What is Fuel Network? FuelVM & Tokenomics

What is Fuel Network?

Fuel is a modular execution layer 2 for Ethereum with high-throughput, low-cost transactions, parallel execution, and a unique UTXO model. Launched in December 2020, Fuel V1 was the first optimistic rollup on Ethereum to achieve Stage-2 security status, becoming fully managed by smart contracts.

On October 16, 2024, Fuel Ignition was introduced on mainnet as a high-performance Ethereum L2 rollup powered by the FuelVM, delivering over 600 transactions per second (TPS), fees as low as $0.0002, and 1-second block times, while leveraging Ethereum’s EIP-4844 data availability security.

Currently, Fuel supports over 80 dApps and handles between 100,000 to 200,000 daily transactions. Its distinct design enables unique use cases like intent-driven exchanges, real-time prediction markets, and automated market makers (AMMs) without smart contracts.

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How Does Fuel Work?

Fuel is a high-performance execution layer for Ethereum, utilizing a modular architecture to increase speed, scalability, and decentralization.

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Technical Innovations in Execution

Fuel's modular design optimizes execution, unlike monolithic chains that combine execution, consensus, and data availability, or modular chains focused solely on data availability.

• UTXO Model for Parallel Execution: Fuel employs the Unspent Transaction Output (UTXO) model, enabling parallel processing of non-conflicting transactions.
• Sway Programming Language: Fuel uses Sway, a blockchain-optimized language with Rust-like syntax, designed for secure and efficient smart contract development on the FuelVM.
• FuelVM Architecture: The Fuel Virtual Machine uses a register based design, optimizing computational efficiency and minimizing state usage to improve performance.
• Predicate Spending Conditions: Stateless predicates define spending conditions for native assets, facilitating efficient, conflict-free parallel execution.
• Ephemeral Scripting: Scripts in Fuel transactions act as the main logic controllers, capable of multi-contract calls and executing advanced transaction flows without persistent storage.

Infrastructure and Interoperability

Fuel's infrastructure focuses on efficient asset management and effective cross-layer communication, taking advantage of Ethereum's security model.

• Transaction Types: Fuel supports multiple transaction categories, including script execution, contract creation, and asset minting, suited for versatile blockchain operations.
• Cross-Layer Messaging: The platform supports messaging between Ethereum layer 1 and Fuel layer 2, ensuring interoperability for deposits, withdrawals, and arbitrary data transfers.
• Modular Security with Ethereum: Fuel’s rollup inherits Ethereum's security model, utilizing L1 for settlement and fraud-proof mechanisms to safeguard user funds and data integrity.
• Native Assets Integration: All assets in Fuel, including custom tokens, are enshrined at the protocol level, streamlining asset operations and removing reliance on third-party contracts.

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FuelVM Explained

FuelVM is an optimized virtual machine purpose-built for Fuel’s modular Layer 2 architecture. Its register-based design, unlike Ethereum’s stack-based EVM, enables direct register access, delivering faster execution and lower computational overhead.

The FuelVM incorporates elements from architectures such as RISC-V and Bitcoin scripts, offering a streamlined instruction set modified for blockchain-specific use cases.

Unlike other EVM chains, which enforce a state-heavy model, FuelVM's UTXO promotes state minimization through stateless primitives like predicates and ephemeral scripts, allowing for efficient parallel transaction processing and reduced computational overhead.

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FUEL Tokenomics

The FUEL token is integral to the Fuel Network, powering its decentralized sequencer, eliminating transaction fees for users, and enabling application-specific sequencing.

The total genesis supply of FUEL is capped at 10 billion tokens, with an annual inflation rate of 3%. Below is the allocation breakdown and vesting schedule and equitable distributions:

• Community Expansion (20%): 2 billion tokens allocated for incentives, campaigns, and community tasks, with immediate release.
• Ecosystem and R&D (15.5%): 1.55 billion tokens for sequencing network establishment and technological development, released immediately.
• Ecosystem and R&D 24 (15.5%): 1.55 billion tokens with a 24-month block-by-block linear release, used for staking rewards and ecosystem development efforts.
• Contributors 24 (6%): 600 million tokens for past and present contributors, vested over 24 months.
• Contributors 48 (9.8%): 980 million tokens for core contributors, vested over 48 months.
• Purchasers (33.1%): 3.31 billion tokens allocated to early purchasers from 2020 to 2022, with a 24-month linear vesting schedule.

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Fuel Airdrop and Points System

The Fuel Network has launched a comprehensive rewards program to incentivize early contributors and drive ecosystem growth. This initiative consists of two key components: the Fuel Points Program and the Fuel Airdrop.

Participants in the points program (currently in phase 2) can earn points by actively supporting the network through various activities. These points may later be converted into FUEL tokens, offering early supporters tangible rewards:

• Activity Points: Earned by deploying assets as liquidity providers (LPs) in qualifying applications, with multipliers applied based on the liquidity's usefulness to the ecosystem.
• Gas Points: Awarded at a rate of 5 points per dollar spent on transaction fees within the network.
• Passive Points: Accumulated daily for assets held in a Fuel pre-deposit smart contract, at a minimum rate of 1 point per dollar per day.

As part of its broader strategy, Fuel Network is also distributing 1 billion FUEL tokens (10% of the total supply) to over 200,000 wallets through an airdrop. This includes allocations on specific activities such as pre-deposits (28%), bridge usage (20%), and NFT interactions (12.5%).

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Funding

Fuel Labs, the company behind the project, has raised a total of $90.9 million across five funding rounds, including a $9.4 million public sale and $81.5 million in private investments.

The most significant funding round occurred in September 2022, where the company received $80 million at a $1 billion valuation in a strategic round led by Blockchain Capital and Stratos Technologies, with participation from major investors like CoinFund, Bain Capital Crypto, and The Spartan Group.

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Founders

Fuel was co-founded by Nick Dodson and John Adler, both pioneers in blockchain innovation with complementary expertise.

Nick Dodson, who began working with blockchain in 2013, is known for his foundational Ethereum projects like Boardroom and his deep experience in Solidity and EVM assembly.

John Adler, co-author of the original Optimistic Rollup whitepaper, brings unparalleled expertise in rollup design and data availability sampling.

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Final Thoughts

Fuel Network remains one of the most underappreciated blockchains, with a market cap of approximately $200 million and TVL below $40 million, despite its noteworthy advantages over EVMs.

Despite its innovations in UTXO parallelism, state minimization, and native account abstraction, market demand has yet to fully recognize its achievements.

To close this gap, the team's ambitious 2025 roadmap includes plans for interconnected L2s and Layer 3s, decentralized block-building, and introducing state rehydration for sustainable data handling.