StarkWare Proposes Staking Plans in Incremental Steps for L2 Network Starknet

StarkWare, the software development firm behind the zero-knowledge-based layer 2 network Starknet, introduced plans for staking on Wednesday, a move aiming to make the blockchain more resilient and decentralized.

According to the Starknet Net Improvement Proposal (SNIP), submitted to the network’s GitHub page and discussion forum by StarkWare CEO Eli Ben-Sasson and his team, the first stage of staking will come on the L2 network’s mainnet in Q4 2024 “if embraced by the community,” according to the proposal’s language. In a Telegram conversation with Unchained, Starkware spokesperson Nathan Jeffay said the process of the community’s “embrace” involves a governance vote.

STRK is currently used as a governance token, enabling token holders to vote on various proposals. Per Starknet’s documents from Nov. 2023, “voting, either directly or via delegation, will be required for major changes to the protocol that are essential to Starknet’s liveness, security, and maintenance.” STRK is also used for paying transaction fees that fund network operations.

In addition to transaction fees and governance rights, STRK’s utility will expand to staking which is required for “certain services that are critical to the liveness and security of Starknet,” wrote StarkWare principal technical writer Steve Goodman in the network’s documents on June 9, 2024. “These services might be offered by multiple providers, and could include sequencing, reaching temporary L2 consensus before L1 finality is reached, STARK-proving services, and data availability provisioning, to name a few examples.”

While they are separate entities, StarkWare and Starknet Foundation have overlapping leadership, with StarkWare co-founders Eli Ben-Sasson and Uri Kolodny serving on the Foundation’s board. However, Ben-Sasson and Kolodny are not involved in the Foundation’s daily operations, Jeffay said.

The staking announcement also comes several months after the Starknet Foundation conducted an airdrop, distributing more than 700 million STRK tokens to about 1.3 million wallet addresses.

Balancing Economic Incentive Structure

In the first stage of the staking rollout, StarkWare said they would test key smart contract components and the protocol’s economic incentive structure, which aims to balance several elements: incentivizing staking participation, maintaining a sustainable inflation rate, and leaving enough STRK available for other network uses.

Stakers in this preliminary stage are expected to run a full node, interact with the staking smart contracts, and follow StarkWare’s proposed rules to stake, the SNIP says. Neither StarkWare nor the Starknet Foundation will claim staking rewards in this initial main stage.

The following stages will require stakers to conduct sequencing and proving activities to secure the network, necessitating additional validating software.

Staking rewards will be determined algorithmically by a minting curve that decreases rewards at times when more STRK is locked, but increases rewards when fewer tokens are staked. This type of “dynamic pricing” is meant to help maintain optimal staking levels. Per the SNIP, StarkWare indicated that it’ll recommend that the Foundation hold a governance vote to decide minting curve parameters and procedures to enact adjustments in the future.

Since STRK debuted for trading at $1.95 in February, the token has declined nearly 70% to nearly 59 cents, making its market cap $762 million and its fully diluted valuation about $5.9 billion at the time of writing, data from CoinGecko shows.

“In the future, as part of Starknet’s Consensus protocol, stakers will be responsible for maintaining and securing the network by producing, attesting, and proving blocks,” stated the improvement proposal.

“However, it’s not feasible to hand over these responsibilities all in one day. This is why an incremental approach is necessary.”