The Aleo economic model adopts a micro inflation model, with a founding token (points) of 1 billion, with early participants accounting for 57%, teams accounting for 20%, public offerings of 15%, and private placements of 8%. The specific lockdown and release mechanisms have not been disclosed.
The Aleo team initially set a relatively high inflation rate to ensure that Aleo achieves high network security as early as possible, which is more advantageous for early adopters of the network (with greater rewards). After the main network was launched, the inflation rate in the first three years was approximately 12–16% (used to encourage early stage node mining, and currently Aleo’s only way to reduce supply is to sell it as a network transaction fee), and then halved every three years in the first ten years. After the ninth year, the final halving will result in the tail release of 12.5 Aleo points per block being maintained for a long time to ensure network security and the stability of the economy it supports. Tail emission means that the Aleo block reward will never decrease to zero, and at this point, the reward per block will remain constant at 12.5. The tail release ensures that block miners who perform the basic work of the protection agreement always have a reliable source of income.
Why is there a tail reward? There are two reasons.
Firstly, the tail reward ensures that miners engaged in maintaining network stability always have a reliable source of income.
Secondly, low and predictable inflation rates are healthy for the economy. If an asset is purely deflationary, the owner of the asset will be more willing to hold it rather than spend it. Although long-term holding may be wise for pure value storage, it is not practical for an exchange medium with real applications (Aleo points). The purpose of Aleo points is to enable people to interact with various applications on the Aleo network. If people are encouraged to hold (rather than spend) these credit points, the demand for these applications will decrease, and ultimately the value of Aleo points will be greatly reduced.
When online, the original points (1 billion) will be distributed to Aleo’s early supporters, ecological builders, community members, and funds or other institutions that have provided financial support to Aleo at once. For new Aleo points, they are continuously distributed to miners who maintain network operations through block rewards.
In addition to distributing the initial supply of tokens to the Aleo team, early supporters, and community members, the team will also set aside a portion for more dispersed distribution at a certain point in time after the main network is launched. The significance of decentralized allocation lies in further decentralizing control, improving the quality of open source communities, and complying with applicable laws and regulations.
In the early stage, most Aleos will be distributed among miners, but Aleo points will gradually be transferred to Aleo users. As new Aleo points are continuously cast, the distribution of chips will change. The following table shows the distribution of chips for Aleo credit points at the beginning of their release and estimated to be in the next 5 years. Please remember that this chart only considers inflation and does not consider any initial holders selling their tokens. Therefore, the actual distribution of tokens may be more dispersed than shown in the figure below.
Aleo’s mining mechanism is PoSW, which has subtle but important differences from traditional PoW. Simple proof of work PoSW is a consensus mechanism that provides “necessary” proof of work, where the resulting proof is actually a useful calculation, unlike PoW, which is simply a meaningless hash operation performed to compete for accounting rights. The job of Aleo network miners is to verify system status updates, and it is in a system without blockchain at all, so the edge energy consumption of Aleo network is greatly reduced.
The important advantage of Aleo using PoSW instead of other consensus mechanisms such as PoS proof of rights is that, especially in the early stages of the network, tokens can be distributed more dispersedly. Network control has been decentralized since the first day, and the Aleo network can survive with or without the Aleo core team. This is also a “proven” route for other blockchains to balance security and development.
In addition, PoSW mining leads to a key difference between Aleo and other networks such as Ethereum, that is, the fees on Aleo can be calculated in advance. On Aleo, there is no concept of “Gas”, which is the reason why the cost of running programs on Ethereum is unpredictable. On Aleo, everyone knows in advance how many Aleo points are required to run a specific program.
The Aleo project team has not yet released the complete economic model details. Now, based on the published code information, we have read and analyzed some of the current situations and changes to the economic model, as follows:
1. The Genesis block remains unchanged at 1 billion coins, including 570 million for investors, 200 million for the team, 150 million for public sale, and 80 million for incentive pools
2. From the current code, the new block out reward is based on the coinbase and has an additional stack reward
3. The total release amount of coinbase rewards is still 1 billion, but it has been changed to a linear decreasing release plan. The first block is 100 coins, which will be reduced by 0 after 10 years, meaning that miners can dig for 10 years
4. The stack reward is fixed, with a fixed amount of 25 million coins per year, around 12 coins per block. This part is only given to POS pledge nodes, which means that the inflation rate will be around 25 million/(1 billion+1 billion+250 billion)=1.1% after 10 years.
Because the official statement is that micro inflation will continue after 10 years, and according to the general token release model, the tokens awarded by Coinbase and the newly added stack rewards should be independent of each other. Therefore, the unlimited tokens that continue to maintain micro inflation after 10 years come from this stack reward part.
Based on the above information, we can roughly calculate Aleo’s inflation model as follows, indicating that the inflation rate was relatively high in the first three years.
Some suggestions
The current lack of privacy in privacy projects is not privacy, but the high cost of privacy and the poor user experience brought by more complex processes, making it difficult to popularize the privacy track. But if privacy racetrack products meet the following two points, there is a chance of popularization.
1. With native and selectable privacy (users do not need to take any additional actions to protect their privacy)
2. Solve the high cost and low network efficiency caused by the Zero-knowledge proof system
In fact, privacy itself is difficult to attract everyone’s attention because it cannot directly feel the importance of privacy. Most users tend to prefer cost>convenience>efficiency>privacy, so users only choose to protect their privacy without affecting their original experience. Now, the zkCloud Zero-knowledge proof system adopted by Aleo can solve the above problems, and it has also been verified that there can be 10000~20000 TPSs through the test of the test network, so from the perspective of privacy products, Aleo has great potential.
In addition, the narrative of the next generation internet web3.0 emphasizes user identity and data ownership, and users must have their own privacy on the on chain network, making privacy computing a rigid requirement of web3.0. As the first decentralized full stack development platform for privacy applications, Aleo is also one of the few large-scale zero knowledge native blockchains. With a strong team background, superior financial reserves and institutional support, the ability to attract developers and users to join the new ecosystem, and a dedicated official team, it has the potential to become a leader in the vertical field of web3.0 privacy. It should be noted that the market value of Aleo’s issuance price is likely to be very high, with a financing of nearly 300 million yuan and a VC valuation of 1.45 billion yuan, so the estimated market value at that time is also around this range.
Based on a comprehensive evaluation of the Aleo project, it can be considered that Aleo has enormous market potential and technological advantages. However, investment carries risks, and investors need to make decisions based on their own investment goals and risk tolerance. It is recommended that investors conduct further research and due diligence before investing in order to fully understand the risks and potential of the project.
