Comprehensive analysis of Arweave: Business logic, product ecosystem, market competition and project valuation

27 min readFeb 2, 2022

Research institute: Mint Ventures

Researcher: Xu Xiaopeng

Last update time: 2022.1.19 13:14

1. Highlights of the report

1.1 Core investment logic

The Arweave team has excellent business insight. It has chosen a segmented cloud storage market with long-term value and currently less competition — permanent storage, which has become the only leading project in this market. It has long benefited from the expansion of demand for decentralized cloud storage in WEB3 business development. Compared with other decentralized cloud storage projects, its solution has the following advantages:

• Permanent storage of data, free to access, and users do not need to pay continuously.

• Around its underlying storage service, it has gradually built a set of protocol ecosystem and SmartWeave smart contract ecosystem based on its Permaweb, and it is developing towards the WEB3 full-stack protocol. Therefore, there are obvious synergies between its storage services, smart contracts and application layers.

• It has been adopted by public chains, NFT projects and many Web3 applications (especially the creator economy), and the demonstration effect of leading projects\celebrity selection is conducive to the adoption of Arweave by more similar projects in the future.

• After important data is stored on Arweave, users need to pay high conversion costs if they want to migrate.

• Compared with Filecoin, Arweave’s mechanism is simpler in concept and technology, and less difficult to develop, implement, and adopt by users and miners.

However, its positioning and mechanism also determine some limitations of the project’s business development:

• On-chain storage scheme determines that the data cannot be changed once uploaded, resulting in high iteration cost and insufficient flexibility of the program.

• The data is public, so sensitive data (such as critical business data of enterprises) will not select Arweave.

1.2 Main risks

The project faces the risks of track ambiguity, loose ecosystem, and stalling development of the important partner Solana. For details, see the section of “Risks” in “Business Analysis”.

2. Basic information of the project

2.1 Project business scope

Arweave is a block network, whose core service is to provide distributed permanent storage for data. It is committed to becoming a data storage infrastructure in the Web3 era, which can be classified as Layer 0.

At present, most data storage solutions are centralized, such as cloud services. However, centralized services have single point of risks, such as service offline, privacy leakage, content censorship, and unclear data ownership.

Arweave has a wide range of users, including content creators who are concerned about the above risks, Web3 projects with data storage needs, and public chain base layers with large-scale data storage needs.

In addition to storage, there is an application layer called permaweb on top of AR’s underlying network, as well as Smartweave — smart contract system, which can realize the operation of applications and smart contracts, and ecological projects based entirely on Arweave has begun to appear.

From this perspective, Arweave can also be regarded as a “Web3.0 full-stack protocol” including application ecosystem, smart contract system and storage protocol, so it has the potential to compete with other public chain platforms at the ecological level.

2.2 Project history and roadmap

2.3 Business situation

2.3.1 Business logic

Before introducing the current business situation of Arweave, it is necessary to explain the network structure and consensus mechanism of Arweave here to facilitate readers’ understanding.

Network structure and consensus mechanism

Arweave achieves the function of permanent information storage through Blockweave data structure and SPoRA consensus mechanism.

Blockweave

The blocks of the traditional blockchain are connected one by one, thus forming a chain structure. On this basis, Arweave’s blocks also point to a random recall chunk, thus forming a spinning block structure.

Arweave’s block structure, source: Arweave Yellow Book

The most important of the blockweave design is the consensus mechanism for Arweave — SPoRA (Succinct Proofs of Random Access).

SPoRA consensus mechanism

Before using the SPoRA consensus mechanism, Arweave used the PoA+PoW mechanism. Everyone is familiar with PoW, so the author will not explain it here.

PoA stands for Proof of Access. Under this mechanism, Arweave requires that each miner node in the network must access a random memory block locally if he wants to generate a new block and receive a reward. If he does not store the block, there is no way to generate a new block.

In this case, if a miner wants to obtain high mining yield as much as possible, he will choose to store all blocks, because each next block will point to the current block and a previous random block. The more blocks stored, the more eligible he is to generate blocks and obtain rewards. PoA incentivizes miners to store more Arweave blocks, and this also encourages miners to store some blocks that are less stored, so as to increase the probability of generating blocks and obtaining block rewards.

However, under the separate PoA mechanism, if all miners store all blocks, then everyone’s block generation probability is exactly the same. Therefore, in addition to PoA, Arweave has introduced a PoW mechanism to enrich the competition dimension of block generation.

Arweave upgraded PoA+POW to SPoRA in February last year. The simple PoA+PoW mechanism ensures the permanent storage of data, but it does not guarantee the access speed of data, and PoW also has the environmental protection problem of power consumption. The SPoRA mechanism reduces the weight of PoW in the probability of block generation by miners before and adds the dimension of data access speed. In addition, SPoRA enables miners to focus more on maintaining their own local hardware and nodes. This will prevent miners from storing data in the same low-cost data center, facilitating the diversification of node locations and improving the degree of decentralization of the entire network.

Wildfire

Wildfire is Arweave’s incentive for data reading. Since Arweave only charges for data storage and reading data is free, Arweave adds Wildfire: a node scoring mechanism, in order to encourage nodes to respond to read requests and generate blocks faster. It works by letting Arweave nodes create a ranking system for other nodes based on two points: i. Generosity: the number of new transactions and blocks sent; ii. Responsiveness: the speed of response to network requests. The higher the score given by each node to the adjacent node, the greater the probability of the other nodes generating blocks.

BlockShadow

Node verification does not need to verify the entire storage file. When a node generates a block, it does not pass the entire storage file to other nodes for review, instead puts the storage content in the block and only transmits a range of hash values and a list of accounts. This range of hash values represents this part of the content, and other nodes verify whether this range of hash values matches with that in the file pool. This approach speeds up the efficiency of verification, and part of the work is transferred off-chain. Similarly, when calling, only BlockShadow is needed to locate the stored block and complete the call.

Network participants

Participants in the Arweave network are divided into two categories, miners and users. Users pay AR to add data to the network, and miners in the network charge AR to mine new blocks, which need to be stored and supply data. The entire network coordinates and allocates rewards between the two.

In addition to the basic network structure and consensus mechanism, Arweave has several things that differentiate it:

Bundles

Bundles are a technique for combining many data transactions in Arweave into one transaction. It directly improves the scalability and usability of the Arweave system. Additionally, it solves a problem that other blockchains have, which is that your transaction may be rejected if someone else submits a transaction that rewards miners more. This feature ensures that Arweave is still competent when a project needs to upload and store a large number of media files, such as a game project that needs to upload thousands of NFT images and audio. We found that Arweave’s network data storage began to skyrocket after the official launch of Bundles in September 2021.

Arweave’s Weave size trend, data source: https://viewblock.io/

SmartWeave

As Arweave’s smart contract protocol, SmartWeave enables developers to build smart contract applications using JavaScript. It works differently from Ethereum’s contract execution method. In Ethereum, the entire network is called to verify transactions, which greatly increases the burden on the network. While SmartWeave relies on smart contracts, users download contracts on their own and finish them on the local client.

SmartWeave reduces both the burden of the network and interaction cost of the network (the interaction cost with the SmartWeave contract is less than US$1 cent), thus improving the operating performance of the network.

The Permaweb

On top of Arweave’s core data storage layer, there is a Permaweb, and the Chinese translation in the community is quite vivid — “a permanent network”. The Permaweb is a collection of interconnected files and applications, similar to Web2’s network in this respect, but with the key difference: All contents on the Permaweb is permanent. The Permaweb can be used to store all kinds of information: from Wikipedia, PDFs, videos, to various dApps such as Uniswap. Once incorporated into the Arweave network, these files and information seem to have a permanent backup. In terms of smart contracts, even if the original project is taken off the front end, users can still access the application on Arweave’s Permaweb as long as the back-end smart contract code is still available. In addition, once information is submitted to the Permaweb, no one (including the original uploader of the file) can alter it in any way.

2.3.2 Business data

The Arweave mainnet was launched in June 2018. Although it has received support from some public chains before 2021 and it was used as the main solution for main-chain data storage (for example, Solana and Nervos have adopted Arweave as their data storage solution in 2020), Arweave’s storage business has always been in a linear growth state of gradual climbing before the outbreak of the NFT track in 2021.

Data storage

Until 2021, the storage capacity of the Arweave network has soared due to various data storage requirements, as shown in the figure below:

Smart contracts

In terms of smart contracts, the number of smart contracts on Arweave’s SmartWeave has also risen rapidly:

Data source: https://arweave.news/arweave-annual-2021/

According to the data of ArweaveApps, the number of Arweave apps that have been included has reached 400+.

Source of strong business growth

There are inherent reasons for the rapid rise of Arweave’s business data this year, such as the advancement of basic tools and technologies. The launch of Bundles, the data synthesis technology mentioned above, is one of them. The gradual improvement of basic tools enables Arweave to undertake demand-side business traffic more smoothly.

Specifically, the main demand factors driving the rapid rise of Arweave’s business data this year may come from three aspects:

· NFT market explosion

· Public chains flourish in all kinds of fields

· Web3 applications, especially the prosperity of the creator economy

Let’s talk about NFT first.

The NFT market started to explode in 2021. First, digital artist Beeple’s legendary work “Every Day: The First 5,000 Days” sold for a sky-high price of more than US$69 million in March 2021, ranking third in the auction price of works by living artists. Then there is the popularity of NFT Crypto Punks, BAYC and traditional sports IP NBA TOP SHOTS, and then the first appearance of chain game NFT. By the end of 2021, star IP projects represented by Jay Chou and Edison Chen have expanded the popularity and audience reach of the NFT market.

Corresponding to the rising NFT market prosperity is the rising price of NFTs. However, the source files of many expensive NFTs are not stored on the chain. Many NFT smart contracts store the actual content in a simple Token URL, which points to a Web2 Internet address where the digital object is actually located. As long as these websites are willing, they can use centralized means to take these NFT source files offline at any time.

According to a survey of the top 22 NFT projects by Twitter KOL pencilflip in October 2021, 50% of these projects store their files on a centralized server.

Data source: Twitter for pencilflip, graphic source: Amber Group

In fact, even IPFS, another decentralized storage project, cannot guarantee the permanence of NFTs. CheckMyNFT found some assets from blue-chip artists, including Grimes, Deadmau5, and Steve Aoki, were temporarily taken offline despite being hosted on IPFS.

The fate of high-priced NFTs is controlled by centralized websites, because their projects host them in a non-permanent storage space, contrary to people’s intuition about the value of NFTs. This has also contributed to the direct need to store and publish NFT data on Arweave, making Arweave the mainstream solution for NFT data storage.

From specific industry cases:

Beeple, the highest-earning NFT artist in history, launched his NFT platform WE.NEW based on Arweave. The website displays Louis Vuitton (LV)’s 200th anniversary NFTs and the NFT works of tennis star Murray’s Wimbledon championship series in 2013.

Figure source: https://wenewmoments.com/

JAY-Z created a NFT for his 25th anniversary album and stored the animation on Arweave, which sold for US$138,600 at Sotheby’s.

Figure source: https://www.sothebys.com/

In addition, Arweave has also launched its own NFT standard — Atomic NFT, based on which content creators can directly generate NFTs on Arweave.

Pianity is a music NFT minting and trading platform that can help creators to NFT their music works and sell them to generate continuous income. Instead of using the ERC721 NFT format, it uses Arweave’s NFT standard for NFT minting and storage.

Page of a music NFT on Pianity, figure source: https://pianity.com/

Next is the infrastructure storage of the public chains.

At present, in addition to Solana and Nervos using Arweave as their default data storage layer, Arweave provides block data storage services for Avalanche, Celo, Near, Cosoms and other public chains through its storage middleware project KYVE, so as to solve the problem of insufficient full nodes in the public chains and low efficiency of data retrieval.

The final part is other Web3 applications, especially in the field of creator economy.

Arweave has multiple values for data storage of Web3 applications:

• Permanent hosting and backup of the application front end to prevent single point of risk and censorship risk from centralized cloud service providers

• Permanent hosting and backup of project asset data, such as graph, audio and video data of NFT assets of chain game projects

• Permanent hosting and verification of project execution data. For example, a well-known off-chain governance tool Snapshot, uses Arweave to store voting governance records (stored in IFPS first, and then mirrored to Arweave for permanent backup)

Permanent storage of creative content, which is the most abundant category. In addition to Beeple mentioned earlier, there are many well-known projects that use Arweave as a storage solution, such as Mirror, Mask Network, MYNFT, etc.

Ecosystem map of the projects using the Arweave storage solution, source: verto

In addition to crypto commerce, Arweave also plays an important role in some social activities.

In 2020, the visual artist organization DADA Art Collaborative teamed up with DappHero founder Dennison Bertram to launch the No Justice No Peace project, which aims to publish the names and portraits of police officers who killed black people in the United States. The project uses OpenSea and Arweave, using Arweave’s blockchain to create a wallet for each person killed and holding information tokens for the police officers associated with him or her. According to the project’s information on Arweave, 99 percent of police killings in the United States went unpunished by law between 2013 and 2019. Photos of the victims were widely circulated in the media, however the police officers who committed atrocities against them could not be found.

In the long run, regardless of NFT, public chain data or WEB3 application data, their demand for Arweave is on the rise, with a lot of room for growth.

Among them, the NFT and creator economic fields may be the focus of Arweave’s data business growth in the short term. Because NFT has high requirements for the sustainable storage of information, and creators have higher requirements for anti-censorship, sustainability, and data storage costs of their contents. In addition, their data storage business is often large, which can provide a steady stream of business needs.

Theoretically, Arweave has an extremely high upper limit on the amount of data it can store. According to the official statement, Arweave’s storage target is the volume of “the entire Internet data”. In fact, as early as 2020, Arweave cooperated with the Internet Archive, a non-profit digital content project, to help the project use Arweave’s technology to store Internet data in a decentralized manner.

2.4 Team situation

According to its Linkedin profile, Arweave’s team currently has 20 people, which is a very lean team size in the industry. Most of the team members are located in Berlin, Europe. BD (Business Development) positions account for the highest proportion, followed by engineers.

The core members of the Arweave team include:

Sam Williams

The CEO and founder of the project. He studied in Nottingham from 2011 to 2014 with a B.A. degree in Computing with Honours. He is also a PhD in Computer Science from the University of Kent, where he worked as an Assistant Lecturer from 2014 to 2017. Since 2017, he has founded Minimum Spanning Technologies and Arweave successively. He has worked as a consultant at the blockchain company Minespider since 2018, as a mentor at Techstars (an entrepreneur training organization) since 2019, and as a voter at the LAG Foundation, a non-profit organization dedicated to protecting privacy.

India Raybould

Chief Coordinator. After graduating from Manchester University in 2014, she worked as an administrator at Canterbury Christ Church University. In 2017, she joined Arweave as chief coordinator and was responsible for the front-end design of the website.

Arweave has had two CTOs but left in 2018 and 2021 respectively. The current technical head is unknown.

2.5 Financing situation

According to public information, Arweave has raised a total of about US$23 million. The fundraising rounds and amounts are as follows:

· September 2017 presale round: US$900,000.

· Round of financing in May 2018: US$675,000, investment institutions: 1kx, JD Capital, Arrington XRP Capital, KuCoin Capital, Connect Capital, iAngels, Signum, Factblock, GBIC, Bixin, Nirvana, AlphaBlock, Coefficient Ventures, Block0, Columbus, Juno Capital, 160 Capital, QCP Capital, One Block, ChainFund Capital, etc.

· ICO in June 2018: US$8.6 million.

· Institutional round of financing in November 2019: US$5 million, led by A16Z, followed by Multicoin Capital and Union Square Venture.

· Fundraising on March 6, 2020: US$8.3 million, with additional investment from A16Z and Union Square Venture, and newcomer Coinbase Venture.

Combining the above financing and the AR tokens in the hands of the team, it is expected that the team has relatively sufficient funds at present.

2.6 Partners

Arweave has many partners, and its ecosystem has begun to take shape.

The support of investment institutions and industry parties to Arweave is very important. For example, Denis Nazarov, the crypto partner of A16Z — the investor of Arweave, has promoted two content web3 applications based on Arweave: FEEDweave and Mirror. Another key partner of Arweave is the public chain team. The choice of the storage solution by the public chain team will greatly affect the Web3 application built on it.

Among them, Solana has the closest cooperation with Arweave. The NFT business in its ecosystem has contributed a lot of demands to Arweave. Thurs, the trends of the two tokens were also highly correlated:

3. Business analysis

3.1 Track overview

In terms of its current core business, Arweave belongs to the decentralized cloud storage track, which is a sub-category in the cloud storage track. Cloud storage is a cloud computing model that stores data on the Internet through cloud computing providers. Its characteristic is that it can provide storage space on demand and in a timely manner, without the need for users to purchase and manage data storage infrastructure by themselves. As a result, users can achieve agility, global scale and persistence, as well as “anytime, anywhere” access to data.

The cloud storage market has maintained a rapid growth rate in recent years, behind which is the onlineization of everything and the onlineization of the whole business process of commerce. According to the report of Fortune Business Insights, a business market research company, the global size of the cloud storage market in 2021 is US$76.43 billion, and the compound growth rate in the next eight years is expected to remain at about 26.2%, which will reach the overall market scale of US$390 billion in 2028.

The current cloud storage market is mainly dominated by centralized giants, and the market concentration is very high. The top cloud storage service providers include Amazon’s AWS, Microsoft’s Azure, and Alibaba’s Alibaba Cloud.

However, with the development of the Web3 wave, Web3 users put forward new requirements for data privacy, data decentralization and sustainability, as well as anti-censorship, thus, the demand for decentralized cloud storage has emerged.

Different from the concept of “distributed cloud storage” proposed by centralized cloud storage service providers, decentralized cloud storage service is essentially provided by each node. The cloud storage providers are highly open. Rather than a specific company, anyone who meets the node conditions can become a service provider. The concept of “distributed cloud storage” proposed by centralized enterprises is more geographically dispersed to avoid single-point risks caused by over-centralized and single data centers.

In the decentralized cloud storage system, what connects the nodes providing storage services together is no longer the rules and requirements of enterprises, but the incentive and game mechanism of the blockchain.

The current players in the decentralized cloud storage track include Filecoin, Arweave, Storj, Swarm, etc. However, although they belong to the same decentralized cloud storage track, Arweave is very different from Filecoin and Storj in terms of its product mechanism, services provided, as well as charging methods.

3.2 Project competition landscape

In terms of positioning, what Arweave wants to do is a “Library of Alexandria” that will not be burned in the Web3 world, dedicating to providing a permanent storage service for information. What Filecoin wants to do is Web3’s AWS, a pay-as-you-go elastic cloud storage service.

The Library of Alexandria, founded in Ptolemy I (c. 367–283 BC), is one of the oldest libraries in the world. The library had a collection of manuscripts from 400 BC to 300 BC. It had the richest collection of ancient books, which can be said to be the consummation of human social knowledge. Unfortunately, this world-famous ancient cultural center was completely engulfed by the war at the end of the 3rd century, and all the precious ancient books and manuscripts were burnt. No one knows how much knowledge was interrupted the inheritance here.

Library of Alexandria, figure source: Google

In terms of vision, Arweave wants to fully store the knowledge and history of all mankind through its own system. The goal of Filecoin/IPFS is to disrupt the monopoly of centralized cloud service providers in the storage market and provide a more open cloud storage supply market. Although there may be some competition in some specific scenarios, such as the storage of a certain NFT image, in the long run they are solving two different “big problems”, and their solutions are even complementary.

We can also compare the similarities and differences between the two projects from multiple dimensions, such as product and project mechanism, competition nature, service scenario, and competitive benchmarking:

Although Arweave has obvious similarities to Filecoin in that both are storage solutions based on decentralized blockchain technology, they are trying to solve fundamentally different problems.

Filecoin is looking to disrupt the current storage market by offering a better low-cost decentralized storage solution than Amazon or Alibaba.

Arweave is looking to provide solutions for long-term data storage and support a new wave of permanent applications built on top of that.

Other decentralized storage service providers, such as Storj, Sia, etc., are different from Filecoin in terms of technical mechanism and token mechanism behind them. However, they are essentially contract-specific services, that is, users and miners sign contracts through a protocol, users pay the fees stipulated in the contract, miners undertake the obligations stipulated in the contract, and the protocol (or the user) checks the miner’s performance (challenge).

To sum up, compared to decentralized cloud storage projects such as Filecoin, Arweave has the following advantages:

· Permanent storage of data, free to read, and users do not need to pay continuously.

· Around its underlying storage service, a set of protocol ecosystem and SmartWeave smart contract ecosystem based on its Permaweb has been gradually built, and it is developing towards the WEB3 full-stack protocol. There are obvious synergies between storage services, smart contracts and application layers.

· It has been adopted by public chains, NFT projects and many Web3 (especially the creator economy), and the demonstration effect of leading projects\celebrity selection is conducive to the adoption of Arweave by more similar projects in the future.

· After important data is stored on Arweave, users need to pay high conversion costs if they want to migrate their data.

· Compared with Filecoin, Arweave’s mechanism is simpler in concept and technology, making it easier to develop, implement, and adopt by users and miners.

The disadvantages are:

· On-chain storage scheme determines that the data cannot be changed once uploaded, resulting in high iteration cost and insufficient flexibility of the program.

· The data is public, so sensitive data (such as critical business data of enterprises) will not select Arweave.

3.3 Token model analysis

3.3.1 Total amount of tokens

After the Arweave mainnet was launched, 55 million AR tokens were supplied in the genesis block, and the total maximum amount of circulating AR tokens is 66 million.

3.3.2 Token allocation and early token unlocking plan

The allocation of AR tokens is as follows:

38.5% of AR tokens in the genesis block are used for sales, totaling 21,175,000, with no lock-up period; 13% is allocated to the project team, totaling 7,150,000, with a 5-year lock-up period and 20% unlocked each year; 26.5% is allocated to future projects, totaling 14,575,000, with a 5-year lock-up period and 20% unlocked each year.

3.3.3 Token generation

Since 80% of the tokens are already generated in the genesis block, only 20% of AR is used for mining rewards.

The generation of this part of AR tokens is similar to the Bitcoin model, in which the issued tokens are halved every year. In the first year, each block in the first year (one block for an average of 2 minutes) was rewarded with about 29 AR. The generation of each single block has dropped to around 3, as follows:

Data source: https://chronobot.io/arweave/

3.3.4 Current token circulation ratio

Currently, the total supply of AR is 64.59 million (the rest is yet to be mined), of which approximately 22% of issued tokens are held by advisors, project teams, or for future use and development. This indicates that current public holders face up to 24% dilution (22% from insiders releasing current tokens + 2% inflation for the remaining lifetime). Among them, the circulating number of tokens is about 50.11 million.

Below is the token supply schedule produced by the Amber Group for Arweave based on the Yellow Book:

As can be seen from the above figure, unlike most tokens, most of AR tokens have been minted and are in circulation, and its current generation inflation rate is only about 3%.

3.3.5 Token usage scenarios

The main usage scenario of AR is to purchase permanent storage services. Unlike centralized cloud services and IPFS, which pay for the number and duration of storage, Arweave promises one-time payment and permanent storage.

Based on this mechanism, the token usage model of AR is also very special. Only about 14% of AR tokens paid by users for storage each time will be paid to node miners who complete the block generation, and the other 86% will go into the donation pool.

First, Arweave calculated and deduced the long-term cost of data storage. The team calculated the future cost of data storage based on the assumption that the current price of 1GB of data stored on the hard disk, plus the annual storage cost reduction of 0.5% (in fact, this assumption is very conservative, and the storage cost is falling much faster than that). Based on this calculation, Arweave can provide users with a storage period of 200 years. If the storage cost decreases by more than 0.5%, it can provide users with a higher storage period.

The donation pool is designed to ensure that when the block reward of AR tokens is not enough to support the mining and data storage costs of miners, it will provide corresponding storage subsidies for miners, so as to ensure the long-term and continuation of the network and hedge against the changes of AR token price. However, the current generation of tokens is sufficient to support the cost of miners, the donation pool is still in the state of saving.

So, in essence, the charging model of Arweave is based on the user’s prediction of future storage costs, which is equivalent to that users pay in advance for their permanent storage.

The value of AR tokens is expected to increase as the demand for storage on the Arweave protocol increases. Additionally, as the majority of transaction fees are sent to Arweave’s donation pool, its tokens will continue to withdraw from the circulation channel, thus increasing the demand for AR.

3.3.6 Brief summary of the token model

The design of the Arweave token model can be summarized as:

· Users pay sufficient fees for storage services, most of which go into the donation pool to ensure that future long-term storage is funded.

· The yields of miners exceed their cost, maintain a basic roughly fixed profit rate, so they cannot obtain exorbitant profits.

· AR token holders obtain most of the yields of token appreciation brought about by network expansion.

In general, Arweave’s token model is friendly to token holders in terms of token circulation, generation and value allocation.

3.4 Risks

3.4.1 The ambiguity of the track

As the only explorer in the field of “permanent storage” in the decentralized cloud storage track, the advantage for Arweave is that there are few direct competitors, and it can become the absolute leader of the segment track, accumulating first-mover advantages through businesses and ecosystem. However, the corresponding problem is that the business logic of this track is more ambiguous than that of AWS of WEB3 version, and the certainty of its profitability and business expansion remains to be seen. Although Arweave’s vision is to “record the entire Internet” and become the “Library of Alexandria” for human civilization in the Web3 era. However, what is the demand for permanent storage of such information in the long run? What percentage of the entire decentralized storage market can it account for? This is still an unknown. In addition, if the network has a large amount of pornography, violence, politics, and contents that conflict with human ethics or global regulatory guidelines, it will also be interesting to see how the project handles such conflicts.

3.4.2 Loose ecosystem

Arweave is an underlying protocol at the Layer 0. Although there are many projects using Arweave storage services at present, there are still few projects developed entirely based on Arweave. On the other hand, although Arweave has launched the SmartWeave smart contract protocol, it cannot limit the standards of tokens and contracts due to architectural reasons, unlike the unified standards of public chains such as Ethereum, which can combine protocols easily. The above may cause the development ecosystem of Arweave to be too loose and unable to be unified to form an ecological synergy.

3.4.3 Solana’s growth stalled

Solana is the public chain with the strongest support for and the deepest business binding with Arweave. It directly brings a lot of business traffic to Arweave, and the price linkage between the two project tokens is also obvious. However, since late November, the TVL of Solana ecosystem has dropped significantly, and the once very hot NFT popularity has a tendency to cool down compared to Ethereum. If the development of the Solana ecosystem stalls, it may have a direct impact on Arweave’s short- and medium-term business indicators.

4. Preliminary value assessment

4.1 Five core questions

What business cycle is the project in? Maturity stage or the early and middle stage of development?

Arweave is in the early stage of the project, and the PMF (Product Market Fit) of its products has been initially verified. However, the demand for permanent data storage of WEB3 is in its infancy, and there are high uncertainties in terms of market size and business form.

Does the project have a solid competitive advantage? Where does it come from?

First of all, the project party has excellent business insights and chooses a segmented cloud storage market with long-term value and currently less competition. Compared with other decentralized cloud storage protocols, its solution has the advantages of product positioning, ecological development, leading project adoption, switching cost, and simple mechanism.

This competitive advantage currently mainly comes from the accurate market positioning of the project and the first-mover advantage in data storage and adoption.

Is the medium and long-term investment logic of the project clear? Is it in line with the industry trend?

The medium and long-term investment logic of the project is clear, and it is committed to providing decentralized permanent storage services for human society. Its services have very distinct characteristics, whether compared with traditional centralized manufacturers or decentralized protocols. It will benefit from the requirements of Web3 applications for data storage to be sustainable, distributed and anti-censorship.

What are the main variables in the operation of the project? Are these variables easy to quantify and measure?

The main variable is whether the adoption of Arweave by Web3 applications continues to expand, which we can observe through the following indicators:

· Weave size: The amount of data stored on the entire network

· Actual data usage

· Indicators of SmartWeave smart contract (source also need to check)

· Network cost metrics

Also, we should also focus on representative projects or events that may lead to further large-scale adoption of Arweave.

What is the management and governance of the project? What is the level of DAO?

At present, Arweave has not yet introduced the DAO mechanism in the core governance of the project, which is mainly based on the core team’s decision.

4.2 Valuation

As a storage infrastructure project at the Layer 0, Arweave’s base is the storage business, and its development upper limit is a Web3 full-stack protocol that can challenge other public chain ecosystems. The upper limit of its valuation has a large imagination space, and the lower limit is also supported by the actual storage business. Moreover, the team has gone through a bull-bear cycle, with good development and operation resilience, thus the possibility of returning to zero is small.

In the whole crypto market, the closest project to Arweave’s positioning, vision, and development space is still Filecoin. Here we try to make a comparison using Filecoin’s business indicators and market cap as the anchor of Arweave’s valuation.

From a quantitative point of view, using the above indicators as comparison dimensions, it seems that Arweave is significantly overestimated in all indicators compared to Filecoin, especially the storage volume. On the one hand, Filecoin does have a larger group of miners, and the project is more well-known, on the other hand, its mining incentive mechanism also causes miners to store a large amount of garbage data, which does not represent the volume of storage business driven by real demand.

In terms of the two projects, Arweave has a better ecological development and adoption rate, and the competition on the track is relatively low, so it has the potential to challenge the public chain. Filecoin has better business data, however, due to the complexity of its mechanism and the development progress, as well as smart contract function has not yet been released, its actual ecological development is relatively slow, and it is also facing more fierce cost competition with Web2 and other Web3 cloud storage service providers.

4.3 Summary of value assessment

The project party has excellent business insights. By choosing a segmented cloud storage market with long-term value and currently less competition, it has become the only leading project in this market. Benefiting from the expansion of demand for decentralized cloud storage in WEB3 business development for a long time, its solution has the following advantages compared with other decentralized cloud storage projects:

· Permanent storage of data, free to read, and users do not need to pay continuously.

· Around its underlying storage service, a set of protocol ecosystem and SmartWeave smart contract ecosystem based on its always-on network has been gradually built, and it is developing towards the WEB3 full-stack protocol. There are obvious synergies between storage services, smart contracts and application layers.

· After important data is stored on Arweave, users need to pay high conversion costs if they want to migrate their data.

· Compared with Filecoin, Arweave’s mechanism is simpler in concept and technology, and is less difficult to develop, implement, and adopt by users and miners.

However, its positioning and mechanism also determine some limitations of the project’s business development:

· The solution stored on the chain determines that the data cannot be changed once uploaded, resulting in high iteration cost of the program and insufficient flexibility.

· The data is public, and sensitive data (such as business-critical data of the enterprise) will not select Arweave.

From a quantitative point of view, Arweave is still far from Filecoin in some key indicators (although some of Filecoin’s data is relatively exaggerated). Considering the differences in the positioning and ecosystem of the two projects, these suggestions are only evaluated as one of the reference dimensions.

On the whole, Arweave has a grand vision and a solid team with experience of bulls and bears. It is located on a basic track with wet snow and a long hill (i.e., huge development space). Coupled with the potential space of its WEB3 full stack, its future development is worth long-term observation and expectation.

Risk warning

This research report may have errors in facts and data, or biased opinions. If you find any, please leave a message for correction and exchange. The above content is written for internal research purposes and cannot be used as investment or financial advice.