One of the principles of the Armenian alphabet is that one sound corresponds to each letter. Only letter Ու (u) is an exception. This letter is a combination of two letters – Ո (vo) and Ի (vyun). Ււ (“vyun”, although, there was also another variant of its name – “hyun”) is a letter from the original Armenian alphabet. Its numerical value is 7000. Most researchers are of the opinion that letter Ւ was derived from the Greek upsilon (Y).
The ancient forms of these two letters are almost identical. Besides, they have the same position in the alphabet, and in the Armenian transcription of Greek words upsilon always conformed to “vyun”. Early examples of vyun had strict outline – . Hrachya Acharyan believed that this form was better than the later form Ւ, because it could not be confused with letter Ի [i]. Over time, the small letter ւ was formed from the ancient vyun . It is believed that initially Ւ and Վ communicated different sounds: Ւ denoted a sound like the English [w], as in the word “water”, while Վ – sound [v]. French linguist Antoine Meillet wrote: “Regarding letters Ւ and Վ, I am confident that they used to denote different sounds, otherwise the author of the alphabet would not have created these two different signs”. Academician Nikolai Marr was of a similar opinion: “There seem to be two letters – Վ and Ւ, which communicate the same sound [v]. Actually, these are two different values also with respect to sound expression: Վ is a consonant that corresponds to the Russian [v], while Ւ is a semivowel sound.” Over time, this distinction faded, although both letters traditionally retained the mode of writing, differing from each other mainly by the position in the word.
This situation persisted until the reform of 1922, when “vyun” was replaced in writing by Վ, while in the alphabet its place was taken by a digraph (a combination of two letters) Ու [u]. Why, having created a separate sound for every phoneme, did Mashtots ignore [u]? Probably, the reason lies in the Greek language, in which this sound can be produced by means of combining letters o micron and upsilon – ου.The Armenians tried to join Ու into one sound: in manuscripts we can see different patterns of Ու in form of a ligature, but it did not survive, since it was the exact copy of letter Ռ (rr) and caused confusion.
See more at Aram Khachaturians "Armenian Alphabet. History and Symbolism" book