The token economics of Starknet

Blockchains work through a combination of cryptography and economic incentives. Cryptography limits what actors in the system can do, for example, transactions must be validly signed to be included in the chain. Economic incentives encourage actors to voluntarily perform actions that maintain the network’s capabilities when spending their own resources, for example, miners or stakers actively publish new blocks to the chain because they can receive fees and new tokens as a reward. Blockchains are valuable because they are data structures maintained by diverse and, ideally, large groups of otherwise unaffiliated persons. This gives them resilience: Any one participant can disappear, but the data structure is preserved. This also gives them censorship resistance: No single person can unilaterally decide to forbid certain persons from using the network.

Starknet operates as a Layer 2 (L2) network on top of Ethereum. Today, Starknet achieves secure low-cost transactions by using the STARK cryptographic proof system to reduce the size of transaction data while preserving and verifying the integrity of that data. Still under development, Starknet will achieve resilience and censorship resistance by using a token, the Starknet token (STRK), to incentivize network participants to sequence transactions for users of the network and to ensure that there is a provably fair mechanism, a proof-of-stake mechanism, to determine who should sequence and submit a proof for the network blocks. A proof-of-stake mechanism might also be used to facilitate data availability solutions and other significant services required for network operations.

STRK is the mechanism for paying fees to enable operation of the network, maintaining and securing the network by enabling staking for consensus, and deciding on Starknet’s values and technology goals by voting for governance proposals.

Ten billion Starknet tokens were initially created by StarkWare in May 2022 and minted onchain on November 30, 2022.

The existing ten billion tokens have been or are planned to be distributed according to the following:

To align long-term incentives of the Investors and Early Contributors with the interests of the Starknet community, and following common practice in decentralized ecosystems, all tokens allocated to Investors and Early Contributors is subject to the following lock-up schedule, where percentages are based on the total token supply:

Through this lock-up period, token holders cannot transfer, sell, or pledge their STRK tokens. Delegation of voting is permitted with locked tokens and, when available, staking might also be permitted.

The total circulating supply of tokens is planned to increase over time with the minting of new tokens by the protocol, as staking rewards, block rewards, or other rewards associated with the staking process. Such minting will be made pursuant to a schedule that will be determined with the community at a later point, not before Starknet services are more decentralized. The supply in circulation might not, therefore, remain fixed. However, as long as StarkWare is the sole operator of the Starknet sequencer, there will be no issuance of new tokens for the purpose of block rewards. For more information, see A token-minting proposal to manage inflation.

Starknet is a developing decentralized protocol and the economic mechanisms described herein are subject to change based on decisions made by the larger community of Starknet builders and users. Starknet relies upon third parties to adopt and implement software and protocols as users and contributors of Starknet. It also relies, in whole or partly, on third parties to develop, supply and otherwise support it. There is no assurance or guarantee that such third parties will continue to participate in the network or that the network will continue to function as intended.

The technical documents provided herein describe certain planned and specified economic fundamentals of a digital asset, STRK. These materials are intended for informational purposes only and are meant to outline the usage and functionalities of the asset within Starknet. It is important to understand that the primary purpose of STRK is to pay for fees, provide a mechanism for securing consensus, and allow for decentralized governance on Starknet; it is not intended to serve as an investment.

Starknet relies upon third parties to adopt and implement the software and protocols as users of Starknet. It also relies, in whole or partly, on third parties to develop, supply and otherwise support it. As a Layer 2 network over Ethereum, Starknet also relies upon third parties maintaining and operating the Ethereum network. There is no assurance or guarantee that those third parties will complete their work, properly carry out their obligations, and/or otherwise meet anyone’s needs.

STRK, as the native token of Starknet, may be subject to the risks of the Starknet network, including, without limitation, the following: (i) the technology associated with Starknet may not function as intended; (ii) the details of the Starknet token economics including the total supply and distribution schedule may be changed due to decisions made by the consensus of participants of the Starknet network; (iii) Starknet may fail to attract sufficient interest from key stakeholders or users; (iv) Starknet may not progress satisfactorily and Starknet tokens may not be useful or valuable; (v) Starknet may suffer from attacks by hackers or other individuals; and (vi) Starknet is comprised of open-source technologies that depend on a network of computers to run certain software programs to process transactions, and because of this model StarkWare and the Starknet Foundation have limited control over Starknet.

Risks related to blockchain technology in general and Starknet in particular may impact the usefulness of Starknet, and, in turn, the utility or value of STRK. The software and hardware, technology and technical concepts and theories applicable to Starknet and STRK are still in an early development stage and unproven, there is no warranty that Starknet will achieve any specific level of functionality or success, nor that the underlying technology will be uninterrupted or error-free, and there is an inherent risk that the technology could contain weaknesses, vulnerabilities or bugs causing, potentially, the complete loss of any Starknet tokens held by Starknet users.

As with most commonly used public blockchains, STRK is accessed using a private key that corresponds to the address at which they are stored. If the private key, or the "seed" used to create the address and corresponding private key are lost or stolen, the tokens associated with that address might be unrecoverable and will be permanently lost.

Public blockchain-based systems, including Starknet and the underlying Ethereum network, depend on independent verifiers, and therefore may be vulnerable to consensus attacks including, but not limited to, double-spend attacks, majority voting power attacks, race condition attacks, and censorship attacks. These attacks, if successful, could result in the permanent loss of STRK.

Starknet, STRK, and blockchain technology are nascent, and there may be additional risks not described above or that may be new or unanticipated. We recommend only using Starknet or holding STRK if you are familiar with the technology and aware of the risks.

This document and its contents are not, and should not be construed as, an offer to sell, or the solicitation of an offer to buy, any tokens, nor should it or any part of it form the basis or be relied on in connection with any contract or commitment whatsoever. This document is not advice of any kind, including legal, investment, financial, tax, or any other professional advice. Nothing in this document should be read or interpreted as a guarantee or promise of how the Starknet network or its STRK will develop, be utilized, or accrue value.

All information in this document is provided on an “as is” basis without any representation or warranty of any kind. This document only outlines current plans, which could change at the discretion of various parties, and the success of which will depend on many factors outside of Starknet Foundation’s control. Such future statements necessarily involve known and unknown risks, which may cause actual performance and results in future periods to differ materially from what we have described or implied in this document. StarkWare and the Starknet Foundation disclaim all warranties, express or implied, to the fullest extent permitted by law with respect to the functionality of Starknet and STRK.