Why StarkWare Faces Backlash Over Token Design

Ethereum second layer scalability company StarkWare confirmed the rumors about the upcoming launch of the StarkNet token. The asset is aimed at enabling the project to operate a decentralized ecosystem and to create an effective mechanism to “direct its evolution”.

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The StarkNet is an Ethereum second layer scalability solution based on Zero Knowledge (ZK) Rollup technology. This provides decentralized applications (dApps) with “unlimited” scalability without compromising security, decentralization, and composability.

The StarkNet Token was designed to power and incentivized the key elements on this network. The announcement claims these are StarkNet’s users, operators, and developers.

In that sense, the company has implemented a fee structure and token minting mechanism to prevent “speculative manipulation”, with “largely automated” processes, and a track record of efficient functionality across other blockchains.

The announcement is very explicit about the important roles of Operators and Developers. Thus, these components of the StarkWare ecosystem will receive a portion of the StarkNet token.

For example, smart contract developers will be rewarded with a portion of the fees paid by users for leveraging L1 and L2 smart contracts. This process will be automated, according to the design explained above.

The more a project or smart contract provides value to the StarkWare and the StarkNet ecosystem, the more developers will be rewarded with a “larger portion of tokens allocated for this purpose”. The company clarified that the token allocation mechanism is “yet to be determined”, but they will make a big emphasis on preventing “gamification” and be transparent about this process.

Furthermore, the company said that the StarkNet token won’t have a fixed supply. On the contrary, the supply “will increase over time”. The minting schedule is also to be determined by the StarkNet community.

#StarkNet Alpha was launched on Ethereum Mainnet in November 2021. Now it’s time to advance its decentralization as demanded of an L2 on Ethereum. Here’s our decentralization proposal, introducing the StarkNet Token, and the StarkNet Foundationhttps://t.co/zk33gANsin pic.twitter.com/YTd0Uj5NbW

— StarkWare (@StarkWareLtd) July 13, 2022

The company claims it has minted ten billion StarkNet tokens. As seen below, these tokens will have the following allocation: 32.9% for “Core Contributors”, 50.1% to be granted by StarkWare to the recently created StarkNet Foundation, and a 17% for StarkWare investors.

The StarkNet Foundation token allocation will be split with 18% destined for Community Provisions and Community Rebates. These tokens will reward key community members and users “who performed work for StarNet”.

The latter is key in the entire allocation for the StarkNet tokens, the project is set at rewarding work and preventing people from speculating and “gamifing” the mechanism. As the announcement said there will be “no shortcuts to receiving tokens”. StarkWare said the following on its lockup and vesting periods:

To align long-term incentives of the Core Contributors and Investors with the interests of the StarkNet community, and following common practice in decentralized ecosystems, all tokens allocated to Core Contributors and Investors will be subject to a 4-year lock-up period, with linear release and a one-year cliff.

Some members of the crypto community disagreed with the token allocation claiming users and operators, allegedly two major components of the ecosystem, will not receive proper compensation. For StarkNet users, the company recommends the following in light of the upcoming token launch:

If you are an end user, use StarkNet — but only as it serves your needs today. Use it for those transactions and applications that you value, not in expectation of any future reward of StarkNet Tokens.

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At the time of writing, Ethereum (ETH) trades at $1,140 with a 7% profit in the last 24 hours.