Understanding Aleo: A Comprehensive Overview

From messari by Drexel Bakker

Key Insights

Introduction

The rise of smart contract-enabled blockchains has enabled the development of unique decentralized applications and increased transparency in financial transactions. However, although transparency is beneficial for some use cases, the need for onchain privacy has also grown. This has given rise to an influx of applications and blockchains prioritizing privacy through the implementation of cryptographic primitives such as zero-knowledge proofs, ring signatures, and multi-party computation (MPC).

Aleo  is a privacy-focused Layer-1 (L1) blockchain designed to enhance scalability and security through zero-knowledge proofs (ZKPs). Aleo combines its unique Coinbase Puzzle and AleoBFT mechanisms to verify ZKPs and validate transactions. This enables validators to verify the validity of transactions without knowing potentially sensitive information such as the addresses involved in a transaction or the amount transacted. These privacy components create an advantageous ecosystem for developers looking to build privacy-focused decentralized applications (dApps).

Background

The idea of Aleo was conceived in 2018 with the  Zexe whitepaper , which proposed extending zero-knowledge-proof technology to a smart contract-enabled blockchain. Howard Wu, co-author of the whitepaper, along with Sean Bowe, Alessandro Chiesa, Matthew Green, Ian Miers, and Pratyush Mishra, the majority of which would go on to develop and launch Aleo Systems, now known as Provable Inc.

The first  Aleo testnet  began in 2020 with the launch of Aleo Studio and the Leo programming language. In August 2021, Aleo held a  Setup Ceremony  that featured over 2,200 global participants in an MPC ceremony similar to the one conducted by Zcash. The Setup Ceremony laid the foundation for Aleo’s universal, inner, and outer setups. A more detailed explanation of how MPC ceremonies are used to build the randomness required for zkSNARKs can be found  here .

Testnet 2  was launched in 2021 and enabled provers to begin producing ZKPs and earning Aleo credits. The team also transitioned from vanilla Nakamoto consensus to ASERT, fixing a consensus issue.

Testnet 3  began in 2022 and introduced Aleo’s unique AleoBFT consensus algorithm with a work-based compensation system for provers. It also enabled the development and deployment of ZK programs, Aleo’s smart contracts, for users to interact with. Testnet 3 also introduced two new incentive programs, the  Prover Incentives Program , which rewarded provers with Aleo credits for generating ZK proofs for the Coinbase Puzzle, and the  Deploy Incentives Program , which rewarded developers that deployed applications to Aleo.

In December 2023, the  Aleo Network Foundation  was formed to help guide and support Aleo while operating independently. As part of this change, Alex Pruden, the former CEO of Aleo, transitioned into the role of the Executive Director of the Aleo Network Foundation. The Foundation’s key initiatives are to support and educate developers through grant programs and product incubation. The Foundation also aims to facilitate the governance of the Aleo protocol through the cultivation of a dedicated technical advisory board and the implementation of the Aleo Request for Comment (ARC) system.

In September 2024, Aleo  mainnet went live . At launch, developers were able to begin permissionlessly deploying applications leveraging Aleo’s native privacy features. As part of the mainnet launch, the ALEO token  was deployed . ALEO is used to pay for transactions and blockspace on Aleo, incentivize and reward provers and validators, and enable tokenholders to participate in governance. Over 350 teams have already started building on the Aleo network, exploring use cases from private identity verification to complex decentralized games.

Technology

Aleo employs a unique mechanism known as  Proof-of-Succinct-Work  (PoSW) in combination with a Byzantine Fault Tolerant (BFT) consensus protocol called AleoBFT. In this dual system, provers are responsible for solving cryptographic puzzles to produce zero-knowledge proofs (ZKPs), which are then verified by validators. The separation of roles ensures both privacy through zero-knowledge proofs (ZKPs), and network security, allowing Aleo to achieve scalable, decentralized consensus without sacrificing user privacy.

Proof-of-Succinct-Work (PoSW)

PoSW  is Aleo's novel adaptation of Proof-of-Work (PoW), designed to address the specific needs of a privacy-centric blockchain. In traditional PoW systems like Bitcoin, miners solve cryptographic puzzles to validate transactions and secure the network. However, PoSW extends this idea by integrating zero-knowledge cryptography, allowing provers to solve puzzles and generate zero-knowledge proofs without revealing the underlying transaction data.

Role of Provers

Provers  are responsible for generating zero-knowledge proofs that validate the correctness of a transaction or computation. In the context of Aleo, these proofs are used to ensure that transactions are valid while keeping the transaction data completely private. By solving computational puzzles, known as  Coinbase Puzzles , provers are rewarded with ALEO tokens, thus incentivizing the development of efficient hardware for proof generation.  Every epoch  (360 blocks), the Coinbase Puzzle changes, requiring provers to shift to computing the new Puzzles to continue having solutions accepted by the network. The generation of ZKPs requires significant  computational power , but provers are not required to stake or lock any ALEO tokens. Provers are compensated with ALEO tokens for each valid proof they generate and submit through the  CoinbaseReward . The CoinbaseReward is set to decrease by 10% annually until year 9, when it will be set at a fixed rate.

ZKPs and Privacy

Zero-knowledge proofs  (ZKPs) are cryptographic methods that allow one party (the prover) to prove to another party (the verifier) that a statement is true, without revealing any additional information beyond the truth of the statement. In Aleo’s architecture, provers generate cryptographic proofs to validate transactions, ensuring their correctness without revealing sensitive details, such as the amounts transferred or the identities involved. This feature is critical in Aleo’s architecture, as it enables privacy-preserving dApps where the execution of smart contracts can be verified without exposing the inputs or outputs of the contract. ​

AleoBFT: The Consensus Layer

AleoBFT  is a Byzantine Fault Tolerant (BFT) consensus protocol. While PoSW handles the generation of proofs, AleoBFT coordinates the agreement among validators to maintain the integrity of the blockchain. To finalize a block, a supermajority of validators must agree that the block is valid.

Role of Validators

Validators are critical participants in Aleo’s consensus process and are responsible for producing blocks, validating transactions, and securing the network. After provers generate zero-knowledge proofs, validators must confirm the validity of these proofs before adding transactions to the blockchain. Aleo Validators are required to run  snarkOS  software and self-stake a minimum of 100 ALEO. To be selected for the active validator set, validators must have a combined (self-staked + delegated) 10 million ALEO. Validators can set a commission rate on rewards shared with delegates. Stakers that have the minimum required  10,000 ALEO  can delegate to validators via a “bond_public” transaction. ALEO tokenholders that have less than the required delegation minimum, or lack the required hardware to run a validator can delegate ALEO tokens to existing validators through liquid staking protocols like  Pondo  and  BetaStaking . Validators earn ALEO tokens for producing blocks in the form of a 23.8 ALEO base block reward as well as 1/3rd of the Coinbase Reward and any transaction priority fees associated with the produced block.​ Aleo has set a theoretical maximum of  200 validators . As of Nov. 26, 2024, there are 16 ALEO validators with a  combined total stake  of 987.90 million ALEO (61.7% of the total token supply).

Leo Language

Leo  is a purpose-built zero-knowledge programming language designed for building private applications using zero-knowledge proofs. It focuses on privacy by default, ensuring that data remains confidential while enabling decentralized applications (dApps) on the Aleo network. Leo's Rust-based compiler generates cryptographic proofs, converting high-level code into zero-knowledge circuits. The language offers an imperative syntax, facilitating the development of complex cryptographic applications without deep cryptography expertise. The language offers a familiar imperative syntax, a built-in testing framework, and additional tooling facilitating the development of complex cryptographic applications without deep cryptography expertise. Significant effort has been invested in formally verifying the compiler to ensure programs are correct and safe. Leo simplifies building privacy-focused  programs  and dApps on Aleo.

Aleo Virtual Machine

The  Aleo Virtual Machine  (AVM) is a specialized execution environment designed for zero-knowledge applications within the Aleo blockchain. It uses a register-based architecture to handle instructions that transform high-level code into zero-knowledge proofs, ensuring privacy-preserving computation. AVM’s operations compile into Rank-1 Constraint Systems (R1CS), forming cryptographic circuits processed through the zkSNARK-friendly  Varuna algorithm . The Leo programming language is fundamental in this, compiling private-by-default applications directly into AVM bytecode. The AVM is an infinite-register machine with built-in cryptographic primitives. By design, the AVM supports the record model (ref ZEXE paper), which facilitates private and scalable smart contracts, in which data is owned and encrypted to a user address and can only be accessed by the owner of the address.

To validate program execution without revealing data, Aleo nodes each run an instance of the Aleo Virtual Machine. The consensus mechanism ensures that the VM states are in sync. The underlying cryptographic primitives (zkSNARKs) allow validators to secure transactions while upholding user privacy. Each instruction follows the privacy-focused constraints that make zk applications feasible on Aleo, ensuring all program states are maintained without compromising user confidentiality.

Aleo SDK

The  Aleo SDK  provides developers with a set of tools to build ZKP applications. It includes JavaScript and TypeScript packages that enable web applications to interact with Aleo’s ZKP protocols. Developers can use Create-Aleo-App to set up zero-knowledge apps quickly with popular frameworks like React. The SDK also includes Aleo-Wasm, which compiles Aleo programs into WebAssembly for browser and NodeJS environments. The SDK supports Python integration, allowing developers to run machine learning models as zero-knowledge programs. This empowers developers to create private, decentralized applications easily on Aleo.

ALEO Token

ALEO  is the native token of Aleo that is compatible with Aleo-native  wallets  like  Leo Wallet  and  Puzzle . Throughout the Aleo source code and onchain programs, ALEO tokens are referred to as credits. ALEO was launched upon Aleo’s  mainnet launch  in September 2024. Coinbase  supported  the launch of the ALEO token to provide retail and institutional clients with custodial and staking solutions. This support was noteworthy as centralized exchanges are often reluctant to support privacy-preserving protocols.

The initial total token supply of ALEO at launch was 1.50 billion with the supply inflating over time through the minting of ALEO tokens to reward validators and provers to an estimated 2.6 billion over the first 10 years. ALEO token reward emissions include the base block reward (23.8 ALEO) which goes to validators for being selected to participate in consensus and puzzle rewards which are issued to provers for solving Coinbase Puzzles. The overall emission rate will decrease from 13.5% in the first year to 1.6% by the tenth year.

Of note,  ARC-42  is slated to be implemented in December 2024 and will change the base block reward from a fixed 23.8 ALEO to a variable number based on the block time. This is intended to stabilize the inflation rate to a fixed 5% per calendar year, regardless of the average block time.

Tokenomics

The initial ALEO token distribution is as follows:

All recipients of initial allocations were subject to a 1-year lock-up period, with Early Backers, Strategic Partners, and Aleo Network Foundation allocations having a 2-year vesting period following the 1-year lock.

Token Functions

ALEO  is the network's native currency and is essential for accessing its computational resources. Users pay Aleo tokens to process transactions, and both provers and validators are rewarded with ALEO tokens for their work. At launch, Aleo had an initial total token supply of 1.5 billion, which is projected to grow to 2.6 billion over the next decade due to reward emissions.

Payment for Computational Services

The ALEO token facilitates the execution of decentralized applications (dApps) on the network by serving as the medium for  paying transaction fees . When users submit transactions or run smart contracts, they pay in ALEO tokens. These fees are critical because they compensate the nodes performing computational tasks, particularly provers, who execute resource-intensive ZK circuits. The network’s decentralized structure, relying on ZK-proofs, ensures that computational tasks can be done privately and securely, and the token provides the necessary economic incentive for these activities. By functioning as a native currency for accessing Aleo’s private computation and data privacy services, ALEO tokens ensure a sustainable economy for the network's operation.

Validator and Prover Rewards

Validators and provers play essential roles in securing the Aleo blockchain, and the ALEO token serves as the  reward mechanism  for their services. Validators confirm the validity of transactions and help maintain consensus within the network. Provers, on the other hand, generate cryptographic proofs in zero-knowledge, which are necessary for verifying computations without revealing sensitive data. Both validators and provers are compensated in ALEO tokens for their work, with validators earning part of the 23.8 ALEO block reward as well as 1/3 of the coinbase reward and any priority transaction fees. Additionally, provers earn CoinbaseRewards for creating valid proofs.

Of note,  ARC-42  is slated to be implemented in December 2024 and will change the base block reward from a fixed 23.8 ALEO to a variable number based on the block time. This is intended to stabilize the inflation rate to a fixed 5% per calendar year, regardless of the average block time. The protocol is designed to balance rewards between validators and provers to incentivize decentralized participation in both critical functions, ensuring the network remains both secure and scalable as more users interact with its privacy-preserving applications.

Staking

Staking  is a core function of the Aleo token, allowing users to contribute to the network’s security by staking their ALEO tokens with validators. By doing so, token holders delegate their ALEO to validators, who then use these staked tokens to participate in the consensus mechanism and validate blocks. Validators with a higher combined (self-staked + delegated) stake have a better chance of being selected to validate the next block, however, all validators in the active validator set earn ALEO tokens from the base block reward as well as 1/3rd of the Coinbase Puzzle reward and any priority transaction fees associated with the produced block. Stakers that have the minimum required 10,000 ALEO can delegate to validators via a “bond_public” transaction. Stakers that don’t meet the 10,000 ALEO minimum can stake any amount of ALEO through the multiple third-party staking and liquid staking protocols built on Aleo, including  Staking.xyz ,  Pondo.xyz , and  Betastaking . Stakers receive rewards based on their contribution, minus a commission rate set by the selected validator.

Governance

ALEO tokens empower their holders to actively participate in the  governance  of the Aleo network through voting rights. Proposals that become an Aleo Request for Comment (ARC) are moved to Aleo’s  voting platform  for voting by ALEO holders. Token holders can vote on changes to the network’s protocol, including upgrades, modifications to fee structures, or changes in staking parameters. Additionally, the ability to vote incentivizes long-term engagement from token holders, as the network’s future direction is directly influenced by those who hold ALEO tokens.

Fundraising

As seen on Messari  Fundraising Data , Provable has raised approximately $298 million across three rounds.

Series A: On April 20, 2021, Provable  raised  $28 million in a Series A round led by Andreessen Horowitz with participation from Coinbase Ventures, Dekrypt Capital, Galaxy Ventures, Placeholder VC, Polychain Capital, Scalar Capital, Slow Ventures, a_capital, zkValidator, Balaji Srinivasan, and Ethereal Ventures.

Series B and Extended Series B: On Feb. 7, 2022, Provable  raised  $200 million at a $1.45 billion valuation in a round led by Kora Management and Softbank Vision Fund 2. Additional investors in the round included Andreessen Horowitz, Sea Capital, Slow Ventures, Softbank, and Tiger Global.

Governance

In May 2024, the Aleo Foundation Governance Platform was launched as a space for users to propose ideas, vote on Aleo Request for Comments (ARCs), and discuss network improvements. Aleo governance proposals are discussed via  Discord  before being voted on via Aleo’s  voting platform . With the launch of the Governance Platform also came the launch of Aleo Governors, a new role in Aleo’s  Ambassador Program . Governors are responsible for reviewing proposals for compliance with Aleo’s Community Rules and Guidelines as well as moderating all channels in the Governance section of Aleo’s Discord.

Aleo’s Governance Discord channels are split into “Loose Thoughts” and “ARC Proposals”. Loose Thoughts can be created by any Aleo Ambassador and are managed by Governors. Once a proposal has been discussed, Governors can choose whether to move the proposal forward to become an ARC or close the proposal.

The ARC Creation Process

Aleo’s  governance system  relies on the Aleo Requests for Comments (ARCs) process, which serves as the mechanism for proposing and discussing changes to the network. ARCs are formal proposals that outline potential updates, features, or improvements to Aleo’s protocol. Anyone can create an ARC via the “Loose Thoughts” Discord channel, or by making a pull request to the ARC  GitHub repository .

The ARC process begins with an initial draft, which is typically submitted as a pull request on the Aleo GitHub repository. The community and Aleo’s technical advisors then engage in a public review on Discord, providing feedback, raising concerns, or suggesting improvements. This open review period is crucial for ensuring that the proposal is thoroughly vetted from both a technical and economic perspective.

Once the ARC has undergone sufficient review and discussion, it can be formally voted on by the ALEO tokenholders via the Aleo  voting platform . As of Nov. 26, 2024, there are two active proposals on the voting platform, including  ARC-20 , which intends to create a fungible token standard for Aleo, similar to the ERC-20 standard on Ethereum.

Notable past proposals that have been voted on and implemented include  ARC-100 , which set compliance best practices for developers, bridges, and validators, and  ARC-21  which created a new token standard to support different tokens deployed on Aleo.

The Role of the Aleo Foundation

The  Aleo Foundation  plays a pivotal role in managing the governance of the Aleo network. Established with the goal of overseeing and guiding Aleo's development in a decentralized and transparent manner. It manages the governance platform, facilitates discussions around protocol improvements, and supports various initiatives that enhance the ecosystem, such as developer grants.

One of the Foundation’s critical responsibilities is to curate and oversee governance proposals, which may include protocol upgrades, changes to tokenomics, or enhancements to the privacy and scalability features of the network. The Foundation's approach is to foster an open and inclusive environment where all stakeholders can contribute to shaping the future of Aleo. Importantly, while the Foundation provides structure and guidance, the ultimate decision-making power lies with the community, particularly the ALEO tokenholders.

In addition to its governance responsibilities, the Aleo Foundation has built a multidisciplinary team with expertise in compliance, a key area for privacy-preserving projects. The Aleo Network Foundation’s board includes experienced professionals such as Mike Mosier (Former Acting Director of the U.S. Treasury’s FinCEN), who brings deep knowledge of regulatory frameworks and compliance considerations. Expertise in compliance is especially crucial for privacy-focused projects, as they must navigate complex regulatory landscapes while maintaining the core principles of confidentiality and security.

Participation of ALEO Tokenholders

The final step in Aleo’s governance process is the participation of ALEO tokenholders, who hold the responsibility of voting on proposed ARCs. All tokenholders have the right to vote, with each vote weighted by the number of tokens held.

The voting process itself takes place on Aleo’s dedicated governance platform, where proposals are listed for review. Tokenholders can vote in favor, against, or abstain from each proposal. For a proposal to pass, it must reach a specific quorum threshold, ensuring that only proposals with sufficient community support are implemented.

State of the Aleo Ecosystem

Aleo’s ecosystem is rapidly expanding, with over 350 teams developing projects across various sectors, including privacy-preserving applications, games, and scalable payment solutions. With the Aleo mainnet now live, developers can deploy zero-knowledge applications that address real-world challenges like secure identity verification and compliant payments.

Identity

Compliance

DeFi

Staking

Infrastructure

Wallets

Bridges

Governance

Grants

Aleo's  Developer Grants Program  has deployed over $1 million to projects building on Aleo. Grants range from $10,000 to $200,000+ depending on the complexity and scope of the project. The program funds open-source initiatives that contribute to the Aleo ecosystem, such as privacy-preserving applications and tools.

Users or teams can apply for Blueprint grants to work on specified components needed in the Aleo ecosystem. Blueprint grants can range from $10k-$100k.

Aleo also offers Launch grants for teams wanting to build larger-scale projects on Aleo. To receive funding, teams must fill out the Launch Grant Proposal Template and have it accepted by the Aleo Foundation.

Audits

In addition to grants for development on Aleo, prior to the mainnet launch, the Aleo Foundation had  security audits  of the snarkOS and snark VM codebases. The audits were conducted by three third-party auditing services including Trail of Bits, NCC Group, and zkSecurity. A full list of audit findings and resolutions was published in December 2023.

The Aleo  Bug Bounty Program  was designed to enhance the security of Aleo's core protocol by encouraging ethical hackers and security researchers to identify and report vulnerabilities. The program, in collaboration with HackerOne and Bugcrowd, focuses on Aleo’s snarkOS and snarkVM repositories. Rewards range based on the severity of discovered bugs, using industry-standard scoring systems. With an initial reward pool of $500,000, Aleo aimed to ensure the platform’s security ahead of its mainnet launch. Ethical hackers can participate via HackerOne and soon Bugcrowd.

Closing Summary

In conclusion, Aleo is a permissionless, privacy-preserving, and programmable blockchain that’s live on mainnet. Leveraging zero-knowledge proofs, Aleo offers a scalable and secure solution for transaction verification, while its dual-consensus mechanism—incorporating PoSW and AleoBFT—ensures both network integrity and user privacy.

Since the launch of its mainnet, Aleo has seen the development of over 350 projects, highlighting the platform’s growing ecosystem. The comprehensive tokenomics structure, governance framework, and developer grant programs all contribute to fostering innovation and ensuring long-term network sustainability. Aleo aims to lead the way in enabling decentralized, compliant, privacy-preserving solutions that can support real-world applications in finance, identity management, and beyond.

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