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Aptos: new blockchain, old problems

10/26/2022 | 08:17am EST

Last week, the crypto industry has got itself a new shiny blockchain with big ambitions, deep pockets, and uncertain principles that have left the crypto community doubtful.

Brainchild of former Meta engineers, Aptos tech does have some potential, even if the need for yet another Proof-of-Stake blockchain is debatable. However, the fog surrounding Aptos tokenomics and coin distribution has shown how different its founders’ mindset was from crypto ideals.

Aptos was generously backed by venture capitalists: three funding rounds it conducted since March 2022 have brought its valuation to a whopping $4 billion, according to Bloomberg. Among the funds that supported the project – many major crypto VCs, such as a16z, Tiger Capital, Jump Crypto, as well as VC arms of Coinbase, FTX and Binance.

So far, however, the blockchain’s market cap could only reach $1.1 billion, showing that the most important job – gaining community support and inciting it to build on Aptos – is yet to be done.

What is Aptos?

Back when Mark Zuckerberg nurtured the idea of a stablecoin, Meta had developer teams working on a permissioned blockchain Diem and its wallet Novi. The project failed, notably due to a heavy government opposition, but two Meta’s engineers, Mo Shaikh and Avery Ching, decided to continue the work within the newly founded Aptos Labs.

They have built a layer-one blockchain using Move, a programming language developed at Meta, which is supposed to be safer and more flexible than the existing alternatives.

Another key selling point of the new blockchain was its ability to process many transactions simultaneously, unlike most major blockchains, where transactions are processed sequentially (all nodes verify and execute them in a specific order).

These qualities are expected to allow a throughput of 100’000 transactions per second, which is a lot. For comparison, some of the industry’s most scalable blockchains like Solana or Polygon have a theoretic capacity of 65’000-75’000 TPS, but in practice are often clogged when facing a big influx of transactions (often DDoS attacks).

Aptos is yet to pass its trial by fire, but so far, the VCs’ interest looks understandable. It becomes less so upon realizing that it will be yet another PoS blockchain with an opaque governance, uncapped token supply and uncertain token distribution – in other words, all these factors that encourage levels of centralization almost incompatible with the notion of a public blockchain.

These flaws became obvious at Aptos launch.

Aptos tokenomics troubles

A blockchain comes with a native currency, used to fuel the incentive system for the nodes running it. It is crucial to determine in advance the economics behind it: supply schedule, distribution, math behind the staking yield etc.

Aptos did no such thing: a “summary version” of its tokenomics was posted several hours after the blockchain launch, and it failed to outline key factors that would determine the token’s price.

It did release details of token distribution though: 13.5% of the initial token supply will go to investors, 19% - to core contributors (both with a 4-year lockup), 16.5% - to the Aptos Foundation, and the remaining 51% - to the community. But there’s a catch.

Aptos allocated almost all community tokens to itself (shared between Aptos Foundation and Aptos Labs) and staked them. It is possible that the company will stay true to its word and will unlock these funds progressively, granting them to developers willing to build on Aptos, but there’s no decentralized mechanism to ensure it. Moreover, until these funds are distributed (which is expected to be done gradually during the next 10 years), Aptos will keep the majority of tokens to itself, together with the new ones generated as staking rewards.

Such token distribution makes Aptos a centralized blockchain, where the founders control the majority of tokens and therefore can censor transactions and bring arbitrary updates to its protocol. Many PoS blockchains are already accused of centralization tendencies, but in Aptos case this flaw is all but too obvious.

Of course, controlling total supply would kill the market, so Aptos airdropped 2% of its tokens to the early testnet users. The intentions of the latter should have been quite clear to the crypto exchanges, and many of them listed $APT token both on spot and perpetual contract markets (with a x25 leverage notably on Binance), which allowed users to short their tokens at will.

In hours since its listings, $APT has lost half of its initial price, and probably the market trust. The question now is how far can VC money take Aptos without the community support?

 Written by D.Center


ę MarketScreener.com 2022
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