from messari by Peter Horton

Key Insights

The modular versus integrated debate has been discussed ad nauseam. The TLDR is that both sides are converging on a similar endgame: modular chains are initially optimizing for verifiability and decentralization, and integrated chains are optimizing for low latency and high throughput.

Aptos is one of the biggest players in the integrated camp, with development team Aptos Labs having raised around $400 million in total funding. Since its launch in October 2022, the network has upgraded rapidly with over 40 AIPs and 8 major releases. Aptos’ ecosystem is relatively young, but it already features projects like onchain order books, perp DEXs, and social media platforms. In a recent mainnet-like testing environment, Aptos verifiably achieved a peak of 30,000 TPS and over 2 billion transactions in a day, with a north star of over 1 million TPS. If it can continue implementing technical upgrades and attract developers and users, Aptos will be poised for success.

Background

Aptos was born out of Meta’s Diem and Novi projects. In 2019, Meta (at the time known as Facebook) formally announced its upcoming blockchain-based payments network. The project consisted of the permissioned Diem blockchain (originally called Libra) and the Novi wallet (originally called Calibra). Development was led by the independent consortium Diem Association and Facebook subsidiary Novi Financial. Due to regulatory pushback, Diem and Novi never launched. Diem wound down and sold its assets to Silvergate Capital in January 2022. In September 2022, Meta announced the end of Novi.

Aptos Labs was founded in December 2021 and formally introduced itself in February 2022. Aptos Labs was co-founded by Novi’s Head of Strategic Partnerships Mo Sheikh, who previously led strategy at Consensys and founded blockchain-based fractional real estate platform Meridio, and Novi’s Principal Software Engineer Avery Ching, whose background is in supercomputing. The remaining founding team consisted of PhDs, researchers, engineers, designers, and strategists, many of whom also worked on Diem or Novi.

In March 2022, Aptos Labs announced its $200 million raise along with the launch of its public devnet and open-source codebase. The raise consisted of equity and token options and was led by a16z with participation from Multicoin Capital, ParaFi Capital, Coinbase Ventures, and many other investors. In July 2022, Aptos Labs announced a subsequent $150 million raise at a reported $2 billion valuation, led by FTX Ventures and Jump Crypto. FTX Ventures also participated in the first fundraising round; its investments are now controlled by FTX bankruptcy proceedings. Further strategic investments by Binance Labs and Dragonfly Capital brought the total funding to around $400 million.

After Aptos Labs published the Aptos whitepaper in August 2022, the mainnet network launched in October 2022. Some voiced concerns about the launch when centralized exchanges added support for Aptos’s native token APT before complete tokenomics info was publicly released. Mo Sheikh acknowledged these concerns in a tweet thread the following day. Since mainnet, the Aptos network has completed several upgrades and is now on V1.8.0. The non-profit Aptos Foundation leads the growth efforts for the Aptos ecosystem.

Technology

The Aptos technological stack was designed around the core tenets of scalability, safety, reliability, and upgradeability. It brings novel mechanisms to many aspects of the stack.

Consensus

Aptos is a Delegated-Proof-of-Stake (DPoS) Layer-1 that uses the AptosBFTv4 consensus protocol.

AptosBFT

AptosBFT (originally called DiemBFT) evolved through four iterations while at Diem and was then adopted for the permissionless Aptos blockchain. The first AptosBFT was based on HotStuff, which is itself based on traditional practical BFT (pBFT) protocols. Aptos’s current implementation, AptosBFTv4, is now based on Jolteon, which improves upon HotStuff latency by 50% via a pBFT-style quadratic view change.

In addition, to mitigate latency caused by faulty leaders, AptosBFT selects leaders not just based on staking but also performance (together, “reputation”). A validator’s performance measures their success rate as a leader (how often their proposals are committed) and as a non-leader (how often they vote on proposals).

Aptos throughput was further improved with the implementation of Quorum Store in the Aptos V1.5 upgrade, completed on July 18, 2023. Quorum Store is an implementation of Narwhal, a mempool protocol. Quorum Store brings improvements to consensus by separating data dissemination from consensus. The decoupling of data dissemination from consensus was the key discovery of the Narwhal and Tusk paper co-authored by Aptos Labs and Mysten Labs researchers.

Before Quorum Store, transaction processing included a mempool and consensus phase:

This led to two bottlenecks:

Quorum Store adds an intermediary phase between the mempool and consensus protocols. The complete process is now:

This solves the above two bottlenecks as follows:

In testing, Quorum Store increased TPS limits by 12x in a consensus-only test and 3x in an end-to-end test. However, the full benefits of Quorum Store are not realized with a leader-based protocol like AptosBFT. Thus, Aptos Labs is exploring an upgrade to a DAG-based consensus protocol, with more details in the Roadmap Section.

DPoS

Validators are compensated through inflationary staking rewards. At the moment, all transaction fees are burned. Staking rewards are weighted by a validator’s reputation (stake and performance). Rewards are distributed and automatically compounded every epoch, which lasts two hours. Staked tokens are locked in global 30-day cycles.

Each validator sets a commission rate, with the remaining percentage of tokens passed down to their delegators. In-protocol delegated staking was implemented on mainnet on April 20, 2023. Delegators need a minimum stake of 11 APT to participate. This brings much more community participation to staking, as the minimum stake to participate as a validator is 1 million APT ($10.5 million as of December 26, 2023).

There is also a maximum stake of 50 million APT for validators. At ~5% of the total supply, this is not a very restrictive cap. However, if a validator operator gains enough stake, it would be incentivized to spin up multiple validator nodes. Notably, locked tokens are able to be staked and earn liquid rewards (after the global 30-day unlock period).

There is currently no slashing mechanism for offline or malicious validators, but such mechanisms could be added via governance in the future.

Execution

Once validators agree on a block order, they need to execute the transactions in the block and persist the results to storage. Many blockchains have a sequential transaction engine, where transactions are ordered and executed one by one. To speed up execution, Aptos uses a parallel execution engine. Furthermore, Aptos differentiates from other networks with parallel processing of transactions like Solana and Sui by not requiring upfront, user-declared knowledge of dependencies.

To do this, Aptos uses Block-STM, which builds on the principles of software transactional memory (STM) and optimistic concurrency control (OCC). STM libraries with OCC follow the general framework where transactions are executed optimistically (i.e., assuming no dependencies), validated post-execution, aborted if dependencies are surfaced, and eventually re-executed. However, this approach is rarely used in practice due to limited performance caused by managing dependencies and cascading aborts.

To be suitable for deployment and overcome these limitations of OCC STM systems, Block-STM leverages a preset order of transactions for estimating the dependencies, reducing the number of aborts. The observation that a preset order of transactions can be a blessing, not a curse, was one of the key findings of the Bohm (2014) research paper. Block-STM utilizes the preset order even more so than Bohm, refining dependency estimates with each abort in the system (and, as such, reducing the chances of further aborts).

Block-STM additionally improves upon general STMs by leveraging aspects of a blockchain, including:

Before walking through each step of Block-STM, it’ll be helpful first to define a term already mentioned: dependencies. A blockchain transaction consists of smart contract code that reads and writes to shared memory. Upon execution, each transaction has a list of these read and write locations, called the read-set and write-set. If Mo’s transaction reads from a location in the shared memory which is first written by Avery’s transaction, then Mo’s transaction is dependent on Avery’s. Transactions with dependencies must be executed sequentially, in this case, Avery’s first before Mo’s.

With that, we can dive into the step-by-step process of Block-STM, broken up into five major phases:

1. Preset ordering of transactions

2. Optimistic execution

3. Validation

4. Aborts and re-execution

5. Commits

In testing, Block-STM achieved up to 170,000 TPS in Aptos benchmarks with 32 threads. This was a 17x improvement over sequential execution.

Storage

When a block is committed, its data is persisted in the storage layer. While commits are done by block, each individual transaction is stored separately after execution in a Merkle tree. Everything that happens on the blockchain – including transactions, state changes, and events – can be cryptographically proven against a summary known as the “root hash,” which is authenticated by the current validator signatures. This method differs from other blockchains, where one needs to trace the chain of blocks to verify past transactions, allowing for more granular provable data access.

To handle the large amount of data, Aptos uses two types of Merkle trees: a Jellyfish Merkle Tree for storing data on disk and an in-memory Sparse Merkle Tree for quick updates. These trees are optimized to efficiently store data and allow for concurrent updates. Several further paths to scaling storage are being explored by Aptos Labs, notably storage sharding which is detailed in the Roadmap Section.

Move

Move is a bytecode language inspired by Rust that was created by the Diem and Novi teams. Move offers enhanced flexibility and safety over Solidity and other Web3 programming languages.

Move consists of two types of programs: transaction scripts and modules. Transactions scripts are atomic and can only ever be used once, whereas modules are published in the global state and remain there indefinitely.

Modules are similar to smart contracts in other programming languages. They define resources and their associated procedures. A resource is like an object, and a procedure is the action that can be performed on it, such as creation, modification, or deletion. Resources are specifically designed to represent scarce assets like tokens. They feature built-in protections to help these assets avoid being mistakenly copied or discarded.

Modules enforce data abstraction, where a type is transparent within its declaring module and opaque outside of it. In other words, only the originating module can create, destroy, or update values. External access to a module’s data is confined to public procedures exposed by the module. These guarantees are enforced at execution time by Move’s bytecode verifier, which all modules and transaction scripts must pass through in order to be executed with the Move VM. This data abstraction is done more explicitly in Move than Solidity/EVM, which has encapsulation but with less strict enforcement.

Move aims to remove the attack vectors present in Solidity and the EVM, particularly those stemming from the lack of first-class assets beyond ETH and re-entrancy attacks.

Move aims to make it harder for developers to make mistakes. Beyond the bytecode verifier, developers can also leverage the Move Prover, a formal verification tool. Of course, Move does not remove the possibility of smart contract vulnerabilities. Programmers still need to establish proper safety invariants within their modules. Furthermore, the bytecode verifier and Move Prover do not replace the need for an audit. Auditing firm CertiK observed several instances of developers either not using Move’s built-in protection mechanisms or adopting programming patterns, likely ported from legacy code designs that ran counter to Move’s design philosophy.

Other Key Features

User Safeguards

Aptos includes several features to improve user experience and safety, including flexible key management, transaction outcome transparency, and light-client support.

Aptos accounts decouple private keys from public keys, allowing flexible key management. Users can rotate the private key of their account to pre-empt or respond to a compromise without having to transfer all their assets to a new account. Users can also set up their account as a multi-sig with different permissions for each public key. For example, a user could create an account with two hot public keys that can sign transactions along with a cold public key that can sign transactions but also rotate private keys. This user could then stipulate that 2/3 of the account’s keys are required to sign a transaction.

To help prevent phishing attacks and generally improve transparency, wallets can use transaction pre-execution to explain the outcome of a transaction in a readable format before a user signs it.

Aptos also adds transaction safeguards by adding an expiration time and sequence number to transactions. Sequence numbers function similarly to nonces on the EVM and help prevent replay attacks.

Light clients allow people to easily verify the blockchain state by only downloading block headers. This minimizes trust assumptions when accessing blockchain data. Doing so is especially important for high-performance blockchains like Aptos that come with higher node hardware requirements.

Upgradeability

Source: Messari Intel

Aptos is defined to support frequent protocol upgrades. This is largely enabled due to validator management occurring onchain, allowing validators to easily sync to a new upgrade. Parts of Aptos itself are also written in Move, which can improve time-to-market, as noted above. Around 46 improvement proposals have already been implemented since launch.

Tokenomics

Overview

Aptos’s native token APT is used for security and Sybil-resistance (validator and delegator staking), resource consumption (transaction fees), and onchain governance. At genesis, 1 billion APT was allocated to several buckets with various lockups. APT has no fixed supply and currently inflates at a 6.895% annual rate. All transaction fees are currently burned.

Initial Distribution

As stated, 1 billion tokens were distributed at genesis. In addition, 13% were unlocked at genesis, with the remaining subject to vesting schedules. Allocations are as follows:

As noted above, APT is inflationary with ongoing rewards to stakers. The annual inflation rate is set to 7% in the first year following genesis, which then decreases by 1.5% each year (i.e., in the second year it is 6.895%), until it settles at 3.25%. Note that this rate is based on the initial total supply of 1 billion APT and is subject to governance.

The unlock schedule of APT’s initial distribution was designed to avoid major unlock events, instead unlocking tokens monthly. The steepest increase in APT liquid supply will occur during the six monthly unlocks from mid-November 2023 to mid-April 2024. This period begins unlocks for the Team and Private Investors portion. During this period, the supply of liquid tokens from the initial distribution (i.e., excluding staking rewards) will increase roughly 60% from 209 million to 334 million.

Locked tokens can be staked and accrue liquid rewards. Because in-protocol delegation did not launch until mid-April, airdrop recipients and other smaller token-holders were diluted for the first six months of mainnet unless they self-coordinated to pool together over 1 million tokens.

Network Activity

Usage

Following the excitement from the network launch, network usage – measured by transactions and active addresses – subsided before picking back up in July 2023. Since then, Aptos has averaged over 475,000 daily transactions and over 72,000 daily active addresses. Several factors contributed to the uptick in usage, including the integration of social media platform Chingari and oracle Pyth.

Chingari is a video-sharing mobile app, similar to TikTok, that has over 100 million downloads on the Google Play store. It originally launched in 2018 as a Web2 platform before adding onchain features, such as virtual gifts.

Pyth integrated with Aptos on July 13, bringing access to its low-latency price feeds. Since July 13, Pyth has accounted for around 17.7% of Aptos’s total transaction count. Note that this share is not uncommon for the networks that Pyth is on.

On October 19, daily active addresses reached over 600,000, driven by the Graffio communal art creation event. To celebrate the network’s one-year anniversary, Aptos contributors invited community members to draw on a communal digital canvas during a 24-hour period. Each individual drawing was registered as an onchain transaction. Participants then received an NFT version of the final canvas. The event brought 605,000 unique addresses and 1.3 million transactions.

The increased activity brought by Graffio caused a network outage, when block production halted on October 18. The incident was resolved within around 5 hours. The Aptos Foundation shared a postmortem on October 20. The root cause was identified as non-deterministic code, stemming from a performance-focused code change made to the Aptos-core codebase on August 22, 2023.

More recently, transaction activity has been driven by inscriptions, a trend prevalent on many blockchains. NFT marketplace BlueMove launched the APT20 standard in mid-December. On December 23 and 24, there were a combined 6.8 million transactions, largely due to APT20 mints.

Security and Decentralization

As of December 26, 2023, the Aptos network features 123 active validators from 27 countries and 54 cities. The number of validators has gradually increased since the network launch, when it supported around 100 validators. The validator network currently has a Nakamoto coefficient of 18, which is above the median of other networks. With the Aptos Foundation holding a majority of the total supply between its own allocation and the tokens held on behalf of the Ecosystem allocation, it can help distribute stake rather equally among validators.

There are 907 million APT staked ($9.8 billion as of December 26, 2023), representing 84.6% of the total APT supply. As noted above, locked tokens can be staked and earn liquid rewards. Relative to its circulating supply, 296% of tokens are staked. On October 5, Coinbase Cloud enabled APT delegation to its validator and added APT staking on Coinbase Prime.

Ecosystem

DeFi

Just over a year into launch, Aptos DeFi protocols have amassed almost $127 million in TVL from over 32 protocols, ranking Aptos 26th among all networks in TVL. Aptos’s DeFi TVL mostly comes from five protocols: Thala Labs, Liquidswap, Aries Markets, PancakeSwap, and SushiSwap.

Thala leads Aptos protocols in TVL at $43 million, giving it a 45% market share. Thala features a suite of DeFi products, including a CDP, an AMM, a liquid staking protocol, and a token launchpad. Thala is also currently developing governance tool Parliament. It raised $6 million in a seed round in Q4’22, launched its governance token THL at the end of March, and shortly after, launched on mainnet. Its CDP mints Move Dollar (MOD), which has 8.3 million tokens in circulation as of December 26, 2023. Both MOD and THL are omnichain fungible tokens (OFTs). OFT is a multichain token standard created by LayerZero Labs that is interoperable with fungible token standards across chains. Most of MOD’s overcollateralized backing is based in LayerZero and Wormhole-based USDC.

Right at the end of Q3, Thala announced Thala Foundry, a DeFi incubator, in partnership with the Aptos Foundation. The Foundry has $1 million in initial funding and will distribute $50,000-$250,000 in funding to Aptos DeFi projects, along with other developer and business development support.

LiquidSwap was one of the first AMMs live on Aptos. It was developed by Pontem Network, who also built the Pontem Wallet for Aptos. It has $20 million TVL, a 21% market share.

Aries Market is a borrow/lend and margin trading protocol. It launched soon after Aptos’ mainnet launch, but it more recently saw a notable increase in TVL, jumping from less than $2 million to over $11 million during October 2023. December growth brought Aries’ TVL to almost $20 million for a 20% market share. At the end of November, Aries launched its trading product which is powered by Econia.

Econia is an onchain order book engine that launched at the end of November after originally forming during the 2021 Inaugural Aptos Hackathon. It raised $6.5 million in seed funding earlier this year in a deal led by Dragonfly. Beyond Aries, Econia’s infrastructure is currently powering trading on Kana Trade, Gator Trade (developed by Pontem), SwapGPT, and Hippo Labs.

PancakeSwap, BNB Chain’s top DeFi protocol, launched its AMM on Aptos. From late 2022 to mid-July 2023, PancakeSwap was Aptos’ top protocol by TVL. However, it now ranks fourth and has a 6% market share.

In late November, SushiSwap launched its V2 AMM on Aptos, making Aptos the first non-EVM that SushiSwap supports. So far, SushiSwap has gained almost $5 million in TVL for a 5% market share.

With the cost of not staking at around ~7% dilution, liquid staking protocols will be crucial to continue growing Aptos’ DeFi ecosystem. In late-October, liquid staking protocol Amnis Finance launched. It is now Aptos’ leading liquid staking protocol by TVL, with almost $33 million TVL, ahead of Thala’s liquid staking protocol at $23 million. To incentivize growth, Amnis launched a points program that will be used for the airdrop of its upcoming token.

Other projects and integrations include:

Consumer

Social

As noted above, Chingari is one of the most popular applications on Aptos by transactions and active addresses. Other live or upcoming social applications include TowneSquare and Overmind.

TowneSquare opened its waitlist in August 2023. It is building a mobile application that integrates with onchain activity and an identity system to power use cases such as an onchain social feed, ticketing, whitelists, affiliate marketing, and more.

Overmind is a platform that first featured Quests where developers can compete in coding challenges and bounties to earn rewards and onchain credentials. In partnership with the Aptos Foundation, Overmind has awarded developers around $50,000 through its quests. In mid-October, it opened early access to its open-source, decentralized social network and soon after launched “Race to Keys,” incentivizing developers to build out a friend.tech-esque Keys feature.

Gaming

Gaming has been another core consumer-related focus for Aptos Labs and Foundation. At the end of February, Aptos Labs released a gaming SDK for development on Unity, one of the most popular game engines. It’s also developing a module for verifiable onchain randomness, a crucial aspect of gaming and other applications. AIP-41 proposes creating a new Move module which will enable developers to easily add onchain randomness into their smart contracts. Once it’s implemented, there are plans to host a hackathon devoted entirely to building with onchain randomness.

Near the end of October, arcade-style shooter Aptos Arena launched with over $10,000 in prizes for the first week. It attracted over 12,000 addresses in the first weekend and is working on updates to address feedback from initial playing.

Aptos Labs and the Aptos Foundation have formed partnerships with several notable gaming companies and conglomerates, including:

Although many games are still in development, there are some that are live. Near the end of October, arcade-style shooter Aptos Arena launched with over $10,000 in prizes for the first week. It attracted over 12,000 addresses in the first weekend and is working on updates to address feedback from initial playing.

NFTs

Since launch, there’s been around $19.4 million in NFT trading volume, with most activity occurring soon after launch. Over 74% of that volume occurred through marketplace Topaz. Since its launch on August 1, Wapal has commanded 15% of volume share to Topaz’s 50%. Wapal is an NFT marketplace for “pro traders,” similar to Blur and Tensor, using a points system to incentivize activity, which will be used for an airdrop. Wapal recently launched a no-code NFT launchpad.

Inscriptions have brought an uptick in NFT volume. Since the launch of the APT20 standard on December 10, BlueMove has accounted for a 41% market share of NFT trading volume with $674,000 total volume.

NFTs on Aptos have also been used for several real-life use cases. KYD Labs is a Web3 ticketing company. It has powered ticketing for several live events, including music festival WonderBus and Korea Blockchain Week closing event SEOULBOUND. Aptos Labs partnered with NBCUniversal twice by launching digital fan experiences for the movies Renfield and The Exorcist: Believer. In early November, Aptos Foundation partnered with South Korean amusement park and media group Seoul Land. Seoul Land’s digital-focused subsidiary RXMeta will launch Bloom, a new festival experience powered by NFT ticketing and memberships on Aptos.

Near the end of August, Aptos Labs introduced the Aptos Digital Asset Standard (DA). The DA focuses specifically on NFTs, with features including dynamic NFTs, soulbound tokens, reduced gas costs, the ability for NFTs to own other NFTs, simplified airdrop support, and more.

Roadmap

Technical Improvements

As noted above, Aptos is designed to support frequent upgrades. To test and highlight several upgrades in the works, Aptos Labs recently published the findings from Previewnet, a testing environment designed to mirror Aptos mainnet. From November 6 to 21, the environment sustained over 9 billion transactions, 2 billion of which came during a 24 hour period. Peer-to-peer transactions per second peaked at 30,000, and over 1 million limited collection NFTs were minted in 90 seconds.

One of the primary upgrades that unlocked this higher performance was storage sharding, where the state storage is split into multiple RocksDB instances. Storage sharding is planned to go live on mainnet in 2024. There were also improvements to the execution engine, state synchronization algorithm, and network stack, which will be detailed by Aptos Labs later.

The improved NFT mint performance came from a new solution called Aggregators. Limited supply NFT mints traditionally require sequential execution due to their sequential naming (e.g., “Cryptopunk #4317”). Aggregators are a novel, conflict-free counter mechanism that enables essentially parallel execution of limited supply NFT mints. Aptos Labs recently published a blog post detailing Aggregators.

Aptos Labs is next targeting 100,000 TPS on its journey to exceed 1 million TPS. Beyond improvements tested in Previewnet, another major upgrade in development is a new consensus mechanism, Shoal. Shoal combines DAG and BFT qualities, reducing latency and increasing throughput.

Lastly, Aptos Labs is developing a new Aptos Move Compiler, bringing a set of new language features that aim to streamline coding processes and expand functionality. These include Receiver Style Function Calls, First Class Higher Order Functions, and User-Defined Abilities. Aptos Labs expects to implement most of the new features in the first half of 2024.

Growth Strategy

To grow the Aptos ecosystem, the Aptos Foundation has hosted hackathons and started grant programs. Aptos Labs and the Aptos Foundation have also formed many partnerships. Beyond those two entities, there are also other groups spearheading growth campaigns, such as Indian-based developer community Move Developers DAO (MDD). In general, many growth efforts are focused on the APAC regions.

In addition to the partnerships mentioned throughout the Ecosystem section, major partnerships have been formed with:

Hackathon and grant initiatives include:

Closing Summary

Aptos is a Layer-1 blockchain designed around the core tenets of scalability, safety, reliability, and upgradeability. It was born from Meta’s Diem and Novi projects, eventually launching in October 2022. Aptos’ technological stack features many novel aspects, including the AptosBFTv4 consensus mechanism, the Quorum Store mempool protocol, the Block-STM parallel execution engine, and the programming language Aptos Move.

Since July 2023, Aptos has averaged over 475,000 daily transactions and over 72,000 daily active addresses. Network activity has been driven by social media platform Chingari, oracle Pyth, a one-day communal art creation event on Graffio, and inscriptions. Initiatives to grow the ecosystem have included partnerships, hackathons, grant programs, and more, many of which target the APAC region.