Comprehensive Analysis of Arweave: Business Logic, Product Ecosystem, Market Competition, and Project Valuation

Source: Mint Ventures

Author: Xu Xiaopeng

Section 1: Key Points of the Research Report

1.1 Core Investment Logic

The Arweave team possesses excellent business insights, having chosen a long-term valuable and currently less competitive niche market in cloud storage—permanent storage. It has become the only leading project in this market, benefiting in the long term from the expansion of WEB3 business development's demand for decentralized cloud storage. Its solution has the following advantages compared to other decentralized cloud storage projects:

● Permanent data storage with free access, users do not need to pay continuously.

● A protocol ecosystem based on its permaweb and SmartWeave smart contract ecosystem has gradually been built around its underlying storage service, developing towards a WEB3 full-stack protocol, with clear synergies between storage services, smart contracts, and application layers.

● It has already been adopted by public chains, NFT projects, and numerous Web3 applications (especially in the creator economy). The demonstration effect of leading projects and celebrities choosing Arweave is beneficial for the subsequent adoption of similar projects.

● Once important data is stored on Arweave, users face high switching costs if they wish to migrate.

● Compared to Filecoin, Arweave's mechanism is simpler in both concept and technology, making development, implementation, and adoption by users and miners easier.

However, its positioning and mechanism also determine some limitations in business development:

● The on-chain storage solution means that data cannot be changed once uploaded, leading to high iteration costs and insufficient agility.

● Data is public, and sensitive data (such as critical business data of enterprises) will not choose Arweave.

1.2 Main Risks

The project faces risks from the ambiguity of the track, a loose ecosystem, and the slowdown in the development of its important partner Solana. See [Business Analysis] - Risks for details.

Section 2: Basic Information of the Project

2.1 Project Business Scope

Arweave is a blockchain network, and its core service currently provided is distributed permanent storage for data, aiming to become the data storage infrastructure of the Web3 era, classified as Layer 0.

Most current data storage solutions are centralized, such as cloud services, but centralized services have single-point risks such as service downtime, privacy breaches, content censorship, and unclear data ownership.

Arweave's user base is very broad, including content creators concerned about the above risks, Web3 projects with data storage needs, and public chain infrastructure layers with large-scale data storage requirements.

In addition to storage, there is also an application layer called the permaweb and a SmartWeave smart contract system built on the underlying AR network, enabling the operation of applications and smart contracts, with fully Arweave-based ecosystem projects already emerging.

From this perspective, Arweave can also be seen as a "Web3.0 full-stack protocol" that includes application ecosystems, smart contract systems, and storage protocols, with the potential to compete with other public chain platforms at the ecosystem level.

2.2 Project History and Roadmap

2.3 Business Details

2.3.1 Business Logic

Before introducing Arweave's current business situation, it is necessary to explain Arweave's network structure and consensus mechanism for the reader's understanding.

Network Structure and Consensus Mechanism

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

Blockweave

In traditional blockchains, blocks are connected in a chain-like structure. In contrast, Arweave's blocks point to a randomly selected recall chunk, forming a woven block structure.

Arweave's block structure, source: Arweave Yellow Paper

The design of Blockweave primarily serves Arweave's consensus mechanism—SPoRA (Succinct Proofs of Random Access).

SPoRA Consensus Mechanism

Before using the SPoRA consensus mechanism, Arweave employed a PoA+PoW mechanism. PoW is familiar to many, so it will not be elaborated here.

PoA stands for Proof of Access. Under this mechanism, Arweave requires each miner node in the network to access a random recall chunk locally if they want to generate new blocks and earn rewards. If they do not store that chunk, they cannot generate a new block.

In this case, if miners want to maximize their mining rewards, they will choose to store all blocks because each subsequent block points to the current block and a previously random block. The more blocks stored, the more qualified they are to produce blocks and earn rewards. PoA incentivizes miners to store more Arweave blocks and encourages them to store less commonly stored blocks to increase the probability of meeting PoA.

However, under a standalone PoA mechanism, if all miners store all blocks, everyone has the same probability of producing blocks. Therefore, Arweave introduced the PoW mechanism to enrich the competition dimension for block production.

In February of last year, Arweave upgraded from PoA+PoW to SPoRA. The pure PoA+PoW mechanism ensures permanent data storage but does not guarantee data access speed, and PoW also has environmental issues related to power consumption. The SPoRA mechanism reduces the weight of PoW in the previous miner block production probability and adds the dimension of data access speed.

Additionally, SPoRA allows miners to focus more on maintaining their local hardware and nodes, preventing them from storing data in the same low-rate data center, facilitating geographical diversity of nodes and enhancing the overall decentralization of the network.

Wildfire

Wildfire is an incentive mechanism for data reading on Arweave. Since Arweave only charges for data storage and reading is free, to encourage nodes to respond to read requests and improve block production speed, Arweave introduced Wildfire: a node scoring mechanism.

Its working principle allows Arweave nodes to create a ranking system for other nodes based on two factors: 1. Generosity: the number of new transactions and blocks sent; 2. Responsiveness: the speed of response to network requests. The higher the score given by nodes to neighboring nodes, the greater the probability of block production for those nodes.

BlockShadow

Nodes do not need to verify the entire storage file during validation. When nodes produce blocks, they do not submit the entire storage file for review by other nodes; instead, they place the storage content within the block, only transmitting a hash value and an account list. This hash value represents this part of the content, and other nodes verify whether this hash value corresponds to the file pool.

This method speeds up the verification process and shifts part of the work off-chain. Similarly, during calls, 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 receive AR to mine new blocks, needing to store and provide data. The entire network coordinates and distributes rewards between the two.

In addition to the basic network structure and consensus mechanism, Arweave has several distinctive features:

Bundles

Bundles are a technology that combines many data transactions in Arweave into a single transaction. It directly enhances the scalability and usability of the Arweave system. Additionally, it addresses a common issue in other blockchains, where your transaction may be rejected if others submit transactions that reward miners more. This feature ensures that Arweave can still handle projects that need to upload and store large amounts of media files, such as a gaming project that requires uploading thousands of NFT images and audio files. We found that after Bundles launched in September 2021, the data storage volume on Arweave's network began to soar.

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

SmartWeave

SmartWeave, as Arweave's smart contract protocol, allows developers to build smart contract applications using JavaScript. Its operation differs from Ethereum's contract execution method, where the entire network is called to verify transactions, significantly increasing the network's burden. In SmartWeave, users download contracts to complete execution on their local clients.

SmartWeave reduces the network's burden and lowers the interaction costs (the cost of interacting with SmartWeave contracts is below 1 cent), improving the network's operational performance.

The Permaweb

Image source: Arweave.org

Above Arweave's core data storage layer is a permaweb, aptly translated by the community as "永在网" (Everlasting Web). The permaweb is a collection of interconnected files and applications, similar to the Web2 network, but the key difference is that all content on the permaweb is permanent. The permaweb can be used to store various information: from Wikipedia to PDFs, videos, and various dApps like Uniswap.

Once included in the Arweave network, these files and information receive a permanent backup. For smart contracts, even if the original project goes offline, as long as the backend smart contract code remains available, users can still access the application on Arweave's permaweb. Furthermore, once information is submitted to the permaweb, no one (including the original uploader) can change it in any way.

2.3.2 Business Data

Arweave's mainnet launched in June 2018. Although it received support from some public chains before 2021, using it as the primary solution for main chain data storage (for example, Solana and Nervos adopted Arweave as their data storage solution in 2020), its storage business remained in a gradually rising linear growth state until the NFT sector exploded in 2021.

Data Storage Volume

It wasn't until 2021 that various data storage demands led to a surge in Arweave's network storage volume, as shown in the chart below:

Data: https://viewblock.io/arweave/stat/cumulativeWeaveSizeHistory

Arweave's Weave size increased tenfold within a year, with the entire network's data storage volume rising from 4T to 40T. Additionally, according to Arweave's official disclosure in the [2021 Annual Report], its monthly data usage saw a year-on-year growth multiple of 40 times, increasing from 188.42G in January 2021 to 7.58T in December.

Network Fees

At the same time, Arweave's 30-day direct network fees also ranked first among Web3 infrastructure layers:

Data: https://web3index.org/

Smart Contracts

In terms of smart contracts, the number of SmartWeave smart contracts has also risen rapidly:

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

According to ArweaveApps, the number of Arweave applications that have been recorded has reached over 400.

Sources of Strong Business Growth

The rapid increase in Arweave's business data this year is due to internal factors, such as the advancement of foundational tools and technologies. The previously mentioned Bundles technology is one of them, and the gradual improvement of foundational tools has allowed Arweave to smoothly accommodate business traffic from the demand side.

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

● The explosion of the NFT market

● The flourishing of public chains

● The prosperity of Web3 applications, especially in the creator economy

First, let's talk about NFTs:

The NFT market exploded starting in 2021. First, digital artist Beeple's legendary work "Everydays: The First 5000 Days" was auctioned for over $69 million in March 2021, ranking third among auction prices for living artists.

Then came the popularity of avatar NFTs like Crypto Punks and BAYC, as well as the rise of traditional sports IPs like NBA TOP SHOTS, leading to the initial emergence of blockchain game NFTs. By the end of 2021, celebrity IP projects represented by Jay Chou and Edison Chen further expanded the NFT market's popularity and audience.

Corresponding to the booming market, NFT prices soared, yet many expensive NFTs had their source files not stored on-chain. Numerous NFT smart contracts stored actual content in a simple Token URL that points to a Web2 Internet address where the digital object is located. As long as these websites are willing, they can take these NFT source files offline at any time using centralized means.

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

Data source: pencilflip's Twitter, chart by Amber Group

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

The fate of expensive NFTs is controlled by centralized websites, with project parties hosting them in non-permanent storage spaces, contradicting people's intuitive understanding of the value of NFTs. This has also led to a direct demand for storing and publishing NFT data on Arweave, making Arweave the mainstream solution for NFT data storage.

From specific industry cases:

The highest-grossing NFT artist, Beeple, launched his NFT platform WE.NEW based on Arweave. His website showcases NFTs for LV's 200th anniversary and a series of NFTs from tennis star Murray's 2013 Wimbledon championship.

Image source: https://wenewmoments.com/

JAY-Z released a reimagined NFT for his 25th-anniversary album, storing the animation on Arweave, which sold for $138,600 at Sotheby's.

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

Additionally, Arweave has launched its own NFT standard—Atomic NFT, allowing content creators to generate NFTs directly on Arweave.

Pianity is a music NFT minting and trading platform that helps creators tokenize their music works as NFTs and sell them for ongoing revenue. It does not use the ERC721 NFT format but instead employs Arweave's NFT standard for minting and storage.

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

Next, regarding the storage of public chain base layer data:

Currently, besides Solana and Nervos using Arweave as their default data storage layer, Arweave provides block data storage services for multiple public chains such as Avalanche, Celo, Near, and Cosmos through its storage middleware project KYVE, addressing issues of insufficient full nodes and low data retrieval efficiency in public chains.

Data: KYVE

Finally, for other Web3 applications, especially in the creator economy:

Arweave offers multiple values for data storage in Web3 applications:

● Permanent hosting and backup of application frontends, preventing single-point risks and censorship risks from centralized cloud service providers.

● Permanent hosting and backup of project asset data, such as images, audio, and video data of NFT assets in blockchain games.

● Permanent hosting and verification of project execution data, such as the well-known off-chain governance tool Snapshot, which uses Arweave to store voting governance records (first stored on IPFS, then mirrored to Arweave for permanent backup).

● Permanent preservation of creative content, which is the richest category. In addition to Beeple mentioned earlier, many well-known projects use Arweave as a storage solution, such as Mirror, Mask Network, MYNFT, and more.

Ecosystem diagram of projects using Arweave storage solution, source: verto

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

In 2020, the visual artist organization DADA Art Cooperative, in collaboration with DappHero founder Dennison Bertram, launched the No Justice No Peace project, aimed at publishing the names and images of police officers who killed Black people in the U.S.

This project utilized OpenSea and Arweave, creating a wallet for each victim on the Arweave blockchain and holding tokens with information about the related officers. According to the project's information on Arweave, 99% of police killings in the U.S. from 2013 to 2019 went unpunished. Victims' photos circulated widely in the media, but the officers committing the atrocities could not be identified.

In the long term, whether for NFTs, public chain data, or WEB3 application data, the demand for Arweave is on the rise, with significant growth potential.

Among them, the NFT and creator economy sectors may be the focus of Arweave's data business growth in the short term, as NFTs require the permanence of information storage, and creators have high demands for content censorship resistance, permanence, and data storage costs. Additionally, their data storage needs are often substantial, providing a continuous flow of business demand.

In theory, Arweave's data business backup volume has a very high upper limit. According to the official statement, Arweave's storage goal is the volume of "the entire internet's data." In fact, as early as 2020, Arweave collaborated with the non-profit project "Internet Archive" to help the project decentralize the storage of internet data using Arweave's technology.

2.4 Team Situation

According to Arweave's LinkedIn, the team currently consists of 20 members, which is a very lean team size in the industry. Most team members are located in Berlin, Europe, with the highest proportion of positions being BD, followed by engineers.

Core members of the Arweave team include:

Sam Williams

Project CEO and founder, he studied at Nottingham from 2011 to 2014, earning a Bachelor's degree in Computer Science with honors. He is also a PhD in Computer Science from the University of Kent, serving as an assistant lecturer there from 2014 to 2017. Starting in 2017, he founded Minimum Spanning Technologies and Arweave. Since 2018, he has served as an advisor at the blockchain company Minespider, and since 2019, he has been a mentor at Techstars (an entrepreneurial training organization) and a voter at the privacy-protecting non-profit organization LAG Foundation.

India Raybould

Chief Coordinator. She graduated from the University of Manchester in 2014 and then worked as an administrator at Canterbury Christ Church University. In 2017, she joined Arweave as Chief Coordinator, responsible for the website's front-end design.

Arweave has had two CTOs in the past, both of whom left in 2018 and 2021, and the current technical leader is unknown.

2.5 Industry Analysis

According to public information, Arweave has raised approximately $23 million in total funding. The rounds and amounts are as follows:

● September 2017 presale round: $900,000.

● May 2018 first round of financing: $675,000, investors include 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, Chain Fund Capital, etc.

● June 2018 ICO: $8.6 million.
● November 2019 institutional round financing: $5 million, led by A16Z, with Multicoin Capital and Union Square Venture participating.

● March 6, 2020 fundraising: $8.3 million, with A16Z and Union Square Venture increasing their investment, and new institution Coinbase Venture joining.

Combining the above financing with the AR tokens held by the team, it is expected that the team currently has relatively sufficient funds.

2.6 Partners

Arweave has numerous partners, and its ecosystem is beginning to take shape.

Support from investment institutions and industry players is crucial for Arweave. For example, Denis Nazarov, a crypto partner at Arweave's investor A16Z, has promoted two content Web3 applications—FEEDweave and Mirror—based on Arweave. Another key category of partners for Arweave is public chain teams, whose choice of storage solutions will greatly influence the Web3 applications built on them.

Among them, Solana is the closest collaborator with Arweave, as its NFT business contributes significant demand to Arweave, and the price trends of the two tokens have also been highly correlated:

Section 3: Business Analysis

3.1 Overview of the Track

In terms of its current core business, Arweave belongs to the decentralized cloud storage track, which is a niche category within the cloud storage sector. Cloud storage is a cloud computing model that allows data to be stored over the internet through cloud computing providers.

Its characteristics include on-demand provision of storage space without users needing to purchase and manage data storage infrastructure themselves. Therefore, users can achieve agility, global scale, and permanence, as well as "anytime, anywhere" access to data.

The cloud storage market has maintained rapid growth for several years, driven by the online nature of everything and the online transformation of entire business processes. According to a report by market research firm Fortune Business Insights, the global size of the cloud storage market was $76.43 billion in 2021, with a projected compound annual growth rate of approximately 26.2% over the next eight years, reaching a total market size of $390 billion by 2028.

The current cloud storage market is primarily dominated by centralized giants, with a high market concentration. Leading cloud storage service providers include Amazon's AWS, Microsoft's Azure, and Alibaba's Aliyun, among others.

However, with the development of the Web3 wave and the new demands from Web3 users for data privacy, decentralization, permanence, and censorship resistance, the demand for decentralized cloud storage has emerged.

Unlike the "distributed cloud storage" concept proposed by centralized cloud storage providers, decentralized cloud storage services are essentially provided by individual nodes, with a high degree of openness. Anyone can become a service provider after meeting node conditions, rather than being a specific company.

In contrast, the "distributed cloud storage" proposed by centralized enterprises is more about geographical dispersion to avoid the single-point risks caused by overly concentrated data centers.

Within the decentralized cloud storage framework, the connection between various storage service provider nodes is no longer governed by corporate rules and requirements but by blockchain incentives and game mechanisms.

Current players in the decentralized cloud storage track include Filecoin, Arweave, Storj, Swarm, and others. However, despite all being in the decentralized cloud storage track, Arweave's positioning is quite different from that of Filecoin and Storj, with significant differences in product mechanisms, services offered, and charging methods.

3.2 Project Competitive Landscape

In terms of positioning, Arweave aims to be the "Library of Alexandria" in the Web3 world that cannot be burned, dedicated to providing permanent storage services for information. In contrast, Filecoin aims to be the AWS of Web3, offering pay-as-you-go elastic cloud storage services.

The Library of Alexandria was founded during the reign of Ptolemy I (circa 367-283 BC) and is one of the oldest libraries in the world. It housed manuscripts from 400-300 BC, boasting the richest collection of ancient texts, a true treasure trove of human knowledge.

Unfortunately, this world-renowned ancient cultural center was completely consumed by war in the late 3rd century, and all the precious ancient texts and scrolls in its collection were reduced to ashes. How much knowledge was interrupted here is unknown.

Library of Alexandria, image source: Google

In terms of vision, Arweave seeks to comprehensively store all of humanity's knowledge and history through its system. In contrast, Filecoin/IPFS aims to disrupt the monopoly of centralized cloud service providers over the storage market, providing a more open cloud storage supply market. While there may be competitive points in specific scenarios, such as the storage of NFT image information, in the long run, they are addressing two fundamentally different "big problems," and their solutions may even be complementary.

We can also compare the two projects across multiple dimensions, including product and project mechanisms, competitive essence, service scenarios, and competitive benchmarks:

Although Arweave and Filecoin have obvious similarities as storage solutions based on decentralized blockchain technology, they are attempting to solve fundamentally different problems.

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

Arweave seeks to provide a solution for long-term data storage and support the construction of a new wave of permanent applications based on this.

Other decentralized storage service providers, such as Storj and Sia, while differing in their underlying technology mechanisms and token mechanisms from Filecoin, essentially still provide specific contract services, where users and miners enter into contracts through agreements, users pay the fees specified in the contracts, and miners fulfill the obligations outlined in the contracts, with the agreement (or users) checking the miners' performance.

In summary, Arweave has advantages over Filecoin and other decentralized cloud storage projects in:

● Permanent data storage with free access, users do not need to pay continuously.
● A gradually constructed protocol ecosystem based on its permaweb and SmartWeave smart contract ecosystem, developing towards a WEB3 full-stack protocol, with clear synergies between storage services, smart contracts, and application layers.
● Adoption by public chains, NFT projects, and numerous Web3 applications (especially in the creator economy), with the demonstration effect of leading projects and celebrities benefiting subsequent adoption of similar projects.
● Once important data is stored on Arweave, users face high switching costs if they wish to migrate.
● Compared to Filecoin, Arweave's mechanism is simpler in both concept and technology, making development, implementation, and adoption by users and miners easier.

Its disadvantages include:
● The on-chain storage solution means that data cannot be changed once uploaded, leading to high iteration costs and insufficient agility.
● Data is public, and sensitive data (such as critical business data of enterprises) will not choose Arweave.

3.3 Token Analysis

3.3.1 Total Token Supply

At the launch of Arweave's mainnet, the genesis block supplied 55 million AR tokens, with a total maximum token circulation of 66 million AR tokens.

3.3.2 Token Distribution and Early Token Unlocking Plan

The distribution of AR tokens is as follows:

In the genesis block, 38.5% of AR tokens were allocated for sale, totaling 21,175,000 tokens, with no lock-up period; 13% were allocated to the project team, totaling 7,150,000 tokens, with a 5-year lock-up period, unlocking 20% each year; and 26.5% were allocated for future projects, totaling 14,575,000 tokens, also with a 5-year lock-up period, unlocking 20% each year.

3.3.3 Token Output

Since 80% of the tokens have already been produced in the genesis block, only 20% of AR tokens are allocated for mining rewards.

The output of this portion of AR tokens is similar to the Bitcoin model, where the issued tokens are halved each year, with approximately 29 AR rewarded per block in the first year (with an average block time of 2 minutes). Currently, the output per block has decreased to around 3, as shown below:

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

3.3.4 Current Token Circulation Ratio

Currently, the total supply of AR is 64.59 million (with the remaining not yet mined), of which about 22% of the issued tokens are held by advisors and the project team, or held for future use and development. This indicates that current public holders face a maximum dilution of 24% (22% from internal personnel releasing current tokens + 2% from remaining lifecycle inflation). The circulating token amount is approximately 50.11 million.

Below is a token supply timeline created by Amber Group based on the yellow paper for Arweave:

Image source: Amber Group

From the chart, it can be seen that unlike most tokens, the majority of AR tokens have already been minted and are in circulation, with its current output inflation rate being only around 3%.

3.3.5 Token Use Cases

The main use case for AR is to purchase permanent storage services. Unlike centralized cloud services and IPFS, which charge based on usage frequency and storage duration, Arweave promises one-time payment for permanent storage.

Based on this mechanism, the AR token usage model is also unique. Each time a user pays AR tokens for storage, only about 14% goes to the nodes that completed the block production, while the other 86% enters a donation pool.

First, Arweave has calculated and projected the long-term costs of data storage. The team assumed the current price of storing 1GB of data on a hard drive, plus a 0.5% annual decrease in storage costs (this assumption is quite conservative, as storage costs are decreasing much faster), to calculate future data storage costs. Based on this calculation, Arweave can provide users with a storage duration of 200 years. If the rate of decrease in storage costs exceeds 0.5%, the storage duration offered to users will be even longer.

The donation pool is designed to ensure that when AR token block rewards are insufficient to support miners' mining and data storage costs, it will provide corresponding storage subsidies to miners, ensuring the network's long-term sustainability and allowing for hedging against changes in AR token prices. However, the current token output is sufficient to support miners' costs, and the donation pool remains in a savings accumulation state.

Thus, essentially, Arweave's charging model is based on users pre-paying for their permanent storage according to future storage cost predictions.

As the demand for storage under the Arweave protocol increases, the value of AR tokens is expected to rise. Additionally, as most transaction fees are sent to Arweave's donation pool, tokens will continuously exit the circulation domain, increasing demand for AR.

3.3.6 Summary of Token Model

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

● Users pay sufficient fees for storage services, with most entering the donation pool to ensure future long-term storage has financial support;
● Miners' earnings exceed costs, maintaining a roughly fixed profit margin, without the possibility of excessive profits;
● AR token holders receive most of the value appreciation brought by network expansion.

Overall, in terms of token circulation, output, and value distribution, Arweave's token model is relatively friendly to holders.

3.4 Risks

3.4.1 Ambiguity of the Track

As the almost sole explorer in the field of permanent storage within the decentralized cloud storage track, the advantage is that there are few direct competitors, allowing it to become the absolute leader in this niche track and accumulate first-mover advantages through business and ecosystem development.

However, the corresponding issue is that the commercial logic of this track is more ambiguous compared to fields like WEB3's AWS, and the certainty of profitability and business expansion remains to be observed. While Arweave's grand ambition is to "record the entire internet" and become the "Library of Alexandria" of human civilization in the Web3 era, how much demand for permanent storage of such information will there be in the long term?

What percentage of the entire decentralized storage market can it occupy? This remains an unknown. Additionally, if a large amount of pornographic, violent, political, or content that contradicts human moral standards or global regulatory guidelines is stored on the network, how the project handles these contradictions is also a point to observe.

3.4.2 Loose Ecosystem

Arweave is a Layer 0 level underlying protocol. Although many projects currently use Arweave's storage services, there are still relatively few projects fully developed based on Arweave.

On the other hand, although Arweave has launched the SmartWeave smart contract protocol, due to architectural reasons, it cannot restrict the standards of tokens and contracts, unlike Ethereum and other public chains with unified standards that facilitate protocol combinations. This may lead to Arweave's development ecosystem being too loose, unable to unify and form ecological synergy.

3.4.3 Slowdown in Solana's Development

Solana is the public chain that supports Arweave the most and has the deepest business binding, directly bringing a large amount of business traffic to Arweave. The price linkage between the two projects' tokens is also quite evident. However, since late November, the TVL of the Solana ecosystem has significantly declined, and the once very hot NFT enthusiasm has also shown signs of cooling compared to Ethereum. If the development of the Solana ecosystem slows down, it may directly impact Arweave's short- to medium-term business metrics.

Section 4: Preliminary Value Assessment

4.1 Five Core Questions

4.1.1 What stage is the project in? Is it in the mature stage or the early to mid-development stage?

Arweave is in the early stage of the project, with its product's PMF (Product Market Fit) having been preliminarily validated. However, the demand for permanent data storage in WEB3 is still in its infancy, with high uncertainty in both market scale and business form.

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

Firstly, the project team possesses excellent business insights, having chosen a niche cloud storage market with long-term value and currently low competition. Its solution has advantages in product positioning, ecosystem development, adoption by leading projects, switching costs, and a straightforward mechanism compared to other decentralized cloud storage protocols.

This competitive advantage mainly stems from the project's accurate market positioning and first-mover advantages in data storage and adoption.

4.1.3 Is the project's mid- to long-term investment logic clear? Is it in line with industry trends?

The mid- to long-term investment logic of the project is relatively clear, aiming to provide decentralized permanent storage services for human society. Its services have very distinct characteristics compared to traditional centralized providers and decentralized protocols, and in the long run, it will benefit from the demand for permanence, distribution, and censorship resistance in Web3 applications.

4.1.4 What are the main variable factors in the project's operation? Are these factors easily quantifiable and measurable?

The main variable factor is whether the adoption expansion of Web3 applications for Arweave continues. We can observe this through the following indicators:

● Weave size: the total data storage volume of the entire network

● Actual data usage

● Indicators of SmartWeave smart contracts (sources need to be checked)

● Network fee indicators

Additionally, it is essential to pay attention to representative projects or events that may trigger further large-scale adoption of Arweave.

4.1.5 What is the project's management and governance method? What is the level of DAO?

Currently, in the core governance aspects of the project, Arweave has not introduced a DAO mechanism, primarily relying on core team resolutions.

4.2 Valuation

As a Layer 0 level storage infrastructure project, Arweave's basic business is storage, while its development ceiling can challenge other public chain ecosystems as a WEB3 full-stack protocol. Its upper valuation limit has significant imaginative space, while the lower limit is supported by actual storage business, and the team has already gone through a bull-bear cycle, demonstrating good development and operational resilience, making the possibility of zero value low.

In the entire crypto market, the project most similar to Arweave in terms of positioning, vision, and development space remains Filecoin. Here, we attempt to use Filecoin's business metrics and market capitalization as a valuation anchor for Arweave for comparison.

From a quantitative perspective, using the above indicators as comparison dimensions, it seems that Arweave is significantly overvalued compared to Filecoin across various metrics, especially in terms of storage volume. On one hand, Filecoin indeed has a larger miner community and higher project visibility, but on the other hand, its mining incentive mechanism has led to miners storing a lot of garbage data, which does not represent storage business volume driven by real demand.

Looking at the two projects, Arweave's ecosystem development and adoption rate are superior, and the competition in its track is relatively mild, with potential to challenge public chains; Filecoin's business data is more impressive, but due to the complexity of its mechanism and development progress, as well as the smart contract functionality not yet released, its actual ecosystem development is relatively slow, and it faces more intense competition with Web2 and other Web3 cloud storage providers at the cost level.

4.3 Summary of Value Assessment

The project team possesses excellent business insights, having chosen a niche cloud storage market with long-term value and currently low competition, becoming the only leading project in this market. It will benefit in the long term from the expansion of WEB3 business development's demand for decentralized cloud storage. Its solution has the following advantages compared to other decentralized cloud storage projects:

● Permanent data storage with free access, users do not need to pay continuously.

● A gradually constructed protocol ecosystem based on its permaweb and SmartWeave smart contract ecosystem, developing towards a WEB3 full-stack protocol, with clear synergies between storage services, smart contracts, and application layers.

● Adoption by public chains, NFT projects, and numerous Web3 applications (especially in the creator economy), with the demonstration effect of leading projects and celebrities benefiting subsequent adoption of similar projects.

● Once important data is stored on Arweave, users face high switching costs if they wish to migrate.

● Compared to Filecoin, Arweave's mechanism is simpler in both concept and technology, making development, implementation, and adoption by users and miners easier.

However, its positioning and mechanism also determine some limitations in business development:

● The on-chain storage solution means that data cannot be changed once uploaded, leading to high iteration costs and insufficient agility.

● Data is public, and sensitive data (such as critical business data of enterprises) will not choose Arweave.

From a quantitative perspective, Arweave is still far from Filecoin in some key indicators (although some of Filecoin's data may be inflated), but considering the differences in positioning and ecosystems between the two projects, it is recommended to use this as one of the reference dimensions for assessment.

Overall, Arweave has a grand vision, a solid team that has experienced bull and bear cycles, is situated in a foundational track with long-term potential, and its WEB3 full-stack potential space makes its future development worthy of long-term observation and expectation.