Aptos – the latest shiny L1 with an unproven track record
Research | L1 | 24 October 2022
Aptos is the latest shiny POS layer 1 (“L1”) protocol, with mainnet launched on Oct 17 2022. Aside from the industry joke that this is a chain mainly used by former Solana teams to generate another series of quick project token monetization events, we see nothing of note that will see Aptos overtake current L1s in the long run in terms of users, transactions or use cases.
TL
DR
Aptos is one of the latest L1 protocols under development to receive mainstream attention in cryptoland and has received funding from various high profile investors
L1 refers to a base network, such as Ethereum, Solana or Avalanche, and its underlying infrastructure
L1 blockchains can validate and finalize transactions without the need for another network. They are essentially smart contract platforms. This means that various decentralized Apps such as decentralized exchanges (DEX), automated market makers (AMM), web3 games and decentralized wallets can be built on top of them, just like on Ethereum and Solana
What is Aptos
Aptos uses a Proof-of-stake mechanism
Aptos leverages key elements from Meta’s (previously Facebook’s) Libra project, which was renamed to Diem in its latter days. For example, Aptos is based on a programming language called Move (derived from the Rust programming language) that was also developed by the Libra project
Diem subsequently winded down with a sale of its assets to Silvergate for US$182 million in early 2022
Aptos is co-founded by Mo Shaikh (CEO) and Avery Ching (CTO), both former Meta employees. Many of the other ~60 strong team also come from the Libra / Diem project
The chain is not EVM compatible (ie it does not connect back to the Ethereum network)
In theory, and without going too much into the technical weeds, Aptos could eventually be a faster chain than Solana utilizing its own validation methodology including parallel processing execution and sequential execution (see below). In our view, being the fastest chain matters - especially in the real world where differentiating labels such as these are very important. However, as of right now, the team has some ways to go before reaching such a lofty state
The Aptos team claims that they can scale Aptos to process a maximum of over 130K transactions a second (for reference, BTC is 7, ETHPoW is 45, ETHPoS is 100k, Solana is ~120K)
During the last phases of the testnet phase, Aptos processed 4000+ transactions per second (Solana is ~2K, Eth is at ~12 and BTC at ~3)
Having said that, the Aptos network went live on Mainnet in October 18, 2022 – and the chain was operating at 4 transactions per second and also had to be rebooted. It has since scaled a little faster than that but nowhere near its touted capability. It remains to be seen how quickly the Aptos team can scale up performance and network stability
Other Observations:
Aptos has secured funding of ~US$350 million to date with latest valuation round rumoured to be completed at ~US$4 billion
These include many high profile investors such as FTX, Jump Trading, a16z, Tiger Global as well as Binance labs. Having such a similar investor base to Solana has led to Aptos being labelled as the next Solana ie the next L-1 to yield a 100x valuation uplift for investors
Funding – a lot of high profile investors at a very high valuation
There are many teams building on the Aptos chain – there are multiple DEXes, AMMs and NFT marketplaces and projects as well as web3 games currently being built. However, these are still very early stage and none have yet amassed any large user base of note. Whether they can scale and attract users is still to be determined
Aptos has also hired, several former Solana staff including Austin Virts, former Head of Marketing at Solana
In addition, it is widely known in the industry that many projects / developers / teams that previously built on Solana have moved over to start migrating or developing on Aptos (sometimes on the very same product that they had built on Solana). This has only fuelled the narrative of Aptos being the next Solana, and people in the industry widely joke that the new L1 chain is simply the latest vehicle to orchestrate the latest series of quick project token monetization events similar to those that occurred on other “scalable” L1 chains
Alternative L1 narratives have been around for a long time with the plethora of “ETH-killers” that appeared during the 2017 and 2021 cycle. However, the long-term sustainability of these L1s remain extremely low with some fading out of existence and others continuing to exist as ghost chains
The biggest component to the success of an L1 chain would be the ability to attract and retain a core base of high-quality builders, that will in turn bring about the development of a sticky community
Ecosystem – Solana-lite?
Aptos tokenomics details were announced on Oct 18, 2022
The initial total supply of Aptos tokens ($APT) at mainnet was 1 billion tokens. $APT is trading at ~$9.50 at time of writing, bringing the FDV of Aptos to ~US$9.5 billion (over 100% premium to the previous private funding round)
Tokenomics
Source: Aptos Foundation
Source: Aptos Foundation
Substantially all of the current circulating tokens are classified under community. However, rather than direct distribution to community, ~410 million (80%) community tokens are now held by the Aptos Foundation and the remaining 100 million (20%) are held by Aptos Labs. The distribution of community tokens will then be at the full discretion of the Aptos team. As of now, only ~20 million tokens has been distributed to the community through an airdrop
In addition, locked $APT (~80% of total supply) can be staked to receive staking rewards in $APT currently at 7% annually and staking rewards will be freely tradeable
The increase in unlocked token supply in the future will be heavily skewed towards insiders receiving staking rewards as well as private round token unlocks
How are Aptos tokens potentially going to perform? This will be a high FDV, low circulating market cap play. This will allow token price to be substantially higher before token vesting starts to hit the supply
Aptos will have to gain that massive user traction that commensurate with the token vesting schedule to be able to support its heavy valuation, or face the same situation that other L-1 chains, are in
We see the hype around Aptos to be entirely built around the aura of its high profile investors and valuation. The chain remains untested and unproven, and we are yet to see whether it is truly fast, secure and scalable and whether it can create an ecosystem with mass adoption.
Conclusion
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