Staking STRK on Starknet

Natan: GM. Hello everyone. My name is Natan or Nathan. I’m a PM at StarkWare. I’m responsible for the staking endeavors currently being planned and work and research in behalf of StarkWare on Starknet. Would love to talk about staking today.

Lenny: So nice to meet you Natan and GM GM, Everyone, thanks for inviting me today. I’m super exciting to spread the world about the staking mechanism into Starknet. So my name is Lenny, I’m the co-founder and CTO at AVNU. I’m mostly working on crypto space for like four or five years and now especially on Starknet for the last two years. So mostly working on smart contract and front end of AVNU and you can also see me as the Degen and DeFi of the team. Happy to be there today with you.

Natan: Very nice meeting you too and I’m very happy you agreed to join to this session. So let’s start. We prepared some questions. We’ll start asking each other questions and anytime you have a question, we’ll let you in if you’ll have some urgent stuff and we’ll refer to your comments and then we’ll leave some time for audience questions in the end. So Lenny, I’ll go first. I’ll ask you a question.

Lenny: Sure.

Natan: Okay. So can you explain in simple terms what staking on stock and means?

Lenny: So in simple words, staking on Starknet means you will be able to lock your Stark token on the Starknet staking contract and then you will be able to earn rewards professional to your stake. So there will be stakers and stakers-delegators today in the future with different things to be discussed around the foundation and everybody will be able to voice and to say what is good or what is not. But staking is here to secure the network and to start the decentralization of the Starknet network and you’ll receive rewards to be part of this decentralization. I think I cannot be simpler than this, I would say.

Natan: I agree. You can lock your funds and get rewards. Basically, all of it is on L2. I don’t have any follow-up questions on that.

Lenny: I think, maybe I can continue because we had this big announcement of the staking of the STARKs and maybe you can explain us why is the staking such a milestone for Starknet?

Natan: For sure. So first, I want to emphasize how in line it is with the Starknet vision of broadness and decentralization. So the step of staking is another step towards or in the journey of decentralization and I think it signifies to our community that we are not only talking, we’re actually implementing and working hard on the decentralized and I know broad aspects of the network. We are focusing on the network being owned in part of the community, not just something we operate and we are working towards this goal. So I think this is the main reason. This is such a huge milestone, making it a bit more zoomed in. It’s another utility. So the STARK token was launched, you can pay fees with it, you can vote with it and now you can stake with it. So I think this is very interesting and very important milestone of STARK token and Starknet basically.

Lenny: Absolutely. Maybe I would say it’s a real step forward. I will even say comparing to most other L2s. I think just for this is a big step forward for Starknet and we at AVNU are super excited about this and we will help you to spread the world about this.

Natan: Absolutely. I agree. I think part of working on it is seeing how novel it is. You are trying to take examples and there are none. There are no L2s that are public in these steps and published anything and implemented anything. So you are working on uncharted territory, which is always fun and challenging. That’s part of why it’s so exciting in my opinion.

Lenny: Absolutely.

Natan: Okay. Okay, so I’ll ask you, there’s a list of questions. I’m looking forward one of the juicy ones.

Lenny: We want the juicy one.

Natan: That’s the fun one. Can you say why do you think we need to implement staking in a gradual process? Why does it have to have so many steps in the way?

Lenny: So maybe you can complete after my answer because I think there are a lot of things why we should do it gradually. But to start, I would say, there are a lot of consideration when implementing a sticky mechanism on the blockchain, especially due to several critical reason which can ensure the stability, the security, and we can say, the success of the network. It’s not a trivial task. So gradual implementation allows on one side developers to identify address potential vulnerabilities incrementally. This is crucial in preventing potential exploit and attacks that could compromise the network. So you don’t want to push all at once and then have several bugs on your network.
Another reason among others is to allow the market participant to adapt to the new staking protocols. As we saw in the snip, people, users takers will be able to vote to adapt different mechanism of this self-staking. So yes, even changes can lead to market volatility and maybe unintended economic consequences. So it’s better to go step-by-step and maybe adapt, maybe we’ll make some errors during the process. So it’s important to go step-by-step and stop if necessary. Of course, technical reasons, it takes times to converge to a fully functional staking process. So by doing it gradually, users can access a first minimal version easily and rapidly for Q4 of what I understood. That’s the main reason I think.

Natan: I totally agree and I think it’s the main reason I want to address two more, I would say angles on the same reason. So the same goal. So we want to have a stable, reliable proof of stake mechanism in place in the long run. And the way to get there is, like Lenny said, gradually implementing it and catching all the bugs and all the different quirks we can find and adjust our incentives and mechanism along the way and even refine them. So if we want to be reliable in the end and proven being actually battle-proved mechanisms, we have to launch them or implement them gradually.

Also, our chain is on production so we can’t disrupt it or people or protocols in the community is counting on us to make this gradual and not disruptive. So we need to make sure stakers themselves prepare for their responsibilities and the whole proof of stake protocol which combines either economic incentivize strategies, software stack and smart contracts, all of which needs to be tested and refined and being implemented while the network is still live. So this challenge has to be done step-by-step. Question was… Okay, you know what, we’ll refer to questions soon. So there are some questions that are related and I’m tempted to add one in, but I think everybody… It will disrupt the flow. In a minute, we’ll add some questions from you guys.

Lenny: I can drop on another question maybe because we’re talking about this. One interesting thing in the first phase of the staking is the minting curve and I assume some people doesn’t understand why this curve exists and maybe how it works. Maybe you can give us some more information about this?

Natan: Sure. So we chose to implement a proof of staking protocol that is using a minting curve to determine rewards. The idea behind the minting curve is that the staking protocol should react to the market. So if there’s a lot of stock locked in the protocol, the rewards would get lower and if there’s very few stocks in the protocol, the rewards would be very high. The idea behind this is we want to incentivize people to use the protocol, but we don’t want to over-incentivize them to leave DeFi protocols and don’t use stocks for other stuff like paying transaction fees or trading and all go to the staking protocol. On the other hand, we really want to have some benchmark of security with people locking their stock to secure the network.So to strike this balance of rewards and security, you want to have something that interacts with the market. So like I said, if there’s very few stocks, it’s very, very favorable to lock your stock. You’ll get very high rewards. If there’s a lot of stocks in the protocol, it doesn’t worth your time, it doesn’t worth your capital loss to go training or do something else with your stock. So you get a benchmark of security and you won’t get the protocols stealing or getting too many stocks out of other protocols.

Lenny:Okay, totally makes sense. I saw on the snip that, right now, so you assume some variables on the minting curve. Do we agree then that the user can vote maybe in the future to change these variables?

Natan: So you are absolutely correct. Another benefit of the minting curve is the maximal theoretical inflation is kept. So there’s a high threshold of we can know for certain what would be the worst case inflation. We suggested a range of numbers between 1.8 and 2.5. We’ll decide on a specific one before launching this version, and in the future we expect these parameters to be adapted. So currently, StarkWare and Starknet foundation have declared they will not participate in staking and locked tokens are excluded from staking, which leaves only the circulating tokens to stake. In the future, the amount of circulating tokens would grow and also, StarkWare and stock and foundation might have different staking policies and by then, these parameters will be adjusted. So currently, the parameters we suggested in the minting curve specifically suggested is looking at 1.4 during the launch of a billion circulating tokens participating in staking, and like I said, this is an economical parameter, incentivization mechanism. It needs to be adapted as the economy and the markets change.

Lenny: Makes totally sense. Very nice. Thank you for your answer. Maybe I think there are a few questions on the chat, maybe we can answer one of them.

Natan: Sure.

Lenny: I see. Maybe question on the delegation, what do you think about Starknet delegation? Will you be rewarded? This could give a new influx of activity in your network? I’ll let you answer, but I assume delegation will be rewarded as it make nonsense to me if not.

Natan: So I’ll show the question. So this is a question by Vega. So you’ll have the ability to delegate stake to a chosen stake as a user and this would be rewarded. So each staker can decide to have its own actual constant. You can share 90% of the rewards with, you can share 80% of the rewards with you. As big ecosystem players would be big stakers, you would be able to choose which staker to delegate to and then you’ll earn rewards using his staking stack and his abilities and he will earn rewards because you delegated some of your funds. So that’s pretty much correct.

Lenny: Very nice.

Natan: I’ll bring up a question by Fal. So I think it’s one of the… The question is can we say, in an easy way, it’s like a PoS on Ethereum? It’s complicating, it’s complicated. So in a sense, it’s just a PoS mechanism, but every implementation of the PoS mechanism is a bit different. Currently, we’re looking to implement the Tendermint consensus protocol. We are considering optimizations on top of it, et cetera. But there are some similarities between this and Ethereum. But even if you agree about the same consensus protocol, implementations may vary. So in that sense it would be different.
Another sense it would be different is that Ethereum doesn’t prove its blocks or it doesn’t prove anything in that sense. Our consensus protocol would include proving blocks. So not only would be validating blocks or voting on them or attesting to them and sequence them. So proposing them, you’ll need to prove blocks, and this is a change from classic L1 proof of stake that does not use stock proofs as part of its security. So in that sense, there will be something different.

Lenny: Very clear to me.

Natan: So maybe I’ll ask you another question. So one staking would be live. How do I practically stake STARK?

Lenny: That’s what everyone wants to know. So once the staking will be live on Starknet, there will be basically two party involved. You will be able to be a staker or you will be able to be a delegator. As a delegator, it’s simple. You’ll be able to simply delegate your tokens to a specific staker and this will be as simple as make a transaction, as execute a transaction through your wallet and to the official UI, but potentially, all of it is available through different dApp UI. For example, we at AVNU will let you delegate your token directly from our dApp, so it’ll be as simple as this. On the other hand, if you are a staker, in this case, you are expected to run a full node in preparation for the next stages, and so you will have some work to do to maintain your infrastructure and to adapt to some changes that will come in the future. But as a user, you will just delegate your tokens through a front end, for example AVNU or the official staking contract and yet just execute your transaction through your wallet.

Natan: That’s perfectly clear. I want to add that you could… So wallets and different apps would support delegation through their UI and you can be a solo staker and another path would be LSTs. So currently, there are liquid staking protocols being… Sorry, excuse me, being developed. Yeah. So there will be, if not on the first day, but soon after LSTs of STARK and you can participate in staking inadvertently by buying LSTs. So if you’re not familiar with LSTs, so the idea of a liquid staked token is some entity in Ethereum, the most known one is Lido, says to you, give me your, in our case, stock. I would stake your stock for you and I’ll give you a bond that we would call staked STARK and you can trade it and use it in whatever different protocols you’ll choose. So these protocols in these tokens would be available also, so you’d be able either to delegate or use liquid staking or be a solo staking.

Lenny: Absolutely. I would add, Starknet made a good choice to not deploy itself an LST, but let the ecosystem and the protocol on top of Starknet to deploy it.

Natan: I a hundred percent agree with that statement and we are not planning to issue any kind of LSTs in return of staking. So the core protocol of staking is just locking your funds and earning rewards based on operational work in the future, but we will not issue a bond or an LST in return. So these LSTs are protocols that are built on top of the basic protocol and infrastructure we deliver. Okay. Let’s see if there’s any interesting questions from, there’s tons of questions, but let’s find what we need.

Lenny: Maybe there is an interesting question about the delegation. If it’s possible to delegate to one delegate or many delegators, do I have to delegate all my tokens to one delegator and can I choose 3, 4, 5 delegators?

Natan: That’s a great question. So you can choose different delegators. So basically, unfortunately, the word delegator or delegations is so overloaded with voting and also staking, so it’s sometimes confusing. So I’ll explain what’s delegation in the context of staking and specifically our protocol.
So when you choose to be a stake delegator, you basically send a transaction and you choose a stake or you want to delegate your funds and you choose how much funds do you want to delegate to him. These funds then are locked in the staking protocol. You can add to that amount, you can choose to delegate or unstake it and you can send another transaction to the protocol saying I want to delegate another set of funds to another staker, and again, you’ll need to transfer and lock these funds on the contract. So unlike voting delegation when I pointed someone to have my voting power, but the tokens stay in my wallet, in the staking protocol, when I delegate or stake, I actively transfer these tokens and lock them in the staking protocol. So that’s the difference, and this what gives you the ability to choose different delegators with different amounts and not be so dependent on a specific staker.

Lenny: That’s clear.

Natan: Wait, okay, so Lenny, do you want to ask another question?

Lenny: Maybe we are talking about the staking and you mentioned sometimes the lock, so the fact that we lock token on the contract. So I saw many other staking or whatever where we have a locked period. Is Starknet implementing a locked period when I want to withdraw my phone from the smart contract?

Natan: Yes. So in the staking protocol, we will have a security lockup period of 21 days. So the idea is when I want to enter the protocol, I send the transaction. When I want to exit the protocol, I also send a transaction and I exit immediately, but I cannot withdraw my funds for an extra 21 days. The idea behind this is, once a staker… Or even a delegator, but potentially a staker has a lot of influence on the network like imagining a staker having a lot of stake inside in sequencing blocks and impacting the network. We don’t want that staker to be able to unstake and throw away all of its tokens to somewhere. We think that its obligation to the token needs to be more solidified and this is why locking these tokens for an extra 21 days disincentivizing to do any censorship or malicious stuff as a sequencer. We implemented it currently because we want to be future-compatible. So currently, we have the 21-day delay. It also makes the market much less volatile. So that’s the reasoning behind it.

Lenny: Okay. So I can assume lockup exists mainly for security and stability of the network, right?

Natan: Yes, you’re correct. That’s the clear and concise way to put it.

Lenny: Okay, very nice.

Natan: Okay, so let’s find maybe another question from the audience. Okay. So I think this is very close to what we’ve discussed. So assuming I am new to stocking, please indulge me; what’s the risks involved in staking?
So currently the only risk is participating in the protocol. What I mean by that is, there is no currently any slashing mechanisms. In the future, if you’ll be a delegator and you’ll choose a staker and that staker would be slashed, you’ll be also slashed. So that’s in the future, when slashing mechanism would be implemented. Currently, instead of risks, I would rather explain our security considerations. So they manage those risks. So I’ll explain them hand by hand.
The first thing and I think is not talked about enough, is the key management. So basically, a lot of seeds are being stolen and a lot of keys are being compromised, and our protocol lets you basically have inherent key management. You’ll be able to enter the protocol with a very, very cold address and get all the rewards on another address which you can keep readily available. Only when you need to interact with the protocol, we need to bring the cold address in action that would enable you to use a very secured hard wallet and such. Also, the hard crypto wallet address can change the reward address if it gets compromised.
Another, I would say, risk sometimes. So we will audit and test end-to-end protocol, but we also implement it in a modular way. So if anything happens, it would always be contained on some component and it won’t affect the system as a whole. So that’s another key thing in the implementations of it. Lenny, maybe I’m missing something. Do you want to add any risks or risk mitigation involved?

Lenny: Yeah. I will just add one risk, which is the same on all staking platform, all staking protocols you can use. I would say about the token prices. As you stake your token and there is a lock of period, you assume the token value will not drop. So that’s a risk you have to keep in mind. I don’t know the level of our audience, but I prefer to tell this because you are like 21 days locked. If one day, we are entering, I don’t know, unfortunately, a bear market, then you want to withdraw your fund. You have to keep in mind you have 21 days of market period. That’s the only thing I wanted to add.

Natan: Totally understandable. Hope we answered your question nine… I don’t know how to read it. Same initials. Great.

Lenny: We can talk a little bit about the timeline. Maybe you had a question from the chat.

Natan: I think timeline is very… It’s a key subject I want to address before we answer more audience questions. So the current timeline. So we are looking on launching the staking protocol on Testnet on September and on Mainnet on October, which is pretty close. The open source report is already being published, almost all of the function ABI is already published as well. It’s already been written. The documentation would be written soon. It’s very important for us to be as clear and transparent and open for integration as possible. So the open source report, like I said, starts with the ABI and all the function calls and everything you need to understand how the contract works to interact with it, and also we will document it as soon as possible. That’s very soon and very exciting.

Lenny: Very nice, very exciting. One two months and we can take our stocks. That’s what you say?

Natan: Yeah. So October. So three months. Two and a half months.

Lenny: Let’s say three months.

Natan: Okay. So I want to bring up this question. So will there be a slashing or a similar penalties on the network? So in the first stage, we will not have slashing mechanisms. These will be implemented on later stages. I can tell you that we aim to have slashing only on provable offenses, so not on consensual offenses, but provable offenses. This means that you’d have effective slashing but not getting the reward. So this is the first penalty, but actually slashing, taking out of your staking locked tokens would be only if something provable and malicious. So this is a very high regard, but again, not implemented in this version yet. Anything… so I talked about the timeline maybe. Okay, so we can talk about what we can expect on after October. So next versions, maybe we can save it for a bit later. What questions do you have in mind, Lenny, if there are any you want to add?

Lenny: I can ask you a question about that security of this. So what are the security features that helps ensure staking STARK is safe? It’s related maybe to another question that we had just before, but maybe you have something some other in mind just to keep it safe and to reassure people who take their tokens.

Natan: Yes. So basically, I’ll split it into three parts.
So the first part would be the security lockup period we mentioned earlier, the 21 days makes it very disincentivized the idea of stakers to be malicious. Another key thing was the key management part that you enter the protocol and you declare different addresses with different roles, and there’s internal permissions on these addresses, meaning I have the main address, of a staking address, and I have a rewards address and I can switch the rewards address if it gets compromised with my staking address.
So this is an internal key management we implement, and I think last is what I mentioned is the modular implementation. So it is very good practice when having a very complex protocol to implement it in a modular way. It makes sure that you can test each component separately. If bugs are found, they are very local and they don’t impact the whole structure of the mechanism and you can restrict every component to have very little permissions. So there’s no single smart contract that holds too much power. Everybody balances each other. So I think these are the key security measurements that have been taken currently.

Lenny: Okay. Very nice. Love to hear about this modularity of smart contract for the sake.

Natan: Of course, there’s Testnet launch and there’s severe tests that are planned and I think these are just best practices. So being audited and being tested on Testnet, I’m taking these for granted, but we are very much going to be up the standard of regular protocols. So I think there and beyond.

Lenny: Sure. That’s great. As we said just before, going step by step modularity and check every contract, each one after each other. I think that’s a great path to go to.

Natan: Yeah. So there’s, I think, a classic question. It’s also something asking of audience, like a variation of it. So what would be the relations between AVNU and staking? Could I stake on AVNU? What can I do? What do you think I’ll be able to do with AVNU and staking?

Lenny: That’s the $1 million question. So internal discussion are underway with the team, but as a leading DEX aggregator on Starknet, there is no doubt that we are interested in becoming a staker, and so let our user delegate their stake to us. So for sure, you will be able to stay directly through AVNU. We don’t know if it’ll be live day one or not. This is under discussion. But we have another role at AVNU is how we can facilitate seamless staking and liquidity provision. So sure, you will be able to take on a new, I don’t know when, and I don’t know how now, but definitely yes.

Natan: You got me hooked. So some of these stuff are prepared and this genuinely I don’t know the answer to, so I’m excited. Let’s see if there’s anything else, anything we’ve missed. I’m scanning the questions to see if there’s anything we didn’t answer inadvertently already. Let’s see.
Yeah, I think so on my part, I think we discussed all the major stuff I wanted to talk about. Let’s see.
Okay, so we’re going a bit off scope, so I’ll share this. Is it expected to be multiple implementation of the node software when staking would be live? Yeah, so we have Juno, Papyrus, and Nethermind. So currently, you’ll be able to choose out of the different implementations. So you’ll be able to use any one of them. They’re all currently live. So you can download and run a full node. I think, a more concrete set of guides of how to become a staker would be available closer to the launch, and we include also guides and specs needed for full node running. So our, I would say, recommended spec or the companies, it’s not really ours. So papyrus is StarkWare-implemented, but there are community implementations of the full nodes and each team would share its recommended spec.
Okay. So Lenny, if there’s nothing else you wanted to ask or I think I’ll… From my perspective, so staking is coming pretty soon. So in three months, you’ll be able to stake your stock on Starknet, lock your funds either as a solo staker, as a delegator, use on-top protocols like LSTs. You could do it through your wallets, through different apps like AVNU, and you’ll earn rewards calculated by a minting curve. The exact specs are not being finalized yet, but we have a very small range to defer. You can check all of it in the snip, we have an open source report. You can also check as a developer or as a user that is very into the transparency of blockchain and ethos. It was a pleasure for me to talk with you and ask you questions about it. So anything you want to add?

Lenny: I think all is clear on my side. I thank you very much. It was a pleasure to talk with you too. Thank you very much.

Natan: Amazing. Thank you for the audience. Great questions and love to see you here. Hopefully, see you soon on the staking protocol.

Lenny: Absolutely. Thank you very much. Thank you, you all, the audience, for coming and see you.

Natan: Bye-Bye.

Lenny: Bye everyone