What You'll Learn in This Chapter

In this chapter, you’ll learn the fundamental principles behind the AO token design that powers the AO network’s economy.
AO tokens play a crucial role in securing the network and driving ecosystem growth.

We will focus on key topics such as:

• The AO token supply model and distribution mechanisms
• The relationship between AO tokens and AR tokens
• Cross-chain asset integration, including aoETH
• The token incentive model designed for developers

Understanding these topics will give you a clear picture of AO’s tokenomics and how both developers and users benefit from it.

AO Tokenenomics

Basic Principles of AO Tokens

AO tokens are at the core of the AO network’s economic model.
The design principles are as follows:

1. Fully Fair Launch: AO tokens adopt a fully fair launch model similar to Bitcoin. There are no pre-mines or ICOs.
2. Fixed Supply Cap: Like Bitcoin, AO tokens have a capped supply of 21,000,000 tokens.
3. Automatic Distribution: Tokens are distributed automatically every 5 minutes.
4. Halving Schedule: The token issuance follows a Bitcoin-like halving schedule, reducing supply roughly every four years.
5. Distribution Ratio: 33.3% of issued tokens are distributed to AR token holders, and 66.6% to aoETH holders.
6. No Mining Required: Unlike traditional blockchains, no mining based on computational resources is needed. Instead, token distribution is based on AR and aoETH holdings.

Relationship Between AR and AO Tokens

AR tokens are the native tokens of the Arweave network, primarily used for permanent data storage.
AO tokens are native to the AO network and mainly serve security and incentive purposes.

AR token holders automatically receive 33.3% of AO token distributions proportional to their holdings.
This tightly links the ecosystems of Arweave and AO.

aoETH and Bridged Assets

The AO network supports bridging assets from Ethereum and other blockchains.
aoETH, a bridged representation of ETH on AO, is a key example.

aoETH holders automatically receive 66.6% of AO token distributions proportional to their holdings.
This connects the Ethereum and AO ecosystems and promotes cross-chain liquidity.

Key features of aoETH include:

1. Ethereum Liquidity: Brings ETH liquidity into the AO network.
2. AO Token Rewards: Holding aoETH earns AO token rewards.
3. Cross-Chain Interoperability: Bridges Ethereum and AO ecosystems.

Developer Token Incentives

One notable feature of AO is its developer-focused token incentive model.
When users lock AR or aoETH tokens into a project, AO tokens are automatically distributed to that project.

This gives developers several benefits:

1. Sustainable Funding: Continuous funding is ensured as users lock tokens in the project.
2. User Alignment: Interests of users and projects align, with users earning rewards from the project’s success.
3. Community-Driven Development: Token holders influence the project’s direction.

This model enables developers to sustainably grow projects with direct support from their user base.