Warren Buffet once said, “The key to investing is … determining the competitive advantage of any given company and, above all, the durability of that advantage.” Applying this to crypto, blockchains attempt to set themselves apart through speed, costs, decentralization, security, and scalability.

One project that excels in these areas is Aptos.

Despite Aptos’ highly criticized tokenomics and young decentralized finance (DeFi) ecosystem, the chain’s fundamentals have never been so solid.

Aptos is a Layer 1 (L1) blockchain with a focus on speed and security. The network can process up to 160,000 transactions per second (TPS) with subsecond finality, making it one of the fastest layer 1 blockchains.

It’s safe to say that Aptos’ tech isn’t the problem. The challenge Aptos faces is that it currently sits in limbo: not famous enough to be known by all of retail yet and not embraced by the broader developer community.

Still, Aptos Labs and Foundation are constantly improving the network and forming strong partnerships, so there seems to be light at the end of the tunnel.  

But, for APT holders, one question remains: Can the demand for APT overcome the perceived tokenomics mistakes, over the next few years?

Let’s explore the current state of Aptos to see if it deserves a spot on your watchlist.

Project Overview

Aptos is a delegated proof of stake (dPOS), L1 network that launched on mainnet in early 2022.

Originally known as Diem, Aptos emerged from a blockchain project developed by Meta (formerly Facebook) to streamline global payments. However, Meta decided to discontinue Diem due to concerns surrounding financial regulation.

Following this decision, former Meta employees Mo Shaikh and Avery Ching developed Aptos to continue addressing the challenges faced by public blockchains.

Aptos Labs secured a hefty $350 million in funding from investors, including FTX Ventures, Jump Crypto, Binance Labs, and others.

Core Team

Mo Shaikh, Aptos Labs CEO and Co-founder, brings a wealth of experience from his previous roles. Notably, Shaikh led Consensys strategy and consulted the World Economic Forum on their global blockchain strategy including central bank digital currencies (CBDCs).

Shaikh also consulted sovereign wealth funds, energy, and telecom companies with BCG’s private equity practice, before working in Strategic Partnerships for Diem at Meta.

Aptos Labs’ CTO and Co-founder, Avery Ching, started his career as a Principal Software Engineer at Yahoo!

After leaving Yahoo, Ching was the Tech Lead of Meta's crypto platform Diem/Libra for over a decade, overseeing blockchain development, wallet infrastructure, and strategy.

Alexander Spiegelman, Head of Research at Aptos Labs, is a member of Aptos’ founding team. Formerly, Spiegelman was a Researcher for VMware.

Put these chads all together and you have all the fixings for a top-notch L1, and the industry connections to put it to good use.

Move Programming Language  

Move, Aptos’ native programming language, allows developers to create safe and reliable smart contracts more efficiently than general-purpose programming languages like Solidity or Rust.

If you’re familiar with the Sui blockchain, you probably already know there are two flavors of the Move programming language: Sui Move and Aptos Move.

Both the Mysten Labs (Sui) and Aptos teams comprise former Meta employees who contributed to the Diem/Libra project. Recognizing the versatility of the Move language, they adopted it as the primary smart contract programming language for their respective projects.

Both Aptos Move and Sui Move are specifically tailored to their respective networks.

Here’s a comparison of Aptos Move, Sui Move, and other non-Move runtimes:

In line with Aptos’ architecture, Aptos Move offers flexibility, enabling developers to fine-tune features as necessary, while also prioritizing safety and verifiability.

Flexibility

The Move programming language supports first-class assets. This means an asset can be passed as an argument to a function or assigned to a variable, just like other variables in a programming language.

Since first-class assets are treated as data within the program, they can be stored in data structures, and passed as arguments, enhancing security at the language level.

In comparison, Ethereum ERC-20 tokens are treated more like values in a computer program rather than true assets, leading to potential security risks.

With Move, every transaction submitted by a user contains a Move script. This script can invoke procedures from any module, empowering developers to tailor their transactions by integrating various Move modules – Aptos smart contracts that define the lifetime, storage, and access pattern of every resource. This feature grants Aptos a considerable degree of programming flexibility.

Safety

Aptos' resource model prevents reentrancy attacks by guaranteeing that a resource can only be accessed by one execution context at a time.

The scarcity mechanism employed by Aptos prevents accidental duplication or dropping of structs, addressing the issue of double-spending.

Before on-chain deployment, Move is executed as bytecode, which is verified on-chain using the Move bytecode verifier.

The bytecode verifier examines smart contracts to ensure compliance with resource usage rules and other guidelines.

Verifiability

Aptos Labs' Move Prover provides an extra layer of verification for Move code by automatically validating smart contracts and detecting bugs.

The Move Prover checks if contracts meet user-defined specifications across all possible variable assignments, revealing inconsistencies when they occur. The verification process typically takes <30 seconds.

This ensures Aptos developers can focus on building their products without being overly concerned with security issues.

Aptos Architecture

Core components of Aptos’ architecture include:

• AptosBFT v4 consensus protocol
• Quorum Store
• Block-STM execution engine

These core components enable developers to create apps optimized for speed and security.

For users, Aptos offers an exceptional user experience (UX), boasting one of the lowest time-to-finality (TTF) times. Unlike transactions per second (TPS), which only measures the rate of transactions, TTF measures the time it takes for a transaction to become irreversible and finalized.

As of February 2023, Aptos is the second fastest public blockchain by TTF:

AptosBFT v4 consensus protocol

AptosBFT v4, Aptos' consensus algorithm, incorporates elements from Jolteon and VMware's HotStuff, enhancing the practical Byzantine Fault Tolerance (pBFT) for scalability.

It offers immediate finality, confirming transactions instantly, in contrast to Ethereum's need for multiple confirmations. AptosBFT enables processing up to 160,000 transactions per second with subsecond finality. All while cutting latency by 33% compared to HotStuff.

Block-STM

Aptos leverages Block-STM (Block-Software Transactional Memory) to run smart contracts in parallel, boosting transaction speed by assuming they won't conflict and verifying afterward (optimistic concurrency control).

If conflicts arise, it simply retries the affected transactions. In contrast, Solana and Sui use a cautious approach, sequentially processing transactions to prevent conflicts from the start.

Quorum Store

Quorum Store is the first deployed implementation of Narwhal, a DAG-based Mempool protocol.

Quorum Store decouples data dissemination from metadata ordering, allowing validators to disseminate data asynchronously in parallel.

The key idea behind Narwhal is that validators can continuously stream batches of transactions to one another in parallel. Then, when leaders propose blocks in consensus, they specify a set of batches to include in the block.

This reduces the amount of data that needs to be shared with each block proposal. Instead of listing and sending all transactions in each block, the leader can simply specify the batch identifiers (metadata).

Below is an overview of the high-level architecture of a validator pipeline:

• Mempool: Stores a collection of potential user transactions.
• Quorum Store: Fetches batches of transactions from Mempool, broadcasts them and generates proof of availability.
• Consensus: Retrieves proofs from Quorum Store, arrange them in order, and sends them to Execution.
• Execution: Utilizes Quorum Store to associate proofs with transaction batches and carries out their execution.

Network Stats & Market Position

~77% of Aptos’ total supply is currently staked across 132 validators, giving Aptos a Nakamoto Coefficient of 20. According to Nakaflow, the Nakamoto Coefficient is a measure of the smallest number of independent entities that can act collectively to shut down a blockchain.

A higher figure indicates a greater degree of decentralization – and security.

EVM blockchains hold the majority of DeFi’s market share, but this narrative is slowly changing as non-EVM L1s usually reach finality faster –offering a better experience.

Here’s how Aptos stacks up against other non-EVM L1s:

DeFi Ecosystem & Partnerships

Aptos TVL grew by 316% over three months, climbing from $122 million in January 2024 to $508 million in March 2024. This rapid growth was led by Aries Markets, Aptos’ leading money market, and Amnis Finance, the providers of amAPT, an LST.

At present, the network’s TVL sits at $3572m.

Some of Aptos' most notable apps include:

• Aries Markets - Aptos’ Largest Lending Market.
• Merkle Trade - On-chain perps including crypto, forex, and commodities.
• Thala Labs - Suite including CDP stablecoin, LST, and DEX.
• Econia Labs - Central limit order book (CLOB).
• Panora - Swap Aggregator and Derivatives.
• Concordia - Portfolio Manager offering AI/ML operated risk management.
• LiquidSwap – Suite including DEX, CLMM, and Bridge.

Furthermore, new apps like Joule Finance, a re-staking bridge, and VibrantX, a portfolio manager, are gradually helping to expand the ecosystem's use cases.

Aside from consumer DeFi, Aptos has also inked some top-notch partnerships:

• Aptos Ascend is a tokenization platform for institutions, developed in partnership with Microsoft, Brevan Howard, and SK Telecom, with strategic insights from Boston Consulting Group.
• Mastercard partnered with Aptos and other leading L1s for its Crypto Credential Program to establish common standards and infrastructure for consumers and businesses using blockchain networks.
• Google Cloud is partnering with Aptos on several initiatives including running an Aptos validator, an accelerator program, and a series of Google x Aptos Hackathons.

Tokenomics

Supply Side

Aptos’ $APT token has a total supply of 1.09B, with a circulating supply of 434m $APT (39% of the total supply).

At present, the Market cap of $APT is $3.7b, with a fully diluted value (FDV) of $9.4b. To put things into perspective,  Solana has an FDV of $82.2b, which is 9.6x more than Aptos’.

The current inflation rate of $APT for 2024 is 7%, and it will reduce by 1.5% each year until reaching 3.2% tail inflation – to stimulate long-term liquidity.

$APT’s total supply is allocated to the following categories:

• Community - 51.02% (24.5% unlocked at TGE, 120-month vesting)
• Core Contributors - 19.00% (1-year cliff, 35-month vesting)
• Foundation - 16.50% (3% unlocked at TGE, 120-month vesting)
• Investors - 13.48% (1-year cliff, 35-month vesting)

Aptos’ tokenomics may seem straightforward at first glance, but a closer look reveals complexities with both positive and negative implications.

This has sparked various criticisms from Crypto Twitter (CT), including the following claims:

• APT is heavily controlled by “Insiders” (venture capitalists (VCs) & core contributors)
• The community allocation is controlled by Aptos Labs

Let's address these concerns.

APT is heavily controlled by VCs

~32% of Aptos’ total supply is allocated to “insiders” (investors & contributors), set to unlock over 4 years (1-year cliff, 3-year vesting). In contrast, the remaining 68% of tokens for the Community and Foundation, are unlocked over 10 years.

To put things into perspective, in another 2 years, insiders will be fully vested. The rest of the supply, going to the community and the foundation, won’t be fully unlocked for another 8 years, in 2032.

This information suggests that Aptos isn’t necessarily “controlled” by VCs. But, the vesting duration of insider tokens compared to the rest of the supply, is lopsided –raising a slight red flag.

Here’s why: If Insider tokens are fully unlocked 6 years before the rest of the supply, it allows them to sell into the open market and take advantage of the lower circulating supply (almost a story of high FDV/ low float).

Yet, we don’t know what investors will do. In 2026, Investors and contributors unlocked tokens will make up 36% of the circulating supply. Still, this 36% will have been vested over the previous 4 years, so sell pressure, if any, is spread over time. The hope is that the demand for $APT will help balance things out over time.  

But where people start to get really angry is when they realize that locked tokens can be staked, allowing insiders to earn 7% on their locked $APT! This, effectively, gives insiders exit opportunities throughout their entire vested period.

Aptos Labs controls the community allocation

Compared to other L1s, Aptos has one of the biggest “community” allocations, at 51% of the total supply. But CT is often critical of the entities that control the tokens.

80% of the community allocation (410m $APT) is held by the foundation and the remaining supply is with Aptos Labs, according to Aptos’ Tokenomics documentation.

Regardless of which entity holds the funds, most community allocations of blockchain projects are held by its foundation. This allows teams to plan initiatives like airdrops and ecosystem grants.

Aptos’ tokenomics documentation may not be as comprehensive as a project like Optimism, but it still provides adequate information.

With that being said, it seems Aptos is directing funds toward the following categories:

• Developer incentives (Grants) - Aptos provides grants and funding to ecosystem projects. Past projects funded by Aptos include Securitize, Econia Labs, Joule Finance, IO.net, Chingari, and more.
• Developer adoption (Hackathons) - Aptos has hosted various global hackathons and summits in countries like the Netherlands, Korea, and more.
• Customer acquisition (Airdrops, App incentives) - Aptos conducted an airdrop in 2022 and distributed 4.6% of the community supply (510.2M APT, 51% of the total supply), to testnet users. Additionally, the Aptos ecosystem is preparing for more airdrops that can possibly happen by the end of Q2 or early Q3 2024.

Demand Side - token use cases

Like many other L1s, the primary demand for tokens, beyond speculation, arises from network app usage, where gas fees represent revenue.

As more users transact on the network, gas fees accumulate. In the case of Aptos, these gas fees are burned, following a model similar to Ethereum's.

Aptos must ensure a sufficient number of users engage with the network to generate fees for burning. This is crucial for ensuring long-term profitability for $APT holders and overcoming inflation from validator rewards.

As shown by its TTF, Aptos offers one of the best UXs, allowing for snappy transactions with <$0.1 gas fees.

But why would people want to use the network?

Currently, liquid staking tokens (LSTs) offer token holders a method to earn network rewards without the overhead of setting up a validator and locking up their capital. Using these allows you to participate in DeFi apps without the worry of debasement from token inflation.

The top LSTs on Aptos are:

• thAPT - Thala Labs
• tApt - Tortuga Finance
• amAPT – Amnis Finance
• stAPT – Ditto Finance

Past liquid staking, the Aptos DeFi ecosystem has some unique apps.

Some of the network’s top DeFi protocols include:

• Thala Labs - Suite including CDP stablecoin, LST, and DEX
• Aries Markets - Aptos’ Largest Money/Lending Market
• Merkle Trade - On-chain perps including crypto, forex, and commodities

Aptos is also working to attract institutions through the Aptos Ascend platform. If Aptos succeeds in convincing institutions to tokenize items on their balance sheets and other assets, they can maintain steady demand, regardless of retail use.

Bull Case - why the token price could go up

Aptos has a few economic moats that can help it gain market share, and bring attention to the APT token. These advantages range from community aspects to technology.

Move Adoption

Developers seeking a language optimized for efficient smart contract development are likely to opt for Move and contribute to the expansion of Aptos' ecosystem.

Aptos Labs and Foundation are hosting global hackathons and summits to attract and foster a deeper developer community.

More developers mean more apps, which attract more attention and users, resulting in increased Total Value Locked (TVL), and so forth.

Movement Labs Partnership

One team capitalizing on the Move language and architecture is Movement Labs.

Movement Labs is building a network of Move-based blockchains by incorporating the security of Move and harnessing its parallel execution capabilities. This initiative also extends Move execution cross-chain, to new networks and environments.

At present, Movement Labs is developing the following blockchains:

• M1 = Avalanche Subnet (Aptos–Compatible)
• M2 = Layer-2 Celestia Rollup (Sui–Compatible)

M1 enables builders to natively tap into major liquidity providers and other EVM protocols through Avalanche Warp Messaging. Furthermore, any existing Aptos protocol can launch on Avalanche and inherit the liquidity and tooling for no extra cost.

Additionally, Movement Labs will support an embedded EVM interpreter MEVM—empowering EVM users to use the L2.

The team is gearing up for expansion with the Movement SDK, Movement CLI, Fractal, Hyperlane messaging infrastructure, and the Movement Shared Sequencer. These tools will ensure seamless interoperability between all Move-based environments and other non-Move networks.

Network Upgrades

Aptos Labs is always looking to enhance the performance and integrity of the network. The research team, led by Sasha Spiegelman, regularly conducts extensive research, including benchmarking tests for potential upgrades to Aptos. Previous research includes:

• Bullshark: A DAG-BFT-based consensus algorithm.
• Narwhal & Tusk: A DAG-based Mempool protocol, and a BFT consensus algorithm.
• Shoal: A framework for enhancing any Narwhal-based consensus protocol, significantly reducing latency, and eliminating the need for timeouts in deterministic practical protocols.

The Aptos team builds in public through on-chain governance. Any Aptos community member can create and vote on proposals.

Contributors suggest improvements through Aptos Improvement Proposals (AIPs) in forums and channels. If an off-chain AIP gains enough importance, an on-chain proposal can be created via the AptosGovernance module, where APT holders can cast votes.

Some of the most impactful AIPs that have significantly improved the network include:

• (AIP-66 ) Passkey Accounts - This AIP enables users to utilize passkeys and other WebAuthn credentials for transaction authentication via methods like Face ID or Touch ID. Passkeys are phishing-resistant, faster, and more secure alternative to passwords.
• (AIP-61 ) Keyless accounts - Securing an Aptos account relies on safeguarding the associated secret key, which is challenging in practice. To address this, Aptos created keyless accounts. Under the hood, keyless matches an OpenID login (like Gmail, GitHub, etc.) to your blockchain account using a zero-knowledge proof. This provides a simpler way for you to access your account.
• (AIP-17) Reducing Execution Costs by Decoupling Transaction Storage and Execution Charges - This AIP seperates storage space-related gas fees from execution and I/O gas fees. This separation allows for significant reductions in transaction costs, particularly for transactions with extensive execution and I/O dependencies.

Only Possible on Aptos (OPOA)

Aptos’ architecture allows developers to create apps with enhanced capabilities that offer a superior UX.

Specifically, Aptos’ Block-STM engine employs a distinctive approach to parallel execution, providing developers with an environment optimized for building intricate apps efficiently.

In contrast to Aptos, which employs optimistic concurrency control, Solana and Sui achieve parallelization through pessimistic concurrency. The latter approach restricts their ability to offer either atomic settlement or permissionless market and limit orders. Consequently, Aptos emerges as a network where developers can deliver experiences that are Only Possible on Aptos (OPOA).

A prime example of such a protocol is Econia Labs. Econia Labs is a central liquidity order book (CLOB) primitive, that allows users to place market and limit orders on-chain.

Some of Econia’s unique features include:

• Atomic Matching Engine - Within a single transaction, orders are matched, the book is updated, and the assets are routed.
• Hyperparallelization - Econia Isolates the data for different markets (trading pairs) into different memory regions to allow for multiple transactions to be processed at once.
• Asset-agnostic design - Asset-agnostic means users can trade advanced products like options or even leveraged perpetual futures.

Econia Labs’ code is also open-source, meaning projects can integrate Econia into their own apps to enable derivatives or leveraged securities. A number of protocols including Kana Labs, and Aries Market, have already integrated Econia’s CLOB engine within their native apps.

Chingari, an Indian social media platform is another example of an OPOA app. It started migrating to Aptos on July 6, 2023, in search of a reliable user experience following network outages on Solana in 2022.

Chingari allows you to earn $GARI tokens through engagement and content creation. These tokens can be used for tipping creators, enhancing content visibility, participating in governance, and more.

Aptos offers Chingari a reliable and fast environment to stream rewards to millions of users and process transactions with sub-second finality.

Institutional Partnerships

Newsworthy partnerships could continue to boost Aptos’ appeal with retail investors. Some of the network’s most recent partnerships include:

• Mastercard - Mastercard Crypto Credential is an initiative designed to establish common standards and infrastructure to ensure trusted interactions among consumers and businesses using blockchain networks. Partner L1 networks include Aptos, Solana, Avalanche, and more.
• Google Cloud - Google Cloud is running a validator node on Aptos, an accelerator program with the Aptos Foundation focused on supporting Web3 startups Google x Aptos Hackathon to support builders on Aptos, and a developer hackathon building on Aptos.
• Lotte Group- South Korean advertising firm Daehong Communications, a subsidiary of Lotte Group, has partnered with the Aptos Foundation for Web3-powered global expansion. This collaboration aims to establish a Web3 hub for Lotte, which manages about 90 business units. Daehong plans to introduce loyalty programs, NFT-based profile picture projects, and entertainment initiatives within Lotte Group’s Web3 hub.

Aptos Ascend (Microsoft, Brevan Howard, and SK Telecom Partnership)

Aptos is partnering with Microsoft, Brevan Howard, and SK Telecom, with strategic insights from Boston Consulting Group, to develop Aptos Ascend. Aptos Ascend is a tokenization platform built for financial institutions.

The platform offers an out-of-the-box tokenization solution with features including monitoring tools, access controls, ZK-enabled privacy, conditional transactions, and more.

Leveraging the Move language's inherent safety features and Aptos' high throughput capabilities, Aptos Ascend has the potential to appeal to numerous institutional players. This strategic advantage provides Aptos with a fallback option in case its DeFi ecosystem fails to attract retail.

Airdrops

51% of tokens are allocated to the community, marking one of the largest community allocations by an L1 blockchain. The community allocation could translate into several benefits for users, including:

• Retroactive Airdrops
• Developer incentives (grants = more apps)

In fact, ~4% of the community supply was retroactively airdropped to testnet users, in 2022. And Aptos is gearing up for yet another airdrop season.

Aptos’ “Ecosystem Fundamentals” Galaxe campaign concluded in April 2024, where users interacted with protocols on the network to earn NFTs. It’s likely NFT holders are eligible for the upcoming airdrop.

Also, several Aptos apps have announced points (retroactive airdrop) programs including, Aries Market, Aptin Finance, LiquidSwap, and more.

Bear Case - why the token price could go down

Investors Dump

The last token unlock for core contributors and investors (aka the insiders) is not expected until 2026. Token unlocks occur roughly every month, so the selling pressure resulting from these unlocks will be gradual over time.

However, you should consider that insiders are continuously earning staking rewards on these allocations, increasing the potential overhead sell pressure.

Aptos Fails to Grow DeFi Community

It’s clear Aptos is one of the fastest L1s, but fast transactions and low gas fees don’t matter if there aren’t worthwhile apps on-chain.  

Aptos' current suite of apps provides a great foundation, but the ecosystem as a whole leaves much to be desired.

As a result, other L1s, both EVM and non-EVM, dominate the market with larger user bases. Solana, for instance, leads in ecosystem development with diverse non-DeFi apps like GenysesGo and Helium Mobile, as well as high meme coin trading volumes, which attract retail users.

If Aptos fails to attract significant TVL or users, it risks losing ground to blockchains like Solana and Sui in the long run.

Wrap Up

Aptos is positioned to lead institutional tokenization and advance DeFi. Its distinct architecture sets it apart from other L1s, allowing apps to create unique experiences, like Econia Labs. This is particularly appealing to future users of Aptos Ascend, who seek a secure and efficient platform for asset tokenization.

Additionally, projects such as Movement Labs are taking the Move language and architecture, cross-chain. This could help enhance the liquidity and visibility of the Aptos ecosystem over time.

Potential $APT investors should consider the risks associated with insider influence regarding the $APT token. However, whether insiders will sell future unlocks remains uncertain.

Regardless, after 2026, >60% of the supply will be unlocked –helping to curb volatility–and the only remaining vesting tokens will be to the community and the foundation. These funds will likely go towards initiatives like airdrops, hackathons, and grants for new teams on Aptos, as they have in the past.

The ecosystem happens to be gearing up for a massive airdrop season. Aptos’ last Galaxe campaign ended in April, and several Aptos apps have launched points programs since then. To get involved you should take the following steps:

1. Get an Aptos Wallet (Pontem Wallet and Petra are great)
2. Onboard funds (there are several ways):
   1. Purchase APT using in-wallet on-ramping extensions including Moonpay and Stripe.
   2. Purchase APT on a centralized exchange (CEX) and send APT to your newly created Aptos wallet.
   3. Use the Layerzero bridge to transfer funds from other ecosystems (Ethereum, Solana, etc.) to Aptos.
3. Start making transactions on-chain. The Aptos projects with points (loyalty) programs include:
   1. LiquidSwap (swap tokens, and provide liquidity).
   2. Aries Market (lend & borrow tokens).
   3. Aptin Finance (lend & borrow tokens).
   4. Econia Labs (place limit & market orders).
   5. Amnis Finance (stake APT for amAPT and earn rewards).
   6. EthosX (long & short BTC, and ETH via OPerps).
   7. KanaLabs (swap tokens, place limit, and market orders).
   8. Mirage Protocol (long & short perps).
   9. SuperPosition (lend & borrow tokens).
   10. Echelon Market (lend & borrow tokens).

There haven’t been any official announcements on airdrop dates, but I suspect the airdrops might happen towards the end of Q2 or early Q3 2024. This is because Aptos released its first airdrop ~3 months after its final incentivized testnet campaign.

Either way, it’s encouraging to see experiments catching bids. Will Aptos usher in a period of un-ruggable applications and bring us securely into a cleaner crypto UX? Who knows. But one thing is for sure - completely ignoring the Move ecosystem would be a mistake.