State of Aleo Q4 2024

Key Insights

• The introduction of ARC-0042 on December 9, 2024, established a dynamic block reward adjustment mechanism, reducing the annual reward rate for stakers. This change aligns inflation control with long-term network security, preventing excessive dilution of rewards while maintaining incentives for validators and provers.
• Aleo saw significant ecosystem growth, with decentralized exchanges like Arcane Finance and AlphaSwap enhancing liquidity, while gaming and NFT projects such as Puzzle and the Cyber Wizards NFT collection showcased new applications of Aleo’s privacy-preserving blockchain.
• Aleo continued to lead in ZK innovation by joining the ZkBoost Consortium alongside 39 other blockchain projects. This collaboration aims to standardize ZKP integrations and improve interoperability, reinforcing Aleo’s position as a key player in privacy-preserving blockchain infrastructure.
• The Aleo community played an active role in governance, approving proposals like ARC-721 (a unified NFT standard) and ARC-101 (transparent validator criteria).
• Despite an 84.2% drop in the ALEO token price over Q4, the Aleo network maintained strong adoption metrics, with daily active addresses increasing by 10.6% and new addresses growing by 34.4%. This indicates sustained user engagement and demand for Aleo’s privacy-focused blockchain solutions, even in a declining market.

Primer

The rise of smart contract-enabled blockchains has enabled the development of unique decentralized applications and increased transparency in financial transactions. However, although transparency is beneficial for some use cases, the need for onchain privacy has also grown. This has given rise to an influx of applications and blockchains prioritizing privacy through the implementation of cryptographic primitives such as zero-knowledge proofs, ring signatures, and multi-party computation (MPC).

Aleo is a privacy-focused Layer-1 (L1) blockchain designed to enhance scalability and security through zero-knowledge proofs (ZKPs). Aleo combines its unique Coinbase Puzzle and AleoBFT mechanisms to verify ZKPs and validate transactions. This enables validators to verify the validity of transactions without knowing potentially sensitive information such as the addresses involved in a transaction or the amount transacted. These privacy components create an advantageous ecosystem for developers looking to build privacy-focused decentralized applications (dApps).

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Key MetricsFinancial Overview

Upon launching Aleo mainnet, the ALEO token went live on Sept. 18, 2024, at a price of $2.86. Following the launch, ALEO performed well, rising 127.2% to a high of $6.50 on Sept. 28, 2024. The subsequent months saw the price of ALEO drop significantly before finishing Q4 at a price of $0.82, an 84.2% decrease over the entirety of the quarter.

Revenue was also impacted by the performance of the ALEO token, as all fees and revenue generated are denominated in ALEO.

Transaction fees in USD also decreased throughout the quarter, starting at an average of $0.18 and finishing at $0.04, a 77.8% decrease. Average transaction fees in ALEO were much more stable throughout the quarter, dropping 33.3% from 0.09 to 0.06 over the duration of Q4.

ALEO’s circulating market capitalization was more stable than its price as the supply rose throughout the quarter through inflationary ALEO staking rewards. ALEO’s market capitalization started the quarter at $523.9 million and reached a low of $122.6 million on Nov. 4, 2024. Following the low, ALEO’s market capitalization rose significantly to an average of $318.4 million and finished the quarter at $244.9 million.

Accounts on Aleo paid a total of $2.1 million in fees across Q4, showing a strong demand for blockspace on the network. Fees peaked on Oct. 23, 2024, with a total of $82,306 paid on the day.

Network Overview

Despite the performance of the ALEO token, Aleo’s network overview shows many positive metrics suggesting that network activity has maintained or grown over Q4. Active daily transactions have remained relatively stable throughout the quarter, only decreasing by 1.6%. In addition, average daily active addresses and new addresses both grew significantly, with a 10.6% and 34.4% increase, respectively. These metrics tell a positive story regarding the adoption and usage of Aleo, and the resilience of the network.

Block and puzzle rewards, which are issued to validators and provers of Aleo, decreased across the quarter, mostly due to the implementation of ARC-0042, which was implemented on Dec. 9, 2024, and adjusted the block reward algorithm to reduce the annual reward rate for stakers.

One core feature of Aleo is the ability to submit private transactions utilizing the network’s provers, which generate Zero-Knowledge Proofs (ZKPs) to verify their validity. Across the quarter, private transactions made up 6.1% of the total transactions on Aleo. Of the 17.5 million total transactions that took place over the quarter, 1.08 million were private. This shows a demand for privacy when transacting on public blockchains and supports the development of provers and ZKPs on Aleo.

Another positive metric for Aleo was the consistent rise in the amount of staked ALEO throughout Q4. Although the amount fluctuated, an average of 1.14 billion ALEO were staked, with the total staked starting the quarter at 1.07 billion ALEO and finishing at 1.2 billion ALEO. The USD value of the total staked ALEO decreased over the quarter as the price of ALEO fell, but averaged $1.7 billion across Q4.

Ecosystem Expansion and Adoption

Q4 2024 saw an expansion of the Aleo ecosystem, with new applications and services leveraging the platform's privacy-focused blockchain technology. This growth shows the various applications of Aleo's infrastructure and suggests interest from developers and users.

Financial Services

Financial services form the backbone of Aleo's ecosystem growth, and decentralized exchanges (DEXs) have become integral to Aleo's financial ecosystem. Arcane Finance and AlphaSwap provide users with the ability to trade assets in a decentralized manner. Arcane Finance introduced features such as trading pools and support for memecoin trading. The platform's adaptability was evident in its swift integration of trending assets like AleoRats, which became one of the most actively traded meme coins on the platform by Oct. 28, 2024.

Non-Financial Applications

In gaming and digital collectibles, Puzzle has introduced wallet native gaming experiences on the Aleo network. This development showcases Aleo's capability to support complex, interactive applications beyond financial transactions.

The launch of the Cyber Wizards NFT collection by Arcane Finance marked a milestone in Aleo's journey into digital collectibles. Described as "more than just images", this NFT collection offered exclusive opportunities to holders. The collection's complete sell-out on Dec. 29, 2024, indicates demand for NFT projects built on privacy-preserving blockchains.

In digital identity management, Aleo Name Service has emerged as a key player. It allows users to create and register ANS names, which can be attached to wallet addresses, improving the human readability of transactions. ANS has been engaging the community through initiatives like "Community Quests", which reward participants with free domain registration coupons.

Infrastructure and Development Tools

The expansion of Aleo's ecosystem is supported by the development of infrastructure and tools that enable developers to build and deploy decentralized applications (dApps) efficiently.

For developers, Kryha provides tools to facilitate the building of decentralized applications on the Aleo platform. Kryha builds and operates Obscura, a development platform that streamlines the creation, deployment, and maintenance of private decentralized applications (dApps) by offering RPC endpoints, advanced APIs, and software development kits on privacy-focused blockchains like Aleo. The availability of such development tools is crucial for attracting and retaining talent within the ecosystem, potentially leading to a more diverse range of applications.

The introduction of the Arcane Launchpad on Dec. 23, 2024, further solidified Aleo's infrastructure for supporting new projects. This launchpad may play a role in incubating and promoting emerging projects within the Aleo ecosystem.

As Aleo continues to expand its ecosystem, the synergy between financial services, non-financial applications, and infrastructure tools creates a value proposition for users and developers.

Governance and Community Engagement

Q4 2024 saw changes in Aleo's governance structure and community engagement strategies. These developments were geared towards improving decentralization and community-driven decision-making, following industry trends towards democratic governance models.

Protocol Upgrades and Community Voting

A significant governance event of the quarter was the implementation of ARC-0042, which adjusted the block reward algorithm. This change, enacted on Dec. 9, 2024, aimed to reduce the annual reward rate for stakers, adjusting for fluctuations in block intervals. The proposal's approval, garnering 93% of votes in favor, demonstrates the community's participation in shaping the network's economic model.

In addition to ARC-0042, the Aleo community approved ARC-721 with 95% of votes in favor, establishing a unified NFT standard that combines privacy features with flexibility. This standard is poised to enable a wide range of applications, including private domain name services, royalty systems, and secure lending agreements, potentially enhancing Aleo's utility in the decentralized finance and digital asset spaces.

Further emphasizing the community's role in network governance, ARC-101 was proposed to set transparent requirements and evaluation criteria for validators. This proposal covers performance, security, tokenomics, and participation guidelines, with the Aleo Network Foundation (ANF) set to periodically evaluate validators based on these criteria.

Decentralized Autonomous Organizations (DAOs)

In November 2024 zSociety began the transition to becoming a Decentralized Autonomous Organization (DAO). This transition was accompanied by the launch of $zSCT, the project’s governance token, which also promises a yet-to-be-revealed "secret utility." To engage its community, zSociety initiated an airdrop campaign, allocating 15% of the $zSCT supply to active Aleo participants.

The airdrop campaign, which ran for approximately 11 days, featured a distribution strategy where 10% of the allocated tokens were shared among "looters" (campaign participants), and 1% each was reserved for the top five comments on the original campaign post. This approach incentivized community engagement and aimed to ensure a fair distribution of governance power among active participants.

Following the initial distribution, zSociety held a community vote to determine the allocation of an additional 5% of $zSCT tokens. With 113 votes cast, the community decided to allocate these tokens to "zCitizens," active members of the zSociety ecosystem.

Educational Initiatives and Community Outreach

Various entities within the Aleo ecosystem launched educational initiatives and outreach programs throughout the quarter.

Leo Wallet initiated an educational series called "Leo Wallet 101" on Oct. 14, 2024. This series covered topics such as "Delegated Proof Generation," aiming to help users understand the technology they're using.

Community engagement efforts extended to real-world events. Arcane Finance announced plans to attend Devcon on October 24. Similarly, ANS (Aleo Name Service) participated in DevCon on Oct. 26, 2024, distributing NFC-enabled keychains with portable domains to attendees. These in-person engagements provide opportunities for community building and fostering connections between projects and their users.

The Aleo team has also been involved in community education, inviting the community to learn more about the network's functionality through articles such as “How Aleo works” which provides an in-depth look at the Aleo Network's infrastructure and the collaborative roles that ensure its security and functionality. It explains how stakers, provers, and validators contribute to the network's consensus mechanism and are rewarded with Aleo Credits for their participation. The piece also highlights the importance of zero-knowledge proofs (ZKPs) in enhancing data privacy and control for users.

As Aleo continues to evolve, the emphasis on community governance and engagement plays a role in the network's development. The developments in Q4 2024 demonstrate a trend towards decentralized decision-making processes, active community participation, and a focus on education and outreach. These efforts collectively contribute to building the Aleo ecosystem, setting a foundation for future growth and innovation in the privacy-preserving blockchain space.

Technical Advancements and Privacy Innovations

In Q4 2024, Aleo updated its technical infrastructure and privacy-preserving capabilities in ZK-proof technology. These improvements enhance the platform's performance and security, supporting more sophisticated applications and use cases.

Core Protocol Improvements

A milestone in Aleo's technical evolution was the release of snarkOS V3.1.0, which introduced improvements to the network's core infrastructure. This update implemented several enhancements:

• Integration of ARC-0042, aligning the software with the community-approved changes to the block reward algorithm.
• Reduction of the mapping base cost from 10,000 to 1,500 microcredits for GET operations, potentially lowering transaction costs and improving efficiency.
• Addition of new REST endpoints, expanding the network's API capabilities and facilitating easier integration for developers.
• Optimization of transmission processing to prevent out-of-memory crashes, enhancing the network's stability and reliability.

ZK Proof Developments

Aleo's focus on advancing ZKP technology was evident in its participation in the ZkBoost Consortium, announced on Nov. 6, 2024. This consortium, comprising 39 blockchain projects, aims to create a universal adaptor for connecting proof demand sources with ZK proving services. By introducing the ZkBoost API, the consortium seeks to simplify integration between proving demand generators and proving options, potentially accelerating the adoption of ZK technology across the blockchain industry.

Aleo's involvement in this initiative suggests a commitment to interoperability and standardization. This collaborative effort could lead to more efficient and widely adopted privacy-preserving solutions across various blockchain platforms.

Testnet Progress and Validator Incentives

The quarter saw progress in Aleo's testnet phases, culminating in the initiation of claims processes for various participant groups. On Oct. 4, 2024, Aleo launched the claim website for the top 100 performers of Testnet2, recognizing and rewarding the most active contributors to this phase of network testing. This was followed by an expanded claims process on Oct. 28, 2024, which included setup ceremony participants, Testnet3, and Testnet Beta provers.

The inclusion of multiple testnet phases and a setup ceremony underscores Aleo's approach to testing and refining its network infrastructure. By incentivizing participation through rewards, Aleo ensures the testing of its systems and builds a community of validators and provers who will be crucial for the network's long-term security and performance.

Tokenomics and Network Security

In Q4 2024, Aleo implemented changes to its tokenomics model and enhanced its network security measures.

Block Reward Adjustments

A key change to Aleo's tokenomics in Q4 2024 was the implementation of ARC-0042, which adjusted the block reward algorithm. Enacted on Dec. 9, 2024, the proposal introduced a dynamic reward adjustment mechanism designed to prevent excessive inflation while ensuring sustainable incentives for network participants, including provers, validators, and stakers. Specifically, ARC-42 modifies the block reward issuance by adjusting the emission rate in response to network conditions, helping to balance economic incentives with long-term token stability.

This implementation aims to prevent reward dilution over time, ensuring that Aleo’s native token retains value while continuing to support network growth. By aligning inflation dynamics with the overall security and usability of the Aleo blockchain, ARC-0042 establishes a more predictable and sustainable economic model for the ecosystem.

Staking and Validator Requirements

In line with the block reward adjustments, Aleo has also focused on refining its staking mechanism and validator requirements. The proposal of ARC-101 sets transparent requirements and evaluation criteria for validators, covering aspects such as performance, security, tokenomics, and participation guidelines. This proposal indicates that the Aleo Network Foundation will periodically evaluate validators based on these criteria, potentially affecting the network's security and performance.

Closing Summary

Aleo’s Q4 2024 performance highlights both the challenges and successes of its privacy-focused blockchain ecosystem. While the ALEO token experienced significant price volatility, the network itself demonstrated resilience through stable transaction activity, increased address adoption, and a growing ecosystem of decentralized applications. Key milestones such as the implementation of ARC-0042 ensured a more sustainable economic model by adjusting block rewards, while governance initiatives like ARC-721 and ARC-101 reinforced the network’s commitment to decentralization and security. Additionally, Aleo’s advancements in ZKP technology, infrastructure improvements, and ecosystem partnerships indicate continued innovation and adoption. As Aleo moves forward, its emphasis on privacy, community governance, and technical enhancements positions it as a leading platform for developers and users seeking scalable, secure, and privacy-preserving blockchain solutions.