In-depth Analysis of the StarkNet Token Economic Model: Issuance Philosophy, Distribution Mechanism, and Use Cases

Source: StarkWare Blog

Compiled by: Gu Yu, Chain Catcher

Tonight, Ethereum Layer2 scaling solution StarkWare released three consecutive blog posts announcing the StarkNet token economic model, officially stating that the token will be issued this September, making it another leading Layer2 solution to issue a token after Optimism.

StarkWare stated that the Alpha version of StarkNet launched on the mainnet in November 2021, and currently, dozens of teams worldwide are dedicated to it. "Now is the time to advance the decentralization of the network, which achieves the activity, censorship resistance, transparency, and inclusiveness required by 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 for use by all members of society. The foundation will encourage the development of bottom-up mechanisms for the community to make decisions on fundamental technical issues, such as protocol updates, dispute resolution, and public goods funding.

The StarkNet token will mainly have three use cases: paying StarkNet network fees, staking to participate in network consensus, and community governance voting. The initial issuance of the StarkNet token will be 10 billion, with 17% allocated to StarkWare investors, 32.9% to core contributors, and 51% to the foundation. Additionally, the token will have a minting mechanism, with a portion of newly minted tokens and transaction fees 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 for use by all members of society. StarkNet is an open infrastructure that should be accessible 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, which will only reference snapshots that occurred before the announcement date and will filter and exclude uses deemed as abusing and gaming the network based on the information available at that time.

Below is a detailed compilation by Chain Catcher based on the StarkWare blog regarding the StarkNet token economic model.

Why issue a token?

StarkNet has always been envisioned as a protocol run by the community, but there has not been a clear method to define the exact components of that community. The token will allow supporters of the community to contribute to the success of the ecosystem, thus playing a role in the governance of that ecosystem.

Moreover, fair, open, and censorship-resistant services can only be achieved when multiple parties compete to execute work that powers decentralized service, and this can only be guaranteed if these workers are compensated for their roles as network operators.

Therefore, having a token as part of the StarkNet network technology is necessary. While it is possible to achieve payment censorship resistance by using existing non-native tokens (such as Bitcoin or Ethereum), we believe this approach will fail over time and will not provide network users with a unique community and decision-making voice.

Rewarding community members who develop the network with a native token will drive the ecosystem to levels that cannot be achieved with non-native tokens. Additionally, if the token is a non-native token, the economic impacts of decisions made by other ecosystems may affect StarkNet's services and its users and providers.

What is the initial allocation of the StarkNet token?

StarkWare has minted 10 billion tokens off-chain. It is important to note that these StarkNet tokens do not represent equity in StarkWare, nor do they provide any participation rights or claims against StarkWare. According to a timeline to be determined by the community later, the circulating supply of tokens will increase over time as the protocol mints new tokens. 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 StarkNet software development partners

StarkWare grants 50.1% to the foundation, designated for the following purposes:

• 9%  ------Community stipulations------for those who work for StarkNet and support or develop its underlying technology, such as through past use of the StarkEx L2 system. Importantly, all community terms will be based on verifiable work performed in the past. For example, within the scope of providing community terms to past users of StarkEx, allocations will be determined based on verifiable usage of StarkEx technology before June 1, 2022.
• 9%  ------Community rebates------refunds of StarkNet tokens to partially cover the costs of joining StarkNet from Ethereum. To prevent gaming, community rebates will only apply to transactions occurring after the rebate mechanism is announced.
• 12%  ------Funding for research and work to develop, test, deploy, and maintain the StarkNet protocol
• 10% --- Strategic reserve for funding ecosystem activities that align with the foundation's mission.
• 2%  ------Donations to reputable institutions and organizations, such as universities and NGOs, decided by StarkNet token holders and the foundation.
• 8.1% unallocated------The foundation's unallocated funds are in place to further support the StarkNet community, with specific methods determined by the community.

To align the long-term incentives of core contributors and investors with the interests of the StarkNet community and to follow the practices of decentralized ecosystems, all tokens allocated to core contributors and investors will have a linear release period of 4 years and a 1-year lock-up period.

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 its fee market and new minting design prioritize developers of core infrastructure and dApps, as well as others who contribute to the security and health of the ecosystem.

If you are a developer and have 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 through the protocol. One of the many safeguards to prevent this mechanism from being gamed 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, please use StarkNet, but only when it meets your needs today. Use it for transactions and applications that you value, rather than expecting any rewards in StarkNet tokens in the future. When community terms are announced, they will only refer to snapshots that occurred before the announcement date and will filter and exclude uses deemed as abusing and gaming the network based on the information available at that time. When formulating community rebate policies, they will never apply to transactions that occurred before the announcement of the rebate, so transactions expected to receive future rebates today are futile.

What are the use cases for the StarkNet token?

The StarkNet token will serve as a mechanism 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, moving forward, the project expects fees to be paid solely using the native StarkNet token. 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, reaching temporary L2 consensus before achieving L1 finality, STARK proof services, and data availability supply. These services are expected to achieve decentralization in 2023.

Governance: Proposals to improve StarkNet will require a minimum token holding threshold. All changes to protocols that are critical to StarkNet's activity, security, and maintenance will require voting either directly or through delegation. For example, all major updates to the StarkNet operating system will require approval from token holders.