Source: PermaDAO
The acquisition of AO depends on the amount of funds and the type of token assets held. What we need to do is to seek the most efficient way to maximize the acquisition of AO tokens with limited funds.
Arweave officially released the AO token economics at 23:00 on June 13th Beijing time. Based on the existing information, let’s analyze how to maximize the acquisition of AO tokens from an efficiency perspective. This article is for cryptocurrency economic analysis only and does not provide any investment advice!
Interpreting the AO token economic model
According to the AO token economics, AO is a 100% fair launch token following the Bitcoin economic model. Similar to Bitcoin, AO has a total supply of 21 million tokens, with a halving cycle of 4 years. AO is distributed every 5 minutes, with a monthly allocation of 1.425% of the remaining supply. Unlike Bitcoin, AO does not have a sudden “halving event” every 210,000 blocks. The halving of AO tokens is a relatively stable process, reducing the supply on a monthly basis. While this may not significantly impact the efficiency of acquiring AO, early acquisition of AO tokens should not be overlooked as the rewards are greater in the early stages.
The official stance is that AO tokens are a 100% fair launch token. Currently, the understanding is that AO tokens can only be obtained by holding specific assets ($AR, $AOCRED, $stETH). The absence of reserved quotas for the team, investors, or ecosystem projects further emphasizes the project’s broad vision. It is clear that acquiring AO tokens is entirely dependent on the amount of funds and the type of token assets held.
The acquisition of AO tokens is currently divided into two stages. The first stage ended on June 18th, with the second stage opening simultaneously. The first stage of acquisition began on June 13th when the token economics were announced. From the launch of the AO public testnet on February 27, 2024, to June 18, 2024, AO tokens were 100% distributed to $AR token holders based on the balance held in each wallet address every 5 minutes. As of June 13, 2024, each $AR could receive approximately 0.016 AO tokens, with over 1 million tokens distributed in the first stage.
Strategies to maximize AO token acquisition
The circulation in the first stage was only around 5%, with the second stage being the focus on how to maximize the acquisition of AO tokens. 33.3% of AO tokens will be allocated to AR token holders, while 66.6% will be distributed to assets staked in AO (currently only stETH). AOCRED will be exchanged for AO at a ratio of 1000:1 (this portion of AO tokens will be provided from AR generated by Forward Research). After the second stage begins, each AR can receive 0.016 AO in the first year, and the number of AO tokens obtained from other eligible cross-chain assets (non-AR assets) staked in the AO network will be determined by the transaction volume of the cross-chain assets multiplied by the annual staking yield rate and the ratio of the total cross-chain asset amount. Since stETH is currently the only eligible cross-chain asset, 66.6% of AO tokens distributed to other assets staked in AO will go to the stETH pool. Therefore, the exact number of AO tokens received for staking stETH depends on the value of stETH staked relative to the total pool assets.
If your staked assets account for 0.01% of the total pool assets, staking for a year can yield 210 AO tokens. Currently, the pool is worth over $20 million. If the TVL of the pool reaches $1 billion after the second stage opens and remains constant for a year, staking $1000 worth of stETH would yield 2.1 AO after a year. If the market value of AR reaches $2 billion and remains constant for a year, holding $1000 worth of AR in your wallet would yield 0.485 AO after a year. While staking stETH may seem more profitable at the moment, the stETH pool and AR market value are unlikely to remain constant over a year. Therefore, calculations should be based on the ratio of other asset TVL to AR market value (USD-based calculation):
When the pool TVL / AR market value ≈ 2, staking other assets of the same value and holding AR of the same value yield approximately the same AO.
When the pool TVL / AR market value > 2, holding AR of the same value yields more AO than staking other assets of the same value.
When the pool TVL / AR market value < 2, staking other assets of the same value yields more AO than holding AR of the same value.
Note that the AO tokens minted after the second stage starts will be unlocked on February 8, 2025, with a circulation rate of 15%, totaling approximately 3 million tokens.
Furthermore, one can calculate the risks and costs associated with acquiring AO tokens, which significantly impact the future price of AO. AR holders only need to hold their tokens, while stETH is acquired by staking ETH through Lido. The current APR for stETH is 3.3%. Staking stETH in AO requires giving the annualized interest income to the AO project, which was originally the vested interest of stETH holders. Therefore, the APR for stETH can be considered as the cost for stETH stakers. If the TVL of the pool reaches $1 billion, the cost for stETH stakers to acquire AO is $15.7. However, this is a calculation under controlled variables. The formula for the calculation is as follows (considering stETH as the only eligible cross-chain asset):
For short-term investors, staking stETH and holding AR both involve the risk of price decline. Many CEXs offer 0 leverage borrowing services with interest rates usually not exceeding 1%. Considering the long reward cycle for acquiring AO incentives, it is essential to weigh the options carefully. Additionally, the cost of exchanging AOCRED for AO is approximately $50-60 per AO (ensure to exchange AOCRED for AO before June 27, 2024; otherwise, it will be forfeited). The unlocked date for these tokens is also February 8, 2025. Therefore, the price of 1000*AOCRED can be seen as the AO futures price. However, the release of the AO testnet is expected to significantly increase the market value of AR beyond $1 billion, with a total circulation of only 3 million tokens. There is considerable room for the price of AO to grow.
For long-term investors, time eliminates the risk of market fluctuations. Not only can they benefit from the increase in principal value, but they can also continuously earn AO interest (including AO growth dividends).
In conclusion, the analysis of AO tokens emphasizes monitoring changes in pool TVL and AR market value, adjusting strategies based on the cost of acquiring tokens to maximize fund efficiency. In addition to considering costs, potential risks of price fluctuations should not be overlooked. Utilizing strategies like 0 leverage borrowing can help mitigate some risks, and the cost and unlock time of exchanging AOCRED for AO are crucial factors to consider in decision-making. Of course, long-term holders only need to wait patiently for their investments to mature.
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