TLDR: AO, an upcoming AI agent coordination platform, is less than a month from launching mainnet, marking a major milestone for Arweave and the AI x Crypto community. This post dives deep into Arweave’s permanent data storage design, unpacks AO’s hyper-parallel compute architecture, and explains how both networks seek to power the next wave of on-chain autonomous agents. 

We outline the challenges AR and AO will face, and current market dynamics around the AR token – Spoiler – since September, a whale has been offloading  a meaningful chunk of the AR supply and they’re almost done. Finally, we detail how to get involved in the AR ecosystem and gain exposure to AO in the upcoming launch.

Introduction

On February 8th, 2025, AO mainnet launches – it’s a big day for the AI x Crypto community and how everyone will interact with on-chain agents. AO brings a hyper-parallelized compute layer to market, purpose-built for agentic applications. This is also a major milestone for Arweave, the permanent data storage network that makes AO possible. 

This post breaks down the tech behind Arweave and AO, dives into their tokenomics, and explores the emergent AO ecosystem. 

Important disclosure – we were venture investors in Arweave, and have accumulated AO tokens as part of our ownership of AR tokens.

What is Arweave?

Arweave is a decentralized network for permanent data storage. Users pay a one-time, upfront fee based on the amount of storage they need and receive a guarantee that the data will always be available. There is no centralized permissioning, and fees adjust dynamically to guarantee miners are consistently compensated for data storage. Arweave is a pay-once, store-forever solution. This is different from other popular data storage networks such as Filecoin, which require continuing payments for storage over finite lengths of time.

The Arweave architecture builds on a unique architecture called the blockweave. While many blockchains follow a linear chain of blocks, Arweave links each new block to both the previous block and a randomly selected block from earlier in the chain’s history. This design forces miners to retain far more historical data than standard blockchains since they must prove they hold the correct chunk of data from both the most recent block and the randomly selected historical block in order to create each new block. This requisite ensures long-term data permanence — nodes must maintain the entire historical dataset to mine new blocks and continue receiving rewards. 

Arweave’s token, AR, is used to pay fees and compensate miners. When new data is published to Arweave and the fee is paid, roughly 85% of the tokens go into an endowment that is set aside for future miner payouts. Mining rewards are calculated independent of network fees, ensuring miners are continuously incentivized to participate in the network regardless of user activity. This smoothing of fee collection and distribution strengthens confidence in Arweave’s storage guarantee. 

Traction

Arweave has been live since June of 2018, but its usage took off in earnest in 2021. The chart below tracks weekly data uploads since inception of the network:

Source: https://viewblock.io/arweave/stat/dataUploaded?time=week

Data storage spiked in September of 2021, bottomed in June 2023, and has steadily climbed since then. The chart below breaks down the types of data uploaded each month.

Arweave Usage Over Time, by Size

Source: https://stats.dataos.so/arweave

NFTs were all the rage in 2021, driving the first large spike in data storage on Arweave. Creators began posting their JPEGs and images to Arweave rather than linking to centralized hosting providers, accounting for most of the surge in usage during that period Arweave is perfect of NFT artwork data storage as it is permanent and decentralized. 

Since 2023 a different set of use cases have emerged. Out of all categories, applications are using the most storage space. These are mainly bundler applications, which package many transactions and data together and publish them to Arweave. These include Bundlr (the team has rebranded to Irys.xyz and is launching their own datachain in addition to the bundler application) and ardrive turbo. The data being packaged by these applications includes data that previously would have been categorized elsewhere as images, videos, or other blockchain data. In addition to these bundler applications, there are other projects leveraging Arweave’s permanent storage. These include social apps such as Hey by Lens, content publishing such as Mirror, and AI use cases such as Ritual. 

The next chart shows activity by transaction count. While Arweave collects fees based on the size of data stored, the use cases with a growing transaction count could point to where the future of Arweave is heading. 

Arweave Usage Over Time, by Transaction Count

Source: https://stats.dataos.so/arweave

The two use cases growing the fastest in terms of transaction count are Redstone Oracles and AO. Redstone is one of the fastest growing oracle networks in crypto, providing price feeds on every major EVM chain for a wide array of assets. We made a private investment in Redstone, and are bullish on their prospects for continued growth as they continue to land new partnerships and increase their product offering. 

AO is the parallelized compute and agentic messaging layer built on top of Arweave. We will dive into more detail around AO later in this post, but it’s important to note that AO is still in its infancy. The chain is still on testnet, with mainnet just around the corner in Feb 2025. The current growth trajectory is promising for Arweave, and we will be closely watching to see if this growth trend continues. 

The most up to date metrics on Arweave can be found here. 

Criticism

Perhaps the most common criticism of Arweave is the relatively low fees compared to other L1s of similar size. 

Table of PE ratios of different L1s and L2s:

Source: DeFi Llama, Dec 2024

By the price to fees metric, Arweave outperforms only Avalanche among L1s. A lower ratio means users pay higher fees relative to the network’s FDV. These figures reflect total fees generated – what users pay to transact on the blockchain. This doesn’t account for miner payouts, or in Arweave’s case,  contributions to the endowment. Since Arweave allocates a larger portion of fees for miners, its short-term profits may appear smaller compared to some other chains.

AR Token Performance

AR had a banner year in 2024 following the announcement of AO. After the AO announcement, the Arweave token jumped from under 10 dollars per token to over 40. The market was very excited about the possibilities AO will bring to crypto and the boost in activity expected on Arweave. Since February 2024, AR holders have been accruing AO tokens simply by holding AR in their wallets. Currently, 33% of new AO created is being streamed to AO holders, and these tokens will become transferable when AO mainnet launches in February 2025. After mainnet launches, AR holders will continue to earn one third of AO token emissions until 21 million AO tokens have been created. These rewards accrue every five minutes, at a monthly rate of 1.425% of the remaining supply. This means the number of token emissions will wane over time.

Price of AR in USD

Source: https://coinmarketcap.com/currencies/arweave/

AR’s price fell over the summer along with the broader market downturn. However, AR has lagged behind peers such as RENDER, TAO, NEAR, and other tokens with an AI value proposition. We think on-chain flows play a role in this story. 

Since September, a whale has been offloading  a meaningful chunk of the AR supply. We believe we know which investor is selling, but it’s not confirmed. The wallet dRFuVE-s6-TgmykU4Zqn246AR2PIsf3HhBhZ0t5-WXE received over 10 million AR tokens (total AR supply is less than 66 million) in November 2021. There were transfers prior to 2023, and by 2024, the wallet held 5 million tokens remaining ($80 million at today’s price of $16). 

On September 6th, 2024, it transferred the remaining 5 million to two addresses: i3gk39KyYCEjiylhBO9lM8DQVRtwaIG59llf2QL14Fg and jcRNRYfbIfaj_YrjN8he864KBT_4D13DL7fmj6txZgA. These addresses then sent the tokens to exchanges, suggesting that these are market maker addresses. Of the 5 million tokens, 1.35 million remain at the (presumably) market makers to be transferred to exchange.

Both addresses sent tokens to the same two addresses at exchanges, indicating it is likely this is the same market maker. This selling pressure was a meaningful percentage of the circulating supply, representing over 7% of all AR tokens. Once the remaining tokens are sold, the AR market could see a reduction in downward price pressure. 

AO Overview

AO is a decentralized, “hyper-parallelized” network that removes the usual limits on what size or type of computations can run on-chain — all while keeping everything verifiable. At its core, AO is a messaging layer for independent and simultaneous processes. AO leverages Arweave for permanent data logging, so any updates or interactions with a process are stored forever. The name “AO” stands for “actor oriented.” You can build and run modular programs (actors) that each choose their own virtual machine (VM), consensus method, and payment model while still talking to other actors using the same standardized message format. In practice, this means a cloud app running on something like Amazon EC2 can plug into AO’s decentralized network and collaborate with decentralized smart contracts, all working together towards a shared goal.

There are already some AO agents in production. One continuously finds the best yield for crypto assets across multiple lending protocols. Another automatically performs dollar-cost averaging on a DEX according to user-defined parameters. These agents leverage TEEs (trusted execution environments) to preserve privacy of the user and let them hand over their private keys. This enables the agents to act autonomously and entirely independent of further commands or instructions.

An important difference between AO and other layer 1s is that AO’s programs can “wake themselves up” at set times without waiting for an external function call. This allows for truly autonomous services that don’t depend on a centralized trigger. They can operate completely on their own schedule and applications that rely on them do not need a liveness guarantee backed by a centralized actor. In our earlier example of the yield optimizing agent, this means an agent could wake up and reallocate your investments into higher yielding strategies while you’re sleeping, without any prompting.

AO Architecture

1. Processes

A process is like a single “actor” on AO. It starts with some initial state, then logs every message it receives. All of that data is stored on Arweave, so it can’t be lost or censored. By separating data logging from the actual computation, AO can scale to handle much bigger tasks than typical blockchains.

2. Messages

A message is how processes and users interact. Messages get sent through the network with unique IDs so they’re easier to track. If a message doesn’t get forwarded properly, it won’t be delivered—offering flexibility in how traffic flows while still ensuring any messages that make it through are permanently logged.

3. Scheduler Units

Scheduler Units (SUs) attach incremental slot numbers to messages and ensure they’re uploaded to Arweave, so there’s a consistent record of the message sequence. They can be centralized or decentralized, depending on what works best for the use case.

4. Compute Units

Compute Units (CUs) handle the heavy lifting of actually running processes. They’re free to pick which processes they compute, leading to a competitive market for computation services. After finishing their work, they return a signed attestation of the process state changes—plus any new messages or processes that arise from that state update.

5. Messenger Units

Messenger Units (MUs) move messages through the network. They send each message to a Scheduler Unit first, make sure it’s recorded on Arweave, then relay it to a Compute Unit. If a process creates more messages in response, MUs keep forwarding them until all actions are finished.

Challenges AO Faces

AO is not without its challenges. Every network ultimately defines itself by excelling in one or two verticals. For Arbitrum, it was DeFi. Solana, memecoins and DePin. IMX for gaming. But Arweave has always been focused around content storage, blockchain archiving, and oracle data permanence. AO seeks to redefine both decentralized content and DeFi, and there are challenges especially to driving DeFi adoptions with AI agents. 

1. DeFi adoption of AI agents has been slow elsewhere. We haven’t seen a breakout application leveraging AI in the DeFi sector yet. The closest we’ve gotten are machine learning models being brought on-chain to do yield optimization for vaults. However, these machine learning models are often very simple algorithms for projecting yield, and comparing that to the transaction costs of switching strategies. These kinds of models are simple and linear in nature, which has the advantage of minimizing overfitting and hallucination. Compare that with LLMs, which are highly non-linear, non-deterministic, and struggle with basic calculations including numbers. We likely have a ways to go before true AI is managing our money, rather than user-defined intents dressed up as agents. 
2. Arweave is not historically a DeFi chain. There were some attempts to build DEXs on Arweave, but none achieved escape velocity. That makes sense, given that Arweave’s most clear use was for storage of content such as images. It will be interesting to watch as AO attempts to bring in both Arweave’s existing community and userbase, as well as new users from other chains. The team has clearly thought about this challenge, as reflected by the AO tokenomics. Network participants that bridge DAI and stETH over will be rewarded with AO tokens, in addition to whatever yield they can earn on AO mainnet with their bridged tokens. As of now, AO has attracted a TVL of $578 million USD equivalent. It’s crucial that this capital stays and interacts with the nascent DeFi applications.

Airdrop Mechanics

• Token Supply: 21 million AO tokens, released with halvings at set intervals.
• Eligibility:
• AR token holders will get AO proportional to their AR balance.
• Users bridging DAI and stETH also receive allocations.
• Distribution:
• 1.03 million AO tokens are allocated retroactively to holders and bridgers since Feb 27, 2024.
• AR balances are aggregated every five minutes for the distribution.

Future Outlook

Mainnet launches in February, allowing anyone to offer compute resources or set up their own processes and agents. Token bridging to AO will also open up so that any token can be moved into the network. Over time, as more people join and build out advanced AI or automated services, AO’s decentralized and massively parallel infrastructure should unlock a wide range of new possibilities—especially where trustlessness and high-powered computation need to go hand in hand.

How to Get Involved

If you’ve made it this far, you’re likely interested in getting involved in the AO ecosystem. The best ways to get started are:

1. Hold AR tokens: Since ⅓ of new AO tokens are being distributed to AR holders, simple holding AR tokens is a great way to gain exposure to AO. 
2. Bridge DAI or stETH: Currently, ⅔ of AO tokens are being distributed to users who bridge DAI or stETH over to AO. This is also a great way to earn AO tokens but without taking a bet on the price of AR. 
3. Use AO mainnet applications: After its launch in February, AO mainnet will be live and there will be multiple trading and lending platforms available. Check out the ecosystem 
4. Offer compute resources: Anyone will be able to permissionlessly contribute compute to the various processes on AO. For those who are more technically savvy, this is perhaps one of the best ways to learn the landscape and engage directly with AO. 

Concluding Remarks

The AO mainnet will be an important milestone for both Arweave and the AI x Crypto community at large. We’re closely monitoring the ecosystem, and would love for you to join us. Follow @Arrington_Cap and @ColtonFConley on X for more posts like these, and check out the AO website here.