Why StarkWare Faces Backlash Over Token Design

StarkWare for Ethereum Layer 2 Scalability confirmed Rumors about the upcoming launch of the StarkNet token. The asset aims to enable the project to operate a decentralized ecosystem and create an effective mechanism to “guide its development”.

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StarkNet is a Layer 2 scalability solution for Ethereum based on Zero Knowledge (ZK) technology. This provides decentralized applications (dApps) with “unlimited” scalability without compromising security, decentralization and installation.

The StarkNet Token is designed to support and catalyze key elements in this network. The ad claims that these are StarkNet users, operators, and developers.

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

The announcement is very clear about the important roles of operators and developers. Thus, 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 users pay to take advantage of L1 and L2 smart contracts. This process will be automated, according to the design described above.

The more a project or smart contract brings value to the StarkWare system and the StarkNet ecosystem, the more developers will be rewarded with a “larger portion of the tokens allocated for that purpose.” The company explained that the mechanism for allocating the token is “not yet defined,” but that it will focus largely on preventing “gamification” and will be transparent about the process.

Moreover, the company said that the StarkNet token will not have a fixed width. On the contrary, the supply will “increase over time”. The mint schedule is also determined by the StarkNet community.

StarkWare customize tokens ‘speculative’ inhibitors?

The company claims to have minted ten billion StarkNet tokens. As shown below, these tokens will have the following allotment: 32.9% “Primary Shareholders”, 50.1% given by StarkWare to the newly created StarkNet Foundation, and 17% to StarkWare investors.

StarkWare StarkNet Token Ethereum
Source: StarkWare via Medium

StarkNet’s premium allocation will be split at the 18% allocated to community benefits and community rebates. These tokens will reward community members and key users who “have done work for StarNet”.

The latter is key in the full customization of StarkNet tokens, the project is set in rewarding work and preventing people from speculating and “manipulating” the mechanism. As the announcement states, “there will be no shortcuts to receiving tokens.” StarkWare said the following in the closing and maturity periods:

To align the long-term incentives for primary shareholders and investors with the interests of the StarkNet community, and to follow common practice in decentralized ecosystems, all tokens assigned to primary shareholders and primary investors will be subject to a 4-year lock-in period, with a linear release and a 1-year cliff.

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

If you’re an end user, use StarkNet – but only because it serves your needs today. Use it for those transactions and applications you value, not in anticipation of any future reward from StarkNet Tokens.

Related reading | The upcoming merger with ETH sees institutional investor sentiment turn positive

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

Ethereum stark ware
ETH price trends are down on the 4-hour chart. source: ETHUSD TradingView

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