionless, decentralized network that protects user rights, it has become critical to rethink how to align value and incentives to achieve these goals.

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