Table of contents
1. Key points
2. Background
3. Overview: Like Bitcoin, but for data
3.1. Arweave 1.0: Pay once, store forever
3.2. Arweave 2.0: Trustless Computation and Permissionless Verification
3.3. $AR: Built-in deflationary pressure
4. Industry Outlook
4.1 Economic differentiation and strategic market positioning
4.2 Market Opportunities
5. Ecosystem
6. Risk and Negation
7. Conclusion
8. References
9. Show
With the current market characterized by high volatility and rapid downturns, reallocating capital to assets that are showing relative strength is key to remaining in the market.
Source: velodata
$AR has stood out during the recent market correction, showing unusual resilience as $BTC dominance strengthened and other altcoins trended lower. These rapid fund flows provide an excellent opportunity to reallocate capital from underperforming assets to higher quality options or "faster horses".
Source: tradingview - $AR/$BTC has outperformed since the original tweet announcing the AO computer launch.
This tactical rotation takes advantage of the relative strength of assets like $AR during downturns, positioning for potential growth gains when the market rebounds. Conversely, maintaining a position in slow-moving, weaker assets during such periods increases the risk of exacerbated losses when market conditions deteriorate. Overall, this provides a favorable environment for hedging trades, not blindly buying $AR, but simultaneously hedging and protecting us from overall market risk.
From a broader perspective, Arweave is often considered a decentralized data storage solution, often grouped with storage platforms such as Filecoin, Storj, Siacoin, ShadowDrive, etc. The difference is that Arweave has gone beyond a simple storage solution and entered the field of AI, and shows signs of possibly replicating the re-rating of $NEAR. The latest initiative, the AO super parallel computer, attempts to solve the challenges of achieving infinite scalability and incubate an ecosystem of projects that can support multiple high-growth market sectors, such as AI, DePIN, autonomous agents, etc.
Source: tradingview - Since March 2024, the $AR/$BTC chart has been outperforming the $NEAR/$BTC trading pair.
While AO’s February launch is likely already priced in, there is reason to expect another major catalyst in the near future.
Source: Sam Williams on Twitter - hinting at the release of another ambitious project.
Considering that Arweave can now be classified as an AI project, the announcement would be very timely when NVIDIA releases its earnings report on May 22.
Key Takeaways
Arweave aims to “keep data immutable for as long as possible.”
Inspired by Bitcoin’s proof-of-work mechanism, Arweave modifies the concept to accommodate large-scale data storage.
Users pay a one-time upfront fee to store data on the network, a portion of which covers the initial 200 years of storage costs, with the remainder going into an endowment fund to cover future storage costs.
As storage costs fall, tokens in the endowment fund may not enter the circulating supply for a long time, creating deflationary pressure.
$AR has one of the highest market capitalization/fully diluted valuation (mcap/FDV) ratios in the industry, contrasting with the current negative sentiment surrounding low circulating supply and high FDV tokens.
Currently, the only way to predict the launch of AO is to hold $AR.Arweave founder Sam Williams has been hinting at the release of another ambitious project similar to AO.
As AO continues to scale and attract more users and applications, demand for Arweave storage capacity is expected to grow accordingly.
Arweave has outperformed during much of the bull market, making it an attractive option for long-term use in pairs trading strategies.
Over the past few weeks, the price of $AR has risen significantly relative to $BTC and has shown resilience during the overall market downturn.
More than just a storage network, Arweave now sits at the intersection of cryptocurrency, Decrypt, and AI, having recently entered the top 50 tokens by market cap.
background
The Arweave team is led by Sam Williams, who currently serves as CEO. After graduating with a BSc Hons. in Computer Science in 2014, Sam studied for a PhD at the University of Kent. During this time, Williams' research focused on distributed systems and their scalability, which laid the foundation for Arweave's unique approach to data storage.
Since May 2017, the team around Williams has worked together to develop Arweave, evolving the project from a simple conceptual framework to a fully functional decentralized storage network. Key members and contributors to the ecosystem include William Jones (co-founder and former CTO) and Tate Berenbaum (currently CEO of Community Labs - a startup studio focused on building and accelerating the adoption and growth of the AO ecosystem).
In June 2018, Arweave raised about $8.7 million in a token sale that sold about 20% of the supply. A year later, in November 2019, Arweave raised $5 million in funding from a16z, USV, and Multicoin to build a “permanent network.” These same investors doubled down again in March 2020, providing Arweave with $8.3 million in funding along with Coinbase Ventures.
Overview: Like Bitcoin, but for data
Arweave operates as a decentralized storage solution that provides permanent data storage using a blockchain-based protocol. This is achieved through an economic model that involves charging a one-time fee for data storage, which is expected to cover the cost of data preservation in perpetuity. This model leverages the concept of an endowment fund, where pre-payments help fund long-term storage. Central to the vision of providing a global hard drive that ensures permanent storage is the $AR token, which will not only enable the network to act as a data repository, but will also help fuel the development of a vast ecosystem of applications built on top of AO.
Source: Sam William's tweet announcing AO's release
The core technology behind Arweave is "blockweave", which represents an improvement over standard blockchains. It allows random data verification rather than sequential verification, which greatly reduces energy consumption and can store gigabytes of data at a lower cost. This proof-of-access (PoA) consensus mechanism requires miners to prove that they have access to a random fragment of historical data on the network. This incentivizes them to store as much data as possible, thereby enhancing the permanence and availability of data.
Source: Bitpanda Blog - Once uploaded, data cannot be altered, improving data integrity and ensuring verifiability.
Arweave is a layer 1 blockchain that acts as a foundational layer on which more technologies can be built. The permanence of Arweave data also opens up some unique use cases that are not possible on mutable storage solutions. For example, Arweave can support NFTs for proof of ownership, archiving systems for social media applications, a platform that solves modern data problems without worrying about data being accidentally deleted or altered, etc.
Arweave 1.0: Pay once, store forever
Arweave’s core philosophy is that permanence equals provenance, providing an environment where files are retained indefinitely and cannot be removed at will. This immutability ensures that the entire history of a document or webpage can be tracked without worrying about broken links or data disappearing. Users benefit from a reliable, tamper-proof record of information that retains its integrity and maintains its historical context and authenticity.
Arweave provides a solution for data preservation through an economic mechanism that leverages an endowment and takes into account the decline in storage costs. By leveraging the historically observed decline in storage costs - the Kryder rate - and incorporating operational factors into a modified Kryder+ rate, Arweave has built a system designed to outperform traditional storage models.
Source: Arweave Blog - Arweave's Serverless Architecture
The economic model behind the protocol calculates the upfront cost of storing data for 200 years based on the Clyde rate. Arweave uses a conservative estimate, predicting that storage costs will fall by 0.5% per year. This contrasts with the historical average of about 30% decline, severely underestimates the magnitude of future cost reductions, and inadvertently extends the actual lifespan of data storage to more than 200 years, or even 10,000 years.
Source: arWiki - The cost per GB-hour has been falling dramatically
In order to use the network and store data, users pay a one-time fee that covers the estimated storage costs for 200 years. About 80% of this transaction fee is allocated to an endowment fund, which is intended to ensure the sustainability of the network by subsidizing miners in case mining becomes unprofitable. However, this fund has never been used since the launch of the network.
With over 80,000 $AR tokens (0.1% of the maximum supply), the Endowment Fund is a huge financial resource that remains untapped thanks to the current profitability of mining. This large reserve not only guarantees the operational integrity of the network, but also highlights its financial health, creating deflationary pressure as many tokens may never circulate.
Source: viewblock.io - Cumulative Donation Fund
Locking up a large amount of $AR into the endowment effectively reduces its circulating supply, creating deflationary pressure on the token. This scarcity, combined with the increasing demand for Arweave's unique storage solutions, especially solutions like AO, is exactly what could drive up the value of the token over time.
Arweave 2.0: Trustless Computation and Permissionless Verification
For nearly 6 years, Arweave has been a permanent data layer. Now with AO, Arweave can also become the state layer for decentralized computing and code execution, classified with other parallel L1s. AO, short for actor-oriented, is a computing system built on top of Arweave, designed as a hyper-parallel machine capable of computing and executing tasks simultaneously to increase processing speed and efficiency.
This scalability is critical for processing large data sets and complex computations, especially those required in fields such as artificial intelligence (AI) and big data analysis. By leveraging the decentralized nature of Arweave, AO implements a distributed computing environment in which all computations and their results are permanently recorded on Arweave.
Providing an environment where trustless, verifiable computations and results are available is critical for high-integrity applications, such as in scientific research, financial modeling, and legal document processing. AO uses a model that combines Erlang-style concurrency with Arweave decentralized storage to achieve scalable parallel computing. This setup enables AO to effectively manage large data sets and complex computations typically required in AI applications.
The key to AO's capabilities lies in its use of a holographic state system, which does not require consensus on the computational state itself, but instead keeps a log of interactions on Arweave. This approach creates a consistent, deterministic "hologram" state that allows any third party to independently verify the computation. The architecture ensures trustless computation and permissionless verification, which is critical for secure and transparent processing on a decentralized network.
Source: Community Labs AO Guide
AO is designed as a single system image (SSI) environment, where processes, similar to smart contracts, can run independently and interact seamlessly through message passing—no shared memory involved. This eliminates common bottlenecks such as "lock contention". Each process can customize its computing environment and access permanent on-chain data storage, further enhancing flexibility and scalability.
Additionally, AO supports multiple development languages and frameworks, which means developers from Ethereum, Solana, or other ecosystems using EVM, SVM, WASM, or Lua can easily build on it.
Source: Twitter – Only Arweave on AO allows you to plug in any virtual machine you like and build fully on-chain applications using EVM, EVM, WASM, etc.
$AR: Built-in deflationary pressure
$AR tokens are used as a payment method for storing data on the Blockweave network. When someone writes new data, they pay a one-time fee (in $AR) that is split into two parts: a) an upfront payment that covers the cost of storage for the first 200 years; b) the remainder goes into a foundation to cover future storage costs (about 80% of the fees paid).
Source: Arweave Fees
Arweave economics assumptions are based on a conservative projection that storage costs will fall by only 0.5% per year. However, historical data shows that storage costs have fallen by an average of 30.5% per year over the past fifty years. If this trend continues, or even if the decline is not as large as the historical average, the foundation's funds will be sufficient to cover storage costs well beyond the initial 200-year term. At the same time, the total supply of $AR is capped, meaning that a limited number of tokens will be available for use. This supply limitation helps drive token value, especially as demand for permanent data storage grows.
The Foundation’s funds are not expected to be used anytime soon. It is expected to remain untouched until Arweave’s permaweb grows substantially, even larger than the current surface web. This expectation stems from the lower costs associated with storage. No tokens have been withdrawn from the Foundation since Arweave’s inception. The continued decline in storage costs means that in the future the Foundation will need fewer tokens, potentially leaving a significant portion unused.
Industry Outlook
Arweave's model makes a strong case for investment, especially for those interested in blockchain technology's intersection with long-term data storage solutions and its intersection with AI use cases. The concept of the permaweb solves a fundamental challenge in digital data storage, ensuring data permanence. By permanently storing data on-chain, we can solve the key challenges of data provenance and authenticity, and make it available for others to build on and use in a permissionless environment.
The latest launch of Arweave’s decentralized computing layer, AO, has catalyzed a surge in platform activity, with a significant increase in transaction volume. This growth is significant because every transaction processed on AO is permanently stored on the Arweave network. As AO continues to expand and attract more users and applications, demand for Arweave's storage capabilities is expected to grow accordingly.
Besides the reasonable expectation that $AR tokens may receive $AO airdrops, the most relevant thing is that this trend highlights the complementary relationship between AO and Arweave's core storage function. At the same time, $AR remains the only way in the market to get AO exposure.
Source: viewblock.io - In April this year, Arweave recorded more than 700 million transactions.
Compared to other parallel virtual machines, the fundamental difference between Arweave's AO and platforms like Solana in their approach to parallelism is how they handle parallelism. Solana uses a shared memory model, where all contracts can directly access and modify the memory of other contracts synchronously. This design is efficient to a certain extent, but will eventually encounter scalability obstacles due to lock contention - bottlenecks when multiple users access data at the same time.
In contrast, AO uses a message passing architecture where each contract or "process" runs independently and communicates via messages. This model eliminates lock contention and enables unlimited scalability by simply adding more processes. Each process can run independently, similar to independent programs running on a computer or nodes operating on the Internet. This setup not only improves throughput, but also enhances the user experience by avoiding users competing for system resources.
Economic differentiation and strategic market positioning
Although there are trade-offs in Arweave’s economic design, this mechanism allows the network to differentiate itself from other chains and DePIN platforms similar to traditional cloud services or storage solutions, which typically charge recurring fees (and often require large token incentives). Arweave’s unique business model (pay once, store forever) makes the network an ideal solution for markets that require immutable data storage, such as legal documents, historical records, and digital preservation, meeting the need for secure, long-term data retention without ongoing costs.
The economic model underpinning Arweave is driven by the $AR token, further strengthening its market position. The $AR token is required to purchase network storage space, and the value of the token is likely to rise as demand for Arweave storage increases. This demand is supported by the platform's ability to provide a decentralized storage option that is cost-effective, has no vendor lock-in, and is user-friendly - qualities that are not currently prevalent in the decentralized storage market. In addition, the launch of AOs could take network activity to a whole new level, especially as more projects begin to deploy autonomous agents or other use cases in the field of DePIN and AI.
Because Arweave has already solved the scalability problem of on-chain storage in order to build Arweave, they inherited this scalability "for free" by building AO with Arweave as its messaging layer. Arweave now supports AI computing through AO, enabling parallel computing. This development, coupled with its scalable architecture, makes Arweave promising for a wider range of applications, including agent-based finance (AgentFi - autonomous agents in smart contracts), decentralized AI training, and more.
Arweave is rapidly approaching the upper echelon of sustained transaction throughput (TPS) for public blockchains, with recent peaks exceeding 1,000 TPS. This performance is close to Solana, which is known for its high throughput, with an average TPS of about 500 (excluding voting transactions). An important aspect of Arweave's scalability lies in its unique architecture, which combines storage payment and service provision, theoretically eliminating traditional scalability limitations.
Market opportunities
Early utilization of the fund for data storage contributes to the deflationary effect of the $AR token, as most of the tokens placed into the fund may never be released. This adds an attractive layer to any investor profile that is bullish on AI and Big Data, as the value of the $AR token is likely to appreciate as demand for permanent storage solutions grows.
Source: dataOS Arweave statistics - the most meaningful indicators have been on an upward trend.
With $80,000 in the fund, or 0.12% of total supply, and 545,000 tokens to be mined, and annual reward halvings, Arweave’s economic model suggests that by late 2025 or early 2026, the token price will be under deflationary pressure due to a shift in demand. This shift will occur as the rate at which tokens enter the fund exceeds the rate at which tokens are released through mining rewards.
It is important to note that $AR is not deflationary in the sense that tokens are destroyed. Rather, we view it from the perspective that when the rate at which tokens are locked in the fund exceeds the rate at which new tokens are released, more tokens are effectively locked out of circulation, creating a deflationary effect.
As an additional catalyst, the Coinbase international derivatives exchange recently added support for Arweave, suggesting that spot exchanges may soon be listing. Coinbase Ventures was also an early investor in $AR.
Additionally, we can probably expect the release of another ambitious project, similar to AO, as Sam Williams hinted at on Twitter.
ecosystem
AO provides space for an ecosystem to be built around Arweave that goes beyond just storing historical artifacts. The ecosystem is supported by a range of entities, from non-profits to DAOs and startup studios, that provide funding and grants to projects.
The most obvious consequence is that many newcomers will want to participate, mainly in the hope of gaining exposure to $AO through airdrops. In fact, the current number of unique wallet addresses is very low, accumulating only about 200,000.
Source: viewblock.io - The number of active addresses is very low (443) compared to other L1 and L2
Currently, AO Ventures is the main entity incubating ecosystem projects and has received $35 million in committed capital from leading investors FactionVC and Distributed Global. A 10-week incubator program is currently underway, and project teams will have the opportunity to present to funds such as a16z, 1kx or Coinbase Ventures.
Other entities closely associated with the research and development of the ecosystem include Forward Research, Arweave SCP Ventures, Hansa Network, PermaDAO, Longview Labs, and Permanent VC. In addition, the first AO Summit will be held on May 15, which may attract more attention and public attention.
In less than two months, AO went from being built in secret to having a growing ecosystem. Notable projects include AOX (AO cross-chain bridge), AstroUSD stablecoin, everPay (cross-chain payment infrastructure), ar.io (gateway and permanent domain names), HarvestMkpl (tokenizing land, cattle and gems on AO), The Data Os (a protocol for AI-generated applications on top of open data lakes), Autonomous Finance (AI-driven financial applications on AO), Alex (decentralized archive storage), etc.
Source: viewblock.io - The Arweave ecosystem will continue to expand as more applications are deployed on top of AO.
Risk and invalidation
The introduction of AO was already anticipated by the market, and the growth of the ecosystem is unlikely to drive prices as much as the actual launch, which triggered a 460% increase in prices at a local apex since the February lows. Demand for $AR may also be limited if enterprises and developers do not accept Arweave for permanent data storage.
Source: tradingview - Since the AO announcement, $AR has more than quadrupled in less than 30 days from its February low to a local high on March 9th.
Ultimately, the value of $AR is determined by demand and utility for permanent storage. If the economic model behind the token proves to be flawed or unsustainable due to incorrect assumptions about storage costs, $AR could experience volatility or long-term depreciation. However, current supply and distribution trends suggest deflationary pressures. This contrasts with the ongoing “VC-on-retail dump” meta, which involves small tokens in circulation and high fully diluted valuations.
Nonetheless, in order to guarantee permanence, Arweave’s economic model assumes some currency conversion into fiat. When users pay with $AR and add to the endowment, they are theoretically “prepaying” for N years of storage. Note how this creates a currency mismatch, as $AR must remain or increase in value from the time the data is stored in order to keep it “well-funded.” This becomes a significant risk if Arweave fails to keep the value of the token stable or rising.
As we move into bull market territory, the new pricing cap makes it more affordable for end users to continue adding data to the network. However, we cannot ignore that this is also exacerbating the previous assumption. In other words, Arweave implicitly promises end users that they will "pay once, store forever." So, what is actually happening is that the protocol is making a bet that the price of Arweave will always be above Y. On top of that, if the price cannot be kept above Y, the data in the network will eventually be mixed with other people's data.
Additionally, with current network incentives designed primarily for storage, it is unclear how $AR will benefit from the success of AO. The main concern among miners may be that the network may not be able to continue to compensate them for their activity as rewards decrease, leaving only 545k tokens to mine.
Miners currently receive inflationary block rewards and transaction fees from data uploads. However, even if these rewards are exhausted, miners will continue to receive transaction fees from data uploads. In addition, even in the event that transaction fees are lower than storage costs, the endowment fund will make up the difference during that time.
Finally, it is worth noting that while the current better sentiment reflexively leads to higher prices, this has not always been the case. $AR is a coin that has barely moved during the bear market, with the ongoing sentiment being “nothing is happening”. This suggests that more efforts should be made in business development and marketing. Arweave was even included in Forbes’ “worthless” list, alongside chains like Cardano, Algorand, Tron, XRP, and described as a “billion dollar zombie”.
Source: kaito.ai - Token possession takes the lead, massive price increase follows
in conclusion
Given its unique value proposition, strong economic model, and huge potential for impact in the data storage, blockchain, and AI sectors, we believe $AR deserves a spot in strategic portfolios.
Currently, the only way to get early access to the AO launch is to hold $AR. While this is already factored into the price, the network is gradually entering a deflationary state where some tokens will never enter circulating supply. $AR has one of the largest market cap/FDV ratios, which contrasts with the continued negative sentiment towards tokens with low circulation and high FDV, a situation that often leads to VC to retail selling.
Arweave has outperformed during most bull markets, but this may not always be the case in the future. However, due to its relative strength in both ups and downs, it is undoubtedly a good choice for the medium to long-term part of a hedging trading strategy.
The market may still be viewing Arweave as a simple storage layer, while the release of AO represents a larger and more ambitious goal, closer to an L1. This opens up the opportunity to view $AR as an AI project in its own right, with AO as a parallel L1 computing layer that benefits from Arweave's permanent storage. In addition, a second project based on Arweave will be announced soon.
reference
Arweave Website
Arweave Docs
Arweave Wiki
Arweave Yellow Paper
Arweave: The Permanent Information Storage Protocol
What is Arweave
Arweave Developer Discord
Arweave’s Content Moderation Policy
Arweave News
Arweave on X
Arweave Explorer (viewblock.io)
AO Protocol Specification
ar.io Docs
ao.computer
aoTheComputer on X
aoTheComputer Discord
Understanding Arweave’s Endowment by Sam Williams
Permaweb Cookbook (Developer Guide)
RealTPS.net
Arweave Stats (DataOS)
Arweave Fees
ao.link (network statistics)
Forbes “Good for Nothing” list
Arweave Ecosystem (viewblock)
ArweaveEco
Arweave Ecosystem Report (2023 by PermaDAO)
AO Ventures
Community Labs
Forward Research
Sam Williams Website
Sam Williams LinkedIn
Sam Williams Twitter
AO Launch video by Sam Williams
AO The Hyper Parallel Computer (video)
Presentation Video on the History of Arweave
Contention in Shared Memory Algorithms
Message Passing vs Shared Memory Systems
Show
We have never had any commercial relationship with Arweave, and this report was not sponsored or commissioned in any form.
Members of our team, including those directly involved in the analysis above, may have positions in the tokens discussed.
This content is for educational purposes only and does not constitute financial or investment advice. You should conduct your own research and only invest what you can afford to lose. We are a research platform, not an investment or financial advisor.
Source of information for this article: Revelointel