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What is Starkware – Starknet, Starkex, Team, and Tokenomics

With increasing demand for cryptocurrency technologies, most of the biggest projects can find themselves clogged. This is for several reasons such as speed of their transactions, their cost or the fact that the inherent technology supporting them, blockchain, in most cases needs longer time for validation due to its decentralised nature.

This not only brings clear problems to the usability of those projects, but also offers a place for improvement. Layer-2 blockchains and platforms tend to offer these and many other solutions. One of such projects is StarkWare, which however is not a layer-2 solution for Bitcoin, but rather for Ethereum.

What is StartWare?

StarkWare is a company from Israel that is building a layer-2 blockchain on Ethereum using ZK-STARKs (Zero-Knowledge Scalable Transparent Arguments of Knowledge). Main goal of this company, as well as ZK-STARK technology, is to improve the scalability and privacy of blockchains, such as Ethereum.

ZK-STARK, which was invented by StarkWare, is similar to ZK-Sync or optimistic rollups in that it rolls up transactions into batches, to prove the validity of given transactions thanks to the usage of cryptographic proof. ZK-STARKs are scalable and transparent cryptographic proofs that, to put it simply, use a proof system that claims to be faster and more scalable than its competitors. Moreover, it also uses fewer cryptographic assumptions, which are also described to be safer.

What all of this means in real life is that StarkWare has developed a technology that allows one party to prove to another that it has certain information without the need to reveal the actual information. For instance, this means that party A is able to prove to party B that it owns a bank account with a certain amount of money, without actually sharing the details about the bank account or the actual sum.

To help with their goals, StarkWare has developed and is currently improving two main products: StarkNet and StarkEx, while also having its token on StarkNet (STARK).

What is StarkNet?

StarkNet is a decentralized ZK-rollup that operates as a layer-2 chain on Ethereum. It is also permissionless and decentralized. To put it simply, ZK-rollup is a layer-2 solution that uses the technology of zero-knowledge for operation. ZK-STARK is one of the types of this technology.

Thanks to all of these features, StarkNet ensures that all the transactions on this network are periodically batched, also known as “rolled up.” After that, they are approved by ZK-STARK proof and validated on Ethereum. Throughout this process, gas fees are saved as thousands of transactions are sent, verified and batched off-chain of Ethereum, only on the StarkNet chain. This solution is thus superior when it comes to scalability and speed.   

Once the ZK-STARK proof is generated for the given batch on the L2, Ethereum validates the proof and checks whether the transactions in the batch are valid. After that it simply updates all the wallets with their new balances.

Just like with the case of Bitcoin and its layer-2 solutions, StarkNet saves Ethereum from having to check and verify the validity of every single transaction on its chain. This can often lead to clogging the network, leading to higher gas fees or slower processing times for the transactions.

While this product is still relatively new, being only introduced in the “alpha” version in November 2021, once it matures, it is expected that a lot of apps and dApps for Web3.0 will be built on top of it. This will help with the security, but also with speed, scalability and transaction costs. Even Vitalik Buterin stated that thanks to layer-2 solutions such as StarkNet, Ethereum can reach the transaction speed of 100 000 tps.

What is StarkEx?

Unlike StarkNet, which is meant to be permissionless, StarkEx is a layer-2 solution that is permissioned and thus tailored to the needs of specific dApps. Most of them are projects connected to the world of Decentralized Finance (DeFi) and trading applications such as dYdX, Immutable X or DeversiFi. It also includes NFT mints.

Data connected to StarkEx, Source: starkware.co

In general, it can be said that StarkEx can be viewed as a permissioned and centralized version of StarkNet. This means that it is meant to be used by different protocols, but generally is expected to be used in three data availability modes. DApps can choose to roll up their data

  1. in the ZK-rollup mode
  2. process it off-chain known as Validium
  3. or use a hybrid of 1. and 2. known as Volition

There are already existing examples of these options since dYdX uses zk-rollup mode so that it can offer cheap and fast transactions for its traders. On the other hand, DeversiFi and Sorare have decided to go with Validium mode.

It also needs to be added that Shared Prover (SHARP) technology has been employed to ensure that the gas costs between transactions in a batch can be split. Thanks to this, StarkWare can offer very low gas fees. Overall, it should result in a cheaper and smoother experience for the users.

StarkEx currently supports Ethereum and the token standards of ETH-20, ETH-721 and ETH-1155. However, it is also capable of supporting tokens on other Ethereum Virtual Machine-compatible blockchains.

Team, investors and advisors

StarkWare has gained a lot of attention not only due to its intriguing technology, but also its team as well as investors and advisors. The company was founded in 2018 by Eli Ben-Sasson, who was previously a founding scientist of Zcash and professor of Computer Science at Technion. The team also contains Alessandro Chiesa who was a founding scientist of Zcash and professor of Computer Science at UC Berkeley. Uri Kolodny (serial entrepreneur) as well as Michael Riabzev (co-inventor of STARK) are just few other key members, who are worth-mentioning.

This team was able to secure some notable investments, totalling over 110 million dollars in several funding rounds. The list of investors and venture capital firms who put money behind this project includes Paradigm, Pantera Capital, Intel Capital, Sequoia or Alameda research. Moreover, StarkWare was able to secure additional funding of 12 million dollars by the Ethereum Foundation to help with scaling of the Ethereum network.

Funding rounds of StarkWare, Source: messari.io

When looking at individuals interested in this solution, Vitalik Buterin, founder of Ethereum, as well as Naval Ravikant, successful entrepreneur, both invested in the project and are taking part as advisors. The board of advisors is also joined by Joe Lubin, co-founder of Ethereum. The skills, knowledge or experience of the team, its backers as well as VCs and investors all show that this project has a huge potential that cannot be underestimated.

Tokenomics

StarkWare announced the airdrop of their native ERC-20 token, StarkNet Token (STARK), on 13th of July this year. The airdrop was supposed to take place in September 2022, with more than 10 billion tokens issued overall, however this can be subject to change by community voting. The initial allocation of the token was set as follows:

Tokenomics of StarkWare, Source: exodus.com

Main use case of the token will be threefold. Firstly, the STARK token will serve for governance purposes. Secondly, it will be used for payment of transaction fees within the StarkNet infrastructure. Lastly it can be used for staking in StarkNet consensus mechanism protocol.

What is notable about the airdrop is the fact that 9% of its initial allocation will go to “community provisions.” These will be provided to those, who have used any StarkEx-based platforms such as dYdX or Immutable X, before the date of June 1st 2022. Moreover, anyone who performed any form of work on StarkNet or StarkEx might be eligible to receive the tokens from the airdrop as well.  

Conclusion

StarkWare is a rather interesting project with big names not only developing it, but also supporting it. With the two most important products of StarkNet and StarkEx, which are both designed to serve a different demographic, StarkWare wants to make sure that it will be one of the key players in the L2 projects of the second biggest cryptocurrency, Ethereum. And so far, the development of this platform seems to be heading in that direction.