Tonight, Ethereum Layer2 scaling solution StarkWare released three blog posts in a row to announce the StarkNet token economic model. It was officially announced that the token will be issued in September this year, becoming another leading Layer2 solution to issue tokens after Optimism.
StarkWare stated that the Alpha version of StarkNet was launched on the mainnet in November 2021, and currently, dozens of teams worldwide are dedicated to it. "Now is the time to promote decentralization of the network. It achieves the required activity, censorship resistance, transparency, and inclusiveness of Ethereum L2."
To promote its decentralization, the StarkNet Foundation will be established and dedicated to maintaining StarkNet as a public good - a commodity or service available to all members of society. The foundation will encourage bottom-up mechanisms for community decision-making on fundamental technical issues, such as protocol updates, dispute resolution, and public goods funding.
The StarkNet token will mainly have three use cases: paying for StarkNet network fees, staking to participate in network consensus, and community governance voting. The initial supply of StarkNet tokens is 10 billion, with 17% allocated to StarkWare investors, 32.9% allocated to core contributors, and 51% allocated to the foundation. Additionally, the token has an inflation mechanism, and a portion of newly minted tokens and transaction fees will be granted to core infrastructure developers and smart contract developers.
The mission of the foundation is to maintain StarkNet as a public good - a commodity or service available to all members of society. StarkNet is a permissionless infrastructure that should be available to everyone. It must be well-maintained to be safely and effectively used by the public.
Furthermore, StarkWare also stated that it will announce community terms for distributing tokens to users in the future. These terms will only consider snapshots taken before the announcement date and will filter and exclude usage that is deemed abusive and gamified based on the information available at that time.
The following is a detailed summary of the StarkNet token economic model based on StarkWare's blog.
Why issue tokens?
StarkNet has always been envisioned as a protocol run by the community, but there has never been a clear way to define the exact composition of that community. The token will allow supporters of the community to contribute to the success of the ecosystem and play a role in its governance.
In addition, fair, open, and censorship-resistant services can only be achieved when multiple parties compete to perform work that powers decentralized services, and only when these workers are compensated in their role as network operators.
Therefore, it is necessary to include tokens as part of the StarkNet network technology. While resistance to censorship can be achieved by using existing non-native tokens such as Bitcoin or Ethereum, we believe that this approach will fail over time and will not provide unique community and decision-making rights for network users.
Rewarding community members who develop the network with native tokens will drive the ecosystem to levels that cannot be achieved with non-native tokens. Additionally, if the token is a non-native token, economic impacts from decisions made by other ecosystems may affect StarkNet's services, its users, and providers.
What is the initial distribution of StarkNet tokens?
StarkWare has already minted 10 billion tokens off-chain. It is important to note that these StarkNet tokens do not represent equity in StarkWare nor provide any participation or claims to StarkWare. As per a schedule to be determined by the community later, the circulating supply of tokens will increase over time as new tokens are minted by the protocol. Therefore, the circulating supply may not remain fixed.
The specific allocation is as follows:
17% - StarkWare investors
32.9% - Core contributors: StarkWare and its employees and advisors, as well as software development partners for StarkNet
StarkWare grants 50.1% to the foundation for the following purposes:
9% - Community-defined - for those who work for StarkNet and support or develop its underlying technology, for example, by using the StarkEx L2 system in the past. It is crucial that all community terms are based on verifiable work performed in the past. For example, the allocation will be determined based on verifiable usage of StarkEx technology before June 1, 2022, for those past users of StarkEx to whom community terms are offered.
9% - Community rebates - refunds of StarkNet tokens to partially cover the cost of transitioning from Ethereum to StarkNet. To prevent gamification, community rebates only apply to transactions occurring after the announcement of the rebate mechanism.
12% - Funding for research and work on developing, testing, deploying, and maintaining the StarkNet protocol
10% - Strategic reserve for funding ecosystem activities that align with the foundation's mission.
2% - Donations to respected institutions and organizations, such as universities and non-governmental organizations, to be decided by StarkNet token holders and the foundation.
8.1% - Undistributed by the foundation, funds are in place to further support the StarkNet community, with specific methods to be determined by the community.
To align the long-term incentives of core contributors and investors with the interests of the StarkNet community and follow the conventions of decentralized ecosystems, all tokens allocated to core contributors and investors will have a linear vesting period of 4 years and a lock-up period of 1 year.
Is there a way to obtain StarkNet tokens?
The short answer is yes, but there are no shortcuts to receiving tokens. The distribution of StarkNet tokens and the fee market and new minting design prioritize core infrastructure and dApp developers, as well as others who contribute to the security and health of the ecosystem.
If you are a developer and have written software for the StarkNet infrastructure or smart contracts that are genuinely valued and used by StarkNet end-users, you can expect to automatically receive tokens through the protocol. One of the many safeguards to prevent gaming of this mechanism is that the fees received by developers will be strictly lower than the fees paid by users.
Developers may also receive token grants for their work in developing, testing, and maintaining the StarkNet protocol.
If you are an end-user, use StarkNet but only use it when it meets your needs today. Use it for transactions and applications that matter to you, rather than expecting any rewards of StarkNet tokens in the future. When community terms are announced, they will only refer to snapshots taken before the announcement date and will filter and exclude usage that is deemed abusive and gamified based on the information available at that time. When community rebate policies are formulated, they will never apply to transactions occurring before the announcement of the rebate, so expecting future rebates for transactions today is futile.
What are the use cases of StarkNet tokens?
StarkNet tokens will serve as mechanisms for operating the network (fees), maintaining and securing the network (consensus participation), and determining its value and strategic goals (governance).
Transaction fees: Currently, fees in StarkNet are paid in ETH. However, in the future, the project expects fees to be paid exclusively in native StarkNet tokens. To support a good user experience, automated and decentralized on-chain mechanisms will allow users to pay fees in ETH.
Staking: Certain services critical to the activity and security of StarkNet may require staking StarkNet tokens. These services may include ordering, achieving temporary L2 consensus before L1 finality, STARK proof services, and data availability provision. Decentralization of these services is expected to be achieved in 2023.
Governance: Proposals for improving StarkNet will require a minimum token holding threshold. All changes to protocols that are crucial for the activity, security, and maintenance of StarkNet will require direct or delegated voting. For example, all major updates to the StarkNet operating system will require approval from token holders.