Aleo Tokenomics and Mining
In this article, we will look at the process of mining blocks in the Aleo network and the tokenomics of the project. Tokenomics is designed to make it as easy as possible to align incentives for all stakeholders in the interest of the Aleo network.
The Aleo system complies with objective principles of quality tokenomics, among which: the network's own token represents meaningful value, the system encourages network members to contribute to its security, and incentives do not encourage unintended, dishonest, or malicious behavior.
Details of ALEO tokenomics
The Aleo network uses Aleo credits as the unit of account. These credits are used to pay transaction fees (similar to bitcoins) and are expected to be the currency of choice for miners to operate as L2 providers on top of the network (more on that later).
Aleo credits open up access to a key next-generation computing resource: zero-disclosure computing. This is defined as any computation inside snarkVM that inherently uses zero-disclosure cryptography to provide fully confidential and productive applications.
Since Proof-of-Succinct Work mining, Aleo credits are a natural way for the market to assess the value of a zero-disclosure proof for an arbitrary program. Consequently, the price of this asset should roughly reflect the overall demand for zero-disclosure computation.
One important difference between Aleo and other networks, such as Ethereum, is that commissions in the Aleo network are calculated in advance. Aleo has no concept of "gas," which makes programs unpredictably expensive to run on Ethereum. Whereas in Aleo, everyone knows in advance how many Aleo credits it will take to run a given program.
At the launch of the network, Aleo credits are distributed among early funders, developers and community members, as well as a foundation or other organization that will provide grants and ensure the further development of the network. Starting at genesis, new credits will be minted and distributed to miners in the network through a blockchain reward. Table 1 (below) summarizes the details of the overall economic model (note: the current block time is approximately 20 seconds).
Rewards for inflation and mining
Inflation in Aleo assists users in achieving a high degree of network security. To do this, a relatively high inflation rate has been set at the beginning, which is then halved twice during the first decade. After the ninth year, the final halving will lead to a tail issue* of 12.5 Aleo credits per block, which will be awarded simultaneously to ensure the security of the network as well as the stability of the economy it will support.
*Tailgating is the continuous payment of rewards for computing blocks, even after the "last block" has been created.
Table 2 below shows the inflation curve for Aleo over the first 15 years.
First, tail emission guarantees a reliable source of income for the miners who do the basic work of securing the protocol. Miners (assuming they are economically rational) will only work if the expected revenues exceed the costs. The implication is that without a tail issue, miners will produce blocks infrequently and unpredictably; for example, blocks will be mined only when the aggregate transaction fees are high enough to cover the cost of mining a single block.
The second reason is that the deflationary nature of tokens has the potential to favor the token economy, and the owners of this asset are interested in holding it rather than spending it. While this is potentially beneficial from a savings vehicle perspective, it is impractical for a means of exchange that opens up a real use case. After all, the purpose of tokens is to allow people to interact with applications on the Aleo network.
Distribution and decentralization
Over time, as new credits are minted, the distribution will change. Table 3 (below) describes the distribution of Aleo credits given the block rewards described above. Keep in mind that this graph only accounts for inflation and does not account for the case when any of the original holders sell their tokens. As a result, the actual distribution of tokens is likely to be broader than the simple representation below.
Table 3: Distribution of Aleo credits (Early backers-early backers, Team-team, Public-coins for free sale, Grants-gratuities)
Let's note that the system of grant support, that is, and ambassadors are molded at 8%, which is generally decent, but the token itself is not yet traded on exchanges and it is difficult to conduct an analysis of issuance and distribution based on the data presented on the site.
But the Proof-of-Succinct Work consensus is a proof-of-work system where the generated proof is actually a useful calculation, not a random puzzle that exists solely for the purpose of determining the miner's earnings.
Thus, the marginal energy consumption of mining in this structure is significantly limited because the work being done is required to verify state changes - even in a system with no blockchain at all, it will still need to be done. We will be publishing another post soon, discussing the concept of the work required in more detail.