The trillion-dollar opportunity for AI lies in AO.
Author: Teng Yan
Translation: Luffy, Foresight News
Earlier this month, SpaceX successfully launched the "Starship" for the fourth time, making it the most powerful rocket to date.
This engineering marvel features a super-heavy booster with 33 Raptor engines, providing a total thrust of 72 meganewtons. To put it in perspective, this is twice the thrust of the Apollo moon mission rocket and three times the thrust of NASA's space shuttle.
I have always been fascinated by the depth of development in technology companies. Years of relentless effort and massive R&D investment have ultimately led to seemingly overnight success. However, industry insiders know that for a high-tech company to succeed, countless low-probability events must align perfectly. SpaceX, founded 22 years ago, is a typical example of this journey - the result of hard work and continuous improvement.
Such tremendous success is rare in the cryptocurrency field.
During the 2017-2018 ICO boom, only a few cryptocurrency companies have maintained their influence. Cryptocurrency is a young and emerging industry, and people's attention spans are very short, which often affects founders' views of their companies.
This is why it is exciting to see OG projects reaching new heights.
Arweave is closely connected with AO Computer
Arweave took more than 5 years to break the 10 million transaction mark (November 16, 2023). Source: https://viewblock.io/arweave/stat/tx
Launched in 2018, Arweave is a decentralized permanent data storage protocol. Despite the importance of data storage, it has always been difficult to find compelling use cases and adoption.
Data storage is not glamorous; it is a commodity. AO Computer, on the other hand, is the most ambitious project of Arweave.
AR=Storage Layer
AO = Computing Layer
The goal of AO is to become a scalable, secure, trustless, and customizable computing platform - a super parallel computer.
The core concept of AO is deterministic virtual machine + permanent data storage = reproducible state. This idea was conceived four years ago, but it is only now being realized in AO.
I want to emphasize that AO Computer is fundamentally different from most other blockchains today. Its existence is thanks to the foundational work done by Sam (founder) and the Arweave team over the years. Just as a high-tech startup company needs a solid foundation to succeed, AO would not be possible without Arweave's secure decentralized storage network.
Not another Ethereum or Solana
Ethereum and Solana are global synchronous state machines with shared global state, while AO Computer is a shared global message-passing machine with local state.
Shared global state is the default mode of today's blockchain. It allows participants to reach consensus and trust, thereby maintaining the integrity of the ledger. However, this is not sufficient to support future artificial intelligence applications.
The AO Computer framework differs from Ethereum and Solana in two main aspects: (1) scalable computing power and (2) flexible security model.
Scalable Computing
In Ethereum and Solana, adding more computing resources (new nodes) does not increase the network's throughput. Regardless of the number of validating nodes, Ethereum still processes only 12-15 transactions per second.
However, the AO Computer framework provides a dynamic scaling approach. As more computing resources are integrated into the network, the throughput also expands accordingly. This is because AO processes run locally in parallel, unrestricted by global state.
Security Model
Ethereum adopts a uniform security model, where each transaction is equally protected in its proof-of-stake (PoS) network. While this ensures consistency, it may be inefficient and costly for low-value transaction scenarios such as gaming.
The AO Computer framework introduces a flexible security model, allowing developers to customize security requirements based on the specific needs of their processes.
Supercomputer
Imagine having a giant supercomputer composed of many small computers distributed around the world.
This large interconnected computer can perform multiple tasks simultaneously, such as running games and applications. The small computers communicate with each other using a messaging system. The advantage of this is that each small computer does not slow down due to the rest of the network, yet still maintains the security of the blockchain.
In short, this is AO Computer.
The AO Computer framework upgrades the typical blockchain node architecture by breaking it down into smaller modular components. These components include:
Processes
Message-passing units
Scheduling units
Computing units
Each element plays a crucial role in the overall functionality of the system (detailed information is provided in the documentation and whitepaper).
Source: Messari
At a high level, AO can be summarized into three core concepts:
Multiple processes that can run in parallel locally
Processes maintain individual sovereignty
Asynchronous message passing, allowing coordination and communication between processes
Parallel Processing
The core of the AO framework is processes, which are applications on the platform. These processes run locally in independent parallel. Each process has no memory and cannot view the local state of other processes.
This isolation allows for complex computations on powerful machines, expanding the design space far beyond the constraints imposed by traditional smart contracts (fees, gas limits, block size).
The computing units play a crucial role in this. They provide the necessary computing power to keep AO processes running efficiently.
Application Sovereignty
A notable feature of AO is that it empowers 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 computations.
Asynchronous Message Passing
This is the glue that connects the network. Communication within the AO protocol is managed through asynchronous message passing.
Processes exchange messages to coordinate operations and receive necessary data. All applications adhere to a common message passing standard, ensuring consistency and interoperability.
Message-passing units deliver these messages, working in conjunction with scheduling units (similar to Rollup sequencers) to sort messages and record them on Arweave.
The trillion-dollar business opportunity for AO lies in AI
Running large AI models like LLama-3 with billions of parameters directly on Ethereum is not practical.
Computing requirements, data storage, and bandwidth: The LLaMA-3 model requires a large amount of computing resources (RAM, GPU capabilities). Ethereum is not optimized for the large-scale data storage and high bandwidth required by LLM.
Latency and performance: Ethereum's transaction speed is insufficient 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 results.
Cost: On-chain AI computation is very expensive.
Therefore, when AO announced last week that large language models (LLM) can run on smart contracts, bringing AI directly onto the blockchain, I was very excited. This will integrate human-like decision-making in a trustless network.
Memory
Running AI models requires loading model parameters into memory, and the more parameters, the greater the memory requirements.
Running relatively small models (such as LLama-3-8B) requires at least 12GB of RAM. GPT-4 has over 1.76 trillion parameters, and GPT-5 is expected to have 50 trillion parameters. What's even more daunting is that AI models will only continue to grow in size.
Source: AO Computer
In terms of memory, current blockchains are very limited. 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 venturing into artificial intelligence, has only about 3B of RAM.
AO uses WebAssembly in its execution environment, now supporting WASM64, enabling support for high-performance applications. Currently, AO's memory limit is 16GB, and the protocol-level limit is 18 EB. This allows it to run heavy computations, such as inference on Llama-3 or Phi 3.
Data Storage
WeaveDrive is a new feature that allows AO applications to access all data on Arweave as if accessing 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 framework leverages the computing power of a single machine to enable the 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 for those that are computationally intensive and AI-driven. This helps in developing autonomous agents with similar guarantees to smart contracts.
Integrating cron jobs (a functionality not typically available on most blockchains) and autonomous agents will significantly promote on-chain activity, facilitating more complex and dynamic interactions.
Note: cron is a computer term that refers to executing scheduled tasks at specified times.
As we move towards an era of ubiquitous artificial intelligence, many people may underestimate the importance of this breakthrough.
Llamaland as a concept verification example: an AI-driven MMO game built on AO Computer.
In Llamaland, users can submit petitions to the Llama King, an artificial intelligence agent that uses a large language model to review users' petitions and decide how much Memecoin to allocate to each user. It is worth noting that the entire process is fully executed on-chain, making it the first implementation of fully on-chain running LLM.
Although it has not been launched yet, you can register as a backup user.
Building a Permanent Network
Odysee is a video sharing platform
On June 6, Arweave made three important announcements aimed at expanding its market domain:
Forward Research acquires Odysee
Autonomous Finance launches AgentFi
AO Ventures provides $35 million in funding for builders of the AO ecosystem
From my perspective, the most notable is the acquisition of Odysee. Most people underestimate its value. Odysee is the largest Web3 social application that few have heard of. It has over 7 million monthly active users (20 times that of Farcaster) and receives 2.2 million website visits per month.
Source: Similarweb
Odysee is an open version of YouTube, using blockchain technology to give creators greater control and freedom. Unlike YouTube, which relies on traditional ad revenue, Odysee rewards creators with LBRY credits (LBC).
Odysee is more like Reddit, a dark corner of the internet that emphasizes free speech and has minimal content filtering. Its "Wild West" category is particularly notable for hosting more controversial and unfiltered content.
SimilarWeb reports that a significant portion of its users come from Europe, especially France, Spain, and Germany. While Odysee may not match the scale of YouTube, it still attracts a large number of users, who could be potential users of AO applications.
Odysee will now be built on the Arweave infrastructure, adding its platform to the permanent network and giving creators complete control over their content.
Applications on AO
Source: ao.link, data as of June 19, 2024
AO has currently released a testnet using proof of authority (PoA) security mechanism. Most applications on the mainnet will adopt proof of stake (PoS) mechanism. The mainnet release date is yet to be 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, they indicate a small but active community.
Dexi
Dexi automatically collects and manages asset prices, swaps, liquidity, and other data. Dexi can be seen as a blockchain-based Bloomberg. It is managed by an autonomous agent network, hosted on Arweave, and connected to all available liquidity pools.
Dexi is permissionless, and users can directly extract data from Dexi's aggregated agents. It is censorship-resistant, and all information can be verified on-chain.
0rbit
0rbit is a decentralized oracle network consisting of two main components: AO modules and a node network for fetching data from anywhere on the internet. 0rbit is a critical infrastructure for building applications on AO.
AO modules interact with 0rbit nodes to send data requests and receive results. Anyone can run nodes and contribute to the network. Data is fetched asynchronously from the internet, meaning 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.
In my exploration, I have discovered some other interesting things on AO, including AMMs (Bark, Permaswap, ArSwap), Trunk (an AO meme coin), and Astro (an over-collateralized stablecoin using AR as collateral). AO is still in its early stages, and many projects have not been tested or accumulated significant transactions in a production environment.
Focus: AO Tokenomics
The AO token was launched on June 14, with a minting date dating back to February 27, 2024. I like its fair distribution model, with no specific allocations for investors and the team.
The AO token minting plan is similar to Bitcoin, with no pre-mining and a total supply of 21 million. The speed of new token minting decreases by half every 4 years. Unlike Bitcoin, this is a smooth, gradual reduction process.
New AO tokens will be distributed as follows:
Arweave token holders (36%)
stETH, SOL, and other asset stakers (64%)
So far, approximately 1 million tokens have been minted, with most distributed to AR token holders through retroactive distribution. AR token holders will continue to receive new AO tokens every 5 minutes. Testnet tokens AOCRED can be exchanged for AO at a ratio of 1000:1.
It is important to note that AO tokens are non-transferable or tradable until 15% of the total supply is minted (around February 8, 2025). This provides time for the development of the emerging ecosystem and the launch of the mainnet, and the AO token will be used to secure the network.
Holding AR to Earn AO
Below, I have done some calculations on the expected returns for holding AR tokens, assuming 1 AR = $30.
Holding 1 AR will yield approximately 0.016 AO tokens in the next 12 months.
Approximately 4.2 million AO tokens will be in circulation within 12 months.
The APY for holding AR is moderate, ranging from 2.5% to 50%, depending on the expected FDV, which in turn depends on the market conditions when the tokens are tradable next year. Assuming a positive market sentiment in 2025, a $10 billion FDV might be quite reasonable, resulting in an APY of 25%.
Earning AO by Staking Assets (e.g., stETH)
A user holding 0.01% of the total locked value (TVL) will accumulate approximately 210 AO tokens over 12 months.
As of June 25, the cross-chain value of stETH is approximately $320 million. Based on TVL and FDV, the APY is quite substantial, ranging from 33% to 600%. The estimated APY is unstable and heavily influenced by the total value of cross-chain assets (TVL) and the expected token FDV.
For anyone holding stETH today, this is a very attractive low-risk income opportunity.
As more users become aware of this and stake their stETH, the APY will decrease. The idea of staking stETH is a win-win situation for the AO team and its users.
Staked stETH generates significant income (with $1 billion in deposits, approximately $30 million annually), which will be used to fund ecosystem projects and other development activities.
Data Source: Dune@zkayape
Monitoring the TVL of staked assets is crucial, as it may ultimately balance with the returns from holding AR. If the TVL remains relatively low, more people may sell AR to stake assets for mining, and vice versa.
The total supply of AR is 66 million, with a circulating supply of 65 million. AR has potential deflationary characteristics, as AR used for data storage goes into a donation fund, and the donation fund only releases AR tokens when mining is unprofitable.
My Thoughts on AO
When considering the potential success of a protocol, I like to break it down into smaller questions.
I ask myself: What are the most important things AO needs to do to achieve success similar to Solana's?
High demand for AI agents and applications in the cryptocurrency space: Given the rapid development of artificial intelligence over the past two years, this seems to be the current trend. Other blockchains are developing off-chain computing using technologies like zkML/OpML, but only AO currently supports complete on-chain artificial intelligence computation.
Composability with major blockchains: AO must integrate closely with other major blockchains. Expecting existing developers and applications to fully migrate to AO is unrealistic. Therefore, building bridges and communication channels with existing ecosystems is crucial.
Developing a social layer: Ultimately, the success of a blockchain is not just about transaction speed or low fees. Cultivating a passionate developer community and attracting users is key to widespread adoption.
I will closely monitor these three aspects and adjust my confidence accordingly.
Some Other Considerations
AO Computer handles decentralized computing in a completely different way from traditional blockchains. This could be a success or a failure. However, the ability to execute large computations on-chain is a key factor in the age of artificial intelligence.
AO adopts a participant-oriented approach. Such platforms are used for systems requiring high concurrency, modularity, and scalability. While the participant model has theoretical advantages, its widespread adoption and large-scale success are yet to be proven. Challenges include handling unexpected failures and maintaining consistency among decentralized participants.
AO is still in a very early stage. During my experience on the testnet, I found that users were mainly experimenting with text chat and games. AO needs to build tools, and this takes time. Directly porting applications from other chains is not easy due to the different architecture and languages used. Overall, AO feels like Solana in early 2021, when it had only a few applications and more skeptics.
Long-term belief is needed: AO requires a high level of belief. Short-term traders may struggle to find immediate catalysts, as the token will not be tradable until 2025.
Arweave demand: AO will create continuous demand for AR, serving as a growth catalyst and a new platform for application development. Every process on AO will write data on Arweave and drive the utility of AR.
The intersection of artificial intelligence and cryptocurrency is undoubtedly the most important technological paradigm shift of this century. The convergence of artificial intelligence and cryptocurrency will bring about transformation. My intuition tells me that AO will be a key project leading the way forward.
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