Aleo Research Report: The Largest Project in ZK Track Financing

Source: Web3CN

1. Project Overview

Aleo is the first Layer1 blockchain that adopts zero-knowledge proof (ZKP) technology to provide fully private applications, offering users unlimited computation with absolute privacy. Aleo addresses the shortcomings of blockchain privacy protection by building a blockchain that is private by default and open-source. Users of Aleo can access a truly personalized world of web services while ensuring privacy, managing their data, and enjoying efficient and secure online services.

The greatest innovation of Aleo lies in balancing privacy and programmability.

2. Project Vision

The Aleo team believes that in the next decade, web services will be ubiquitous, extending beyond just browsers to many other areas, and will perform intelligent computations on every private detail of people's lives. Personal lives have become a "public good," becoming increasingly personalized with the development of web services, regardless of where one lives. Therefore, the relationship between individuals and their data, and how people manage their data, is a question everyone should consider in the future.

Information leakage and data privacy issues are common phenomena in today's internet. Aleo's vision is to address this issue while creating a truly personal and private user experience on the web. Aleo strongly advocates for privacy technologies within the blockchain ecosystem and provides a service platform that embodies privacy technologies in web applications, thereby enhancing digital freedom and access worldwide. Aleo CEO Alex Pruden stated: providing secure and scalable applications for the world.

3. Features and Advantages

Aleo's unique and distinct difference from other public chains lies in its protection of privacy and on-chain scalability. Current smart contracts on blockchains have two major limitations:

1. They are designed to be completely public and transparent, thus not allowing for privacy.
2. They cannot scale to millions, let alone billions of users, meaning they cannot support online real-time games or activities at the level of billions of users.

To address these issues, the Aleo network is based on zero-knowledge proof cryptography, solving the challenge of protecting privacy while supporting the processing of massive amounts of data (scalability) on current public chains.

Aleo addresses the current dilemma of internet data leakage, improves the transparency of data information in current blockchains, and achieves real-time processing of massive data comparable to current internet platforms, which is particularly noteworthy for the market.

The following image provides a more intuitive and clear understanding of Aleo network's features:

4. Development History

• In 2019, Aleo was founded.
• On August 19, 2020, it officially announced the launch of the developer version.
• In early 2021, the official Aleo Discord server was launched.
• On April 20, 2021, it raised $28 million in Series A funding.
• On June 3, 2021, it received a $1 million grant from the Treasury Department and launched the Aleo Community Reward Program and the Leo Programming Competition.
• On August 16, 2021, Aleo mining officially began, and Testnet1 went live.
• On December 6, 2021, the incentivized Testnet2 was officially launched, with over 10,000 nodes generating millions of zero-knowledge proofs.
• On February 7, 2022, it raised $200 million in Series B funding.
• In March 2022, Aleo launched the Ambassador Program and prepared for Testnet3.
• On August 19, 2022, Aleo Discord officially announced that the three testing phases of Aleo Testnet3 would be postponed.
• On November 10, 2022, the second phase of the third test of the Aleo network was launched.
• On January 24, 2023, Aleo released its 2023 roadmap.

The Aleo mainnet is expected to launch in July 2023.

5. Team Background

Aleo was officially founded in 2019 by Howard Wu, Michael Beller, Collin Chin, and Raymond Chu, with Howard Wu as the founder of Aleo. The team consists of world-class cryptographers, engineers, designers, and operators from companies such as Google, Amazon, and Facebook, as well as research universities like UC Berkeley, Johns Hopkins University, New York University, and Cornell University. On September 20, 2022, Alex Pruden was promoted to CEO of Aleo, having previously worked at A16Z and Coinbase.

Currently, the Aleo team has over 30 members, including professionals in finance and law.

6. Financing Information

Aleo has officially announced two and a half rounds of financing, namely Series A, Series B, and Series B+.

• Series A raised $28 million, led by Andreessen Horowitz (a16z), with participation from Placeholder VC, Galaxy Digital, Variant Capital, and Coinbase Ventures. Other investors include Polychain Capital, Slow Ventures, Dekrypt Capital, Scalar Capital, a_capital, zkValidator, Balaji Srinivasan, and the new venture fund Ethereal Ventures founded by Joseph Lubin.
• Series B raised $200 million, led by Kora Management LP and SoftBank Vision Fund 2, with participation from Tiger Global, Sea Capital, Samsung Next, Slow Ventures, and Andreessen Horowitz (a16z), ultimately valuing the company at $1.45 billion. Aleo's Series B funding is the largest round of financing in the history of the zero-knowledge proof sector.
• Series B+ raised $70 million, with investments from SoftBank Vision Fund 2 and Samsung Next.

7. Development Achievements

Since its inception in 2019, the development achievements of the Aleo project are as follows:

On February 24, the Aleo project released Deploy & Execute (application deployment and execution) on Testnet 3. This achievement is significant for developers and the ZK (zero-knowledge) field: deploying Leo applications on the Aleo network is a first in the ZK domain. With this version release, Aleo fulfilled the ultimate promise of creating a zero-knowledge execution environment envisioned in the ZEXE research paper co-authored by Aleo CTO Howard Wu and other founding members.

The Aleo project is closely integrated with zero-knowledge proofs (ZKP), and how to build applications and ecosystems on the Aleo network is paramount. Generally, developing ZK applications is complex and time-consuming, requiring developers to have knowledge of zero-knowledge cryptography, which raises the barrier to entry. Aleo allows developers to use zero-knowledge proofs in their applications as simply as possible, laying the foundation for a private, decentralized ecosystem. The Leo programming language is a statically typed programming language inspired by Rust, built specifically for writing private applications. It is the first known programming language to introduce testing frameworks, package registries, import parsers, remote compilers, and theorem generators for general zero-knowledge applications.

Aleo has created its own virtual machine, snarkVM, where developers can build applications using the familiar Solidity programming language.

Aleo does not rely on existing consensus mechanisms, such as proof of work (PoW) or proof of stake (PoS), but instead uses a combination of both, with useful adjustments to PoW, termed succinct proof of work, making ZKP on Aleo significantly cheaper than on Ethereum.

The main gains and achievements of the Aleo testnet in the second phase of Testnet 3 include first validating the hypothesis of the Aleo project that separating block production from coinbase generation allows provers to compute proofs at the scale they require; second, deriving that a large proof pool can contribute to generating proofs for the network, making proofs more accessible; and finally concluding that proofs conducted on the network are quite decentralized.

8. Economic Model

Aleo's tokenomics aims to adjust the incentives for all stakeholders in the Aleo system as simply as possible, providing services to the Aleo network. Its tokens represent meaningful value, rewarding security provided to participants, promoting ecosystem development and usage, and decentralization. Moreover, the team reserves the right to make necessary adjustments during the iteration of the mainnet.

At the launch of the Aleo network, Aleo tokens will be distributed among early supporters, builders, community members, and foundations or other entities that provide funding and ensure the network's sustainable development. From genesis, new tokens will be minted and distributed to miners on the Aleo network through block rewards. Table 1 (below) summarizes the details of the overall economic model (note: the current block time is approximately 20 seconds).

Table 1

In addition to the initial supply of tokens distributed among the Aleo team, early supporters, and community members, a portion will be reserved for broader distribution at some point after the Aleo mainnet launch, aimed at further decentralizing control and enhancing the quality of the open-source community, while complying with applicable laws and regulations.

To achieve a high level of network security, the Aleo team initially set a relatively high inflation rate, which will be halved twice in the first decade. After the ninth year, the final halving will result in the release of 12.5 Aleo tokens per block, ensuring the security of the network and the economic stability it will support. The table below shows the inflation curve of Aleo over the first 15 years.

Table 2: Aleo Inflation Timeline and Total Supply

In terms of token distribution, changes will occur over time as new tokens are minted. Table 3 (below) describes the distribution of Aleo tokens assuming block rewards (this chart only considers inflation and does not account for any initial holders selling their tokens. Therefore, the actual distribution of tokens may be broader than the simple representation below).

Table 3: Aleo Token Distribution

9. Fundamental Analysis

The Aleo project is currently in Testnet 3 and has not yet entered the third phase (Testnet 3 is divided into three phases). According to its released 2023 roadmap, it is expected to enter the third phase of Testnet 3 in April, conclude the third phase in May, and after stress and audit testing and mainnet upgrades in June, the mainnet will launch in July.

In the current booming AI field, the Aleo team recently stated that the Aleo network is an excellent platform for developers to start experimenting with ZKML (zero-knowledge machine learning) applications. The official guide released explains how to run neural network inference using Aleo's zero-knowledge domain-specific language—Leo language (https://mp.weixin.qq.com/s/cltdBcmqA9wTDeoiQaviiw). Due to Aleo's permissionless architecture, anyone can become a prover/verifier of their own data in the ML (machine learning) and ZK (zero-knowledge) fields on the Aleo network, "opening the door to a whole new world of potential use cases."

10. Industry Analysis

Analyzing the industry in which the Aleo project resides can be approached from the perspectives of zero-knowledge proofs and Layer1.

In the field of zero-knowledge proofs, with the accelerated development of hardware and the improvement of infrastructure, ZK technology will become more practical and form close ties with multiple fields, such as the metaverse, Web3, cryptocurrency, finance, and privacy. The development of zero-knowledge (ZK) is still in its early stages; as a cryptographic algorithm, it stands out among a series of cryptographic algorithms due to its excellent algorithmic characteristics and ease of use.

The application of ZK technology in the blockchain field means faster-running blockchain networks and open, private applications. To some extent, it has already become a core and supporting tool for the blockchain ecosystem. While achieving privacy protection, it can also achieve scalability, both of which are crucial for the future development of blockchain and Web3. This is the future application prospect of zero-knowledge proofs and also the prospect of the Aleo network.

In terms of Layer1, unlike Layer2 projects such as Starware, zkSync, and Scroll, the Aleo network has its own snarkVM, Leo programming language, Aleo Studio development environment, and PoSW consensus mechanism, meaning that applications and ecosystems developed based on Aleo in the zero-knowledge field greatly exceed Layer2 ZK projects, and the massive market and considerable capital brought by the application ecosystem and system are beyond imagination.

11. Opportunities and Risks

Opportunities

In the industry analysis section, the importance and potential of zero-knowledge proof technology have been discussed, which reflects both the potential widespread use of the technology itself and the future prospects of the Aleo network, which "carries" zero-knowledge proof technology. The Aleo project has gained favor from capital precisely because it adopts zero-knowledge proof technology. Therefore, it can be said that the opportunities in the zero-knowledge proof field are also opportunities for the Aleo project, especially for blockchain Layer1.

From the perspective of blockchain Layer1, unlike Layer2, Layer1 has its own smart contracts, development environments, programming languages, consensus mechanisms, economic models, etc., which can attract potential market ecosystems and gain more users and value in terms of scale and volume. This is the opportunity and advantage of the Aleo project positioned in Layer1.

Risks

The risks of the Aleo project also stem from zero-knowledge proof technology. Historically, generating ZKP has been more expensive than running computations locally, as ZKP requires more complex and computationally costly mathematical operations, relying on more specialized hardware. This is also why Aleo's CEO believes that the accelerated development of hardware will drive the development of ZK technology in 2023. Whether the Aleo network, which adopts ZKP technology, can handle massive data better than other networks in real-world application scenarios, and how to balance costs (Aleo is positioned at 0 Gas fees), all remain to be validated by the market.