Understanding StarkNet's Economic Model and the Reasons Behind Its Token Launch
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Understanding StarkNet's Economic Model and the Reasons Behind Its Token Launch
"Now is the time to advance network decentralization."
Navigating Web3 tides with focused insightsSource: StarkWare Blog
Compiled by: Gu Yu, Chain捕手
On the evening of July 13th, Beijing time, StarkWare, an Ethereum Layer2 scaling solution, published three consecutive blog posts revealing the token economic model of StarkNet and officially announced that the token will be launched in September this year, making it another major Layer2 solution to issue a token following Optimism.
StarkWare stated that the Alpha version of StarkNet launched on the mainnet in November 2021, and currently dozens of teams around the world are working on it. "It is now time to advance network decentralization—achieving liveness, censorship resistance, transparency, and inclusivity as required for an Ethereum L2."
To promote its decentralization, the StarkNet Foundation will be established and committed to maintaining StarkNet as a public good—a commodity or service available for use by all members of society. The foundation will encourage the development of bottom-up mechanisms enabling community decision-making on fundamental technical issues such as protocol upgrades, dispute resolution, and funding for public goods.
The StarkNet token will primarily serve three use cases: paying StarkNet network fees, staking to participate in network consensus, and community governance voting. The initial total supply of the StarkNet token is set at 10 billion tokens: 17% allocated to StarkWare investors, 32.9% to core contributors, and 51% to the Foundation. Additionally, the token features an inflation mechanism, where newly minted tokens and a portion of transaction fees will be awarded to core infrastructure developers and smart contract developers.
The mission of the Foundation is to maintain StarkNet as a public good—a resource or service accessible to all members of society. StarkNet is a permissionless infrastructure that should be available to everyone. It must be well-maintained to ensure safe and effective public usage.
Moreover, StarkWare also stated that it will later release community airdrop terms for distributing tokens to users, which will only reference snapshots taken before the announcement date and will filter out or exclude activities deemed abusive or gameable based on available information at that time.
Below is Chain捕手's detailed compilation of the StarkNet token economic model based on the StarkWare blog.
Why Issue a Token?
StarkNet has always been envisioned as a community-run protocol, but until now there was no clear way to define exactly who comprises this community. The token will allow supporters of the ecosystem to contribute to its success and thereby gain a role in its governance.
Furthermore, fair, open, and censorship-resistant services can only be achieved when multiple parties compete to perform the work powering decentralized services—and this can only be ensured if these participants are compensated for their roles as network operators.
Therefore, integrating a native token into the StarkNet network technology is necessary. Although payment censorship resistance could theoretically be achieved using existing non-native tokens (e.g., Bitcoin or Ethereum), we believe such an approach would fail over time to provide users with a unique sense of community and decision-making authority within the network.
A native token rewarding those who develop the network will drive the ecosystem to levels unattainable with non-native tokens. Moreover, if the token were non-native, economic shocks resulting from decisions made in other ecosystems could impact StarkNet’s services and its users and providers.
What Is the Initial Distribution of the StarkNet Token?
StarkWare has already pre-mined 10 billion tokens off-chain. It should be noted: these StarkNet tokens do not represent equity in StarkWare, nor do they confer any participation rights or claims on StarkWare. According to a schedule to be determined later by the community, the circulating supply of tokens will increase over time as the protocol mints new tokens. Therefore, the circulating supply may not remain fixed.
Detailed Allocation:
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17% — StarkWare investors
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32.9% — Core contributors: StarkWare and its employees and advisors, as well as StarkNet software development partners
StarkWare grants 50.1% to the Foundation, designated as follows:
- 9% — Community incentives — For individuals who have contributed work to StarkNet and supported or developed its underlying technologies, such as prior usage of the StarkEx L2 system. Crucially, all community allocations will be based on verifiable past work. For example, in the case of allocating tokens to past users of StarkEx, distribution will be determined by verifiable usage of StarkEx technology prior to June 1, 2022.
- 9% — Community rebates — Rebates in StarkNet tokens to partially offset the cost of joining StarkNet from Ethereum. To prevent gaming, community rebates will only apply to transactions occurring after the rebate mechanism is announced.
- 12% — Funding research and development efforts related to building, testing, deploying, and maintaining the StarkNet protocol.
- 10% — Strategic reserve to fund ecosystem initiatives aligned with the Foundation's mission.
- 2% — Donations to respected institutions and organizations such as universities and NGOs, decided upon by StarkNet token holders and the Foundation.
- 8.1% unallocated — Reserved within the Foundation to further support the StarkNet community through methods determined by the community.
To align the long-term incentives of core contributors and investors with the interests of the broader StarkNet community and to follow conventions of decentralized ecosystems, all tokens allocated to core contributors and investors will be subject to a four-year linear vesting period with a one-year cliff.
Is There a Way to Obtain StarkNet Tokens?
The short answer is yes—but there are no shortcuts to receiving tokens. The StarkNet token distribution, along with its fee market and new minting design, prioritizes developers of core infrastructure and dApps, as well as others contributing to the security and health of the ecosystem.
If you are a developer who has written software for StarkNet infrastructure or smart contracts that are genuinely valued and used by StarkNet end-users, you can expect to automatically receive tokens via the protocol. One of several safeguards against gaming this mechanism is that fees received by developers will be strictly lower than what users pay.
Developers may also receive token grants for work involving the development, testing, and maintenance of the StarkNet protocol.
If you are an end user, use StarkNet—but only when it meets your needs today. Use it for transactions and applications you value, not in expectation of future rewards of StarkNet tokens. When community incentive terms are announced, they will only consider snapshots taken before the announcement date and will filter out or exclude uses considered abusive or gameable based on available information. When rebate policies are defined, they will never apply retroactively to transactions that occurred before the rebate program was announced—so transacting today in anticipation of future rebates is futile.
What Are the Use Cases of the StarkNet Token?
The StarkNet token will become the mechanism for operating the network (fees), securing and maintaining the network (consensus participation), and determining its values and strategic direction (governance).
Transaction Fees: Currently, fees on StarkNet are paid in ETH. Going forward, however, the project expects fees to be paid exclusively in the native StarkNet token. To support good user experience, automated and decentralized on-chain mechanisms will allow users to pay fees in ETH.
Staking: Certain services critical to the liveness and security of StarkNet may require staking of StarkNet tokens. These services may include sequencing, achieving temporary L2 consensus before L1 finality, STARK proof generation, and data availability provisioning. These services are expected to become decentralized in 2023.
Governance: Proposals to improve StarkNet will require a minimum token holding threshold. Any changes to the protocol that affect StarkNet’s liveness, security, and maintenance will require voting, either directly or via delegation. For example, all major updates to the StarkNet operating system will require approval from token holders.
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