Since being Airdrop and listed on many major exchanges, Starknet and the STRK Token have become a topic of interest to many crypto market participants, most of whom are “negative” opinions as the project continues to decrease in price. In today's article, let's analyze the tokenomics and current on-chain situation of STRK to comprehensively evaluate this project.
Tokenomic Research #16: Starknet (STRK) - “Potential Project” or “Villain”?
1. What is Starknet?
Starknet is a Layer-2 solution built on ZK-Rollups technology. If you are not familiar with ZK-Rollups and its competitor Optimistic Rollups, you can spend a few minutes reading this article: Comparing ZK-Rollups and Optimistic Rollups .
Through ZK-Rollups and STARK cryptographic proofs, Starknet aims to build a Layer-2 that enables secure, low-cost, and high-performance transactions. Starknet contracts and the Starknet operating system are written in Cairo, a specialized programming language and custom-built to optimize Starknet.
2. Structure of Starknet
Ingredient
Starknet consists of the following components: Sequencer, Prover and Node.
How Starknet Works - Source: Starknet (September 7, 2024)
- Sequencer: Receives transactions, sorts them, and creates blocks. It works similar to a validator in Ethereum or Bitcoin.
- Prover: Creates proof for created blocks and transactions. Simply put, Provers will help ensure the authenticity of the work that Sequencer has done.
- Node: Each node in the Starknet ecosystem is a computer equipped with Starknet software.
Nodes in Starknet are classified into two types:
Full Node: Stores the entire Starknet state and validates all transactions, crucial to the integrity of the network.
Light Node: Does not store the entire network state but relies on full nodes to check information. Light Node will make the network operate faster and more efficiently but provide less security than full nodes.
Node Functions
Nodes play a fundamental Vai in the Starknet network, performing many important functions such as:
- Transaction authentication;
- Block creation and propagation: Nodes create and circulate blocks to maintain a consistent view of the blockchain across the network;
- Maintain state, support developers in creating applications, wallets and tools to interact with the network;
- Forward transaction;…
A basic transaction flow on Starknet would go like this:
Transactions are received by Mempool.
Sequencer - acts as a chain manager that will order transactions, receive it on L2 and mark the status Accepted_On_L2.
Prover - plays a Vai in ensuring the authenticity of transactions on Starknet by creating Cryptographic Proof and sending it to L1 for verification.
Tokenomics of STRK
Token Allocation
The total supply of STRK is 10 billion Token, distributed as follows:
You can see that most of STRK is still in the hands of the team and investment funds, including StarkWare (10.76%), Investors (18.17%), Foundation Treasury (8.1%), Early Contributors (20.04%), equivalent to about 57% of the total Token. This is a very large number in my opinion.
Token Unlock Schedule
STRK's original expected unlock schedule - Source: StarkWare (09/07/2024)
It is obvious from the beginning that the Token belonging to the Team and Investors were unlocked very early and therefore, this created an extremely large selling pressure in the market when the position of the team and the fund was very good. According to the original plan, Starknet will release 13% of the total Token supply (approximately 1.3 billion USD) to the development team and investors on April 15. This means that the circulating supply of STRK will increase 3 times.
This was met with a wave of backlash from the community, so Starkware was forced to make adjustments . According to the new schedule, only 0.64% of the total Token supply (64 million STRK worth nearly $125.5 million) will be unlocked on April 15. After that, Starknet will vest 64 million STRK each month until March 2025 and exchange it for 127 million STRK for the next 24 months until March 15, 2027.
However, the above adjustment is only temporary and prolongs the time. We still have to admit the fact that the team and the investment fund had intended to "exit" the project from the beginning.
Token Features
STRK's use cases include: use as a fee during Starknet network operations, maintaining and enhancing security through Staking, and governance.
Transaction Fees: Initially, fees in Starknet were paid only in Ether (ETH). Since v.0.13.0, transaction fees on the network can be paid in STRK, as well as ETH. A portion of the fees paid in STRK is converted to ETH by the receiving queuer to cover Ethereum L1 Gas Price , which, due to the Ethereum protocol specification, must be paid in ETH.
Staking: in the near future (Q4 2024), Starknet may launch this feature, allowing holder to Staking STRK to participate in security and network operations.
Governance: As usual, STRK holder can participate in governance, voting on important updates and changes.
Analysis of investment fund positions
Capital Rounds / Time | Featured Funds Participate | Amount of Capital raised | Token price | Valuation of the time of Capital call |
Seed Round | Pantera, Polychain, Vitalik Buterin,… | 6M | 0.025 | 250M |
Series A | Paradigm, Sequoia, Coinbase, Pantera… | 30M | 0.05 | 300M |
Series B | Paradigm, Pantera, Sequoia… | 75M | 0.15 | 1.5B |
Series C | Sequoia, Paradigm, IOSG, DCVC… | 50M | 0.2 | 2B |
Series D | Greenoaks, Coatue Management, Sequoi, Paradigm… | 100M | 0.8 | 8B |
There are two things we can easily see here:
Compared to the price of 2 USD (sideway price for quite a while after listing), the Seed Round has multiplied 80 times, Series A has multiplied 40 times, Series B has multiplied 13 times, Series C has multiplied 10 times and Series D has also multiplied 2.5 times.
The time to participate in Capital raising is early and therefore, the Capital flow of investment funds has been "buried" in Starknet for at least 2 years - 6 years.
Combining the above two factors, combined with the immediate unlock schedule after listing to investors, it is not difficult to understand why the selling pressure is extremely high, and it is also not difficult to understand why most of the early participating funds "exit" partially or completely to recover Capital and close profits.
Tokenomics Summary
STRK’s tokenomics showed too much centralization in the early stages, and also showed the desire of investment funds and the development team to “take profit” or “recover Capital” after a long period of investment and project development. This is the main reason why STRK has been on a downward spiral until now.
The usecase (features) of STRK is designed similarly to the model of other L1, L2, mainly focusing on governance, Staking and network fee features. Compared with some competing L2s, STRK is superior in the feature used as payment fee.
4. on-chain status of STRK Token
I will mainly check the status of STRK hodl of investment funds.
According to data on Nansen, Pantera is one of the funds holding the most STRK.
Pantera STRK Holding Statistics - Source: Nansen (09/07/2024)
At a glance, we estimate that the total amount of STRK that Pantera is holding in public wallets is approximately more than 97.4 million Token, equivalent to more than 41 million USD. In fact, this amount of STRK is not kept intact, but there have been some transfers from this investment fund (red column).
Checking more closely, I noticed that Pantera had taken profit by transferring this Token to Coinbase Deposit wallet. This amount accounts for nearly 10% of the Token that this fund received.
Thus, investment funds that entered from early rounds have partially taken profits to recover Capital. This is understandable as we have analyzed above.
We will check out some of the top STRK holder :
Statistics on receiving/sending STRK Token on some major wallets - Source: Nansen (07/09/2024)
In the picture we have 6 wallets with approximately 40 million STRK Token each. You can see that 4/5 wallets are still holding the same amount of Token, while 1 wallet transferred 12.4 million Token.
Finally, we will check the deposit/withdrawal flows from major exchanges. According to statistics from Nansen, in 30 days, Coinbase and Bybit recorded a huge net withdrawal of STRK with about 22.2 million USD.
Top exchanges with large STRK withdrawals in 30 days - Source: Nansen (September 7, 2024)
Top exchanges with large STRK deposits in 30 days - Source: Nansen (September 7, 2024)
On the other hand, the exchanges that recorded large inflows included Binance, Crypto.com , and a few other smaller exchanges. You can see that the largest inflows in the past 30 days were concentrated on Binance with around $6.4 million. This number is quite small compared to the net withdrawals we mentioned above.
Thus, at this price, the number of people starting to collect and withdraw STRK to hodl is much larger than the number of people depositing to Dump .
5. Some recent ecosystem updates
On July 1, 2024, Starknet Foundation announced the DeFi Spring 2.0 program, which will last until December 31, 2024. The total budget allocated for this phase 2 will be 50 million STRK. The allocation will mainly be for DEX, Lending, Perp & Options… when qualified.
In July 2024, Starknet integrated Chainlink and Pyth - 2 famous and reputable oracles. Integrating these 2 oracles will make Starknet's infrastructure more diverse and provide better support for projects.
Q4 2024 will be a very important time for Starknet in general and the STRK Token in particular. The project promises to launch the Staking feature during this period . If successful, attracting a large number of holder to participate with a large amount of STRK, this will be a strong boost for the ecosystem.
6. Conclusion
From the above analysis, we have some ideas about STRK and future directions as follows:
STRK's tokenomics design is no different than most Layer-2s and even other Layer-1s, focusing on project governance.
It is not difficult to understand why STRK has been continuously decreasing in price since its listing, as the Token itself is designed to be very centralized and pay a large amount to early investment funds . However, we also need to be fair in that these funds participated very early with a large amount of money, and after 2-3 years, it is understandable that they need to close Capital and profits.
From point (2), we need to realize that whether STRK will increase in price in the long term or not still depends largely on the project's intrinsic nature, how the team will create games, and operate the ecosystem in the coming time. Don't ever forget the story of Sui , when the price was at its lowest, the project's TVL increased in price, and then we reaped a lot of profits.
Looking at the STRK story, in the coming time, we need to pay attention to whether DeFi Spring 2.0 can attract cash flow to the ecosystem. If this program is successful, combined with the rumor of launching Staking in Q4, it can be a strong push for the STRK Token to increase in price.
Some other factors that can affect STRK's bullcase/bearcase are the price increase/decrease of ETH, ETH ETF and the general market. However, if the project's internals are strong enough, it can still overcome these difficulties.
I hope my article helps those who have, are, and intend to hold STRK to have another perspective to refer to. See you again in the next articles!
Poseidon
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