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Ethereum Layer 2 Network StarkNet Struggles to Maintain Its Footing Post-Airdrop

Altszn.com by Altszn.com
August 28, 2024
in Blockchain, Crypto, DeFi, Web3
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Ethereum Layer 2 Network StarkNet Struggles to Maintain Its Footing Post-Airdrop
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Activity took a downturn for StarkNet after its much anticipated airdrop did not meet the communityโ€™s expectations.

Ethereum Layer 2 network StarkNet is struggling to recover from an airdrop that left some users disgruntled as most activity metrics plummet.

According to the StarkNet Foundationโ€™s Dune dashboard, unique daily active users (DAUs) have plummeted 98% to 6,100 on Aug. 26 from 298,400 on Feb.20, the day before the airdrop. In contrast, DAUs of competing Layer 2 solutions like Scroll and Linea increased by 49% and 173% to 53,000 and 213,000, respectively, in the same time frame.

the-defiant
StarkNet DAUs Source: Dune, StarkNet Foundation

Dune data further reveals a steep decline in daily transactions on StarkNet. Transactions have plunged 82% to 113,000 on Aug. 26, down from its all-time high of 1.2 million on Feb. 20.

StarkNetโ€™s total value locked (TVL) has slumped by 65% to $588 million from its all-time high of $1.77 billion in March, and is down 51% since the projectโ€™s airdrop, according to L2Beat.

STRK token has plummeted to an all-time low of $0.37, down 86% from its high of $2.63 in March, according to CoinGecko. STRK has a market capitalization of $621 million and a fully diluted market cap of $3.83 billion.

Founded by Eli Ben-Sasson, Uri Kolodny, Michael Riabzev, and Alessandro Chiesa and launched in 2022, StarkNet is a scaling solution for Ethereum, aiming to enhance transaction speeds and reduce costs using zero-knowledge (ZK) technology. ZK technology allows for the bundling of transactions off-chain while ensuring their validity through cryptographic proofs, thereby maintaining Ethereumโ€™s security while scaling its capacity.

StarkWare, the company behind Starknet first raised a $6 million seed round over five years ago. The most recent round, a $100 million Series D at $8 billion valuation, was completed in May 2022.

Controversial Airdrop

The StarkNet airdrop distributed 700 million STRK tokens, representing 7% of the total 10 billion token supply. Over a million users were eligible, with 478 million tokens already claimed, according to a Token Flow dashboard.

Of the distributed tokens, 51% went to StarkNet users (506,896 recipients). ETH stakers received 22%, shared among 19,006 individuals, while StarkEx users got 9.62%, reaching 622,996 users. StarkNet ECMP members received 9.05%, allocated to 2,098 recipients. The remaining 9% was shared among developers, EIP authors, and Ethereum Protocol Guild members.

StarkNetโ€™s post-airdrop decline exemplifies how even larger crypto projects can struggle to sustain momentum after airdrops. Airdrops in crypto often lead to frustration, as users perform tasks in anticipation of future rewards, only to become disappointed if they donโ€™t receive tokens.

Users Felt Abandoned

Eli5DeFi, a DeFi research firm, said in an email message to The Defiant that many users felt abandoned after discovering they did not qualify for the airdrop, despite seemingly meeting the criteria based on their on-chain activity.

The controversy was mainly due to the condition that users needed to have at least 0.005 ETH in their wallets by Nov. 15, 2023. There was also anger within the community after a StarkNet team member labeled some users as โ€œe-beggarsโ€, for which the team later apologized.

A community member who goes by Nikola and @nikola488 on X, expressed his disappointment, citing the mishandling of StarkNetโ€™s airdrop as his reason for leaving the ecosystem.

โ€œThe way StarkNet treated the airdrop was essentially a slap in the face to everyone who supported the project until the token launch. The token launch turned out to be one of the biggest failures, leaving no incentive to hold the token or use the chain anymore,โ€ Nikola, who wants to maintain anonymity, said in a Telegram message to The Defiant.

Eduard Jubany Tur, founder of the ZKX decentralized exchange (DEX), noted that itโ€™s challenging to make everyone happy with how airdrops are managed.

โ€œAnything you do in terms of an airdrop will always be seen from the point of view of the farmers and what their interests are. Itโ€™s very difficult to balance the interests of everyone and do the perfect airdrop,โ€ he told The Defiant.

Meanwhile, the StarkNet Foundation recently announced that its Chief Executive Officer, Diego Oliva, has stepped down from his role, without specifying any reason. Oliva had been leading the organization since March 2023.

Few Compelling Dapps

Eli5DeFi added that StarkNet lacks compelling applications.

โ€œOnboarding to the StarkNet ecosystem is challenging; there were not many interesting dApps to try,โ€ noted the research firm.

Apoorv Sadana, founder of Karnot, a rollup-as-a-service solution for Madara, which utilizes StarkNetโ€™s stack for building app chains, also told The Defiant that StarkNet lacks innovative apps.

โ€œWeโ€™re now done with our โ€˜EVM apps written in Cairoโ€™ phase and we need more visionary founders with strong GTM strategies,โ€ he said, referring to teams simply copying dapps using the StarkNet language. Apoorv remains optimistic that with โ€œthe recent influx of fresh talent in the ecosystem and upcoming launches like Kakarot and Madaraโ€ the platformโ€™s growth will increase gradually.

This comes as ZKX, the main perpetual DEX project on StarkNet, announced on July 31 that it is shutting down.

ZKX founder, Tur, said that the DEX was no longer โ€œeconomically viable.โ€

He noted minimal user engagement and drastically reduced trading volumes, with daily revenue barely covering cloud server expenses. Notably, this shutdown occurs merely a month after ZKX raised $7.6 million from investors, including Flowdesk, GCR, and DeWhales.

Tur told The Defiant that he was aware the shutdown would impact the StarkNet ecosystem.

โ€œObviously, no one wants one of the main protocols to shut down in their ecosystem. We knew it would create an impact, even though we didnโ€™t want to, but itโ€™s not like a showstopper anyway.โ€

StarkNet had $360 million of DEX volume in July, less than Lineaโ€™s $1.3 billion and Scrollโ€™s $999 million, according to data from DeFiLlama.

Growing Computation

While some stats are down post-airdrop, Abdel Bakhta, Head of Ecosystem at StarkWare, told The Defiant that โ€œreal usageโ€ on StarkNet is actually on the rise.

โ€œThe number of daily active wallets is just one of many metrics,โ€ he said. โ€œThe point is that users who are loyal to StarkNet are computing the hell out of it โ€” using it for exactly what it was designed [for], and returning the next day and doing the same.โ€

On Aug.27, StarkNet processed over 6 million Cairo steps, according to data from Voyager. The highest in 2024 was recorded on Aug.5 when the ecosystem recorded 27 million Cairo steps.

To explain, โ€œCairo stepsโ€ refer to the computational steps or instructions executed within the Cairo programming language on StarkNet. For context, a transfer on StarkNet creates approximately 11,000 Cairo steps, and a swap is around 35,000 Cairo steps.

the-defiant
Daily Average Steps per Second Source: Voyager

โ€œIf you ask how much usage StarkNet is experiencing, this is best measured in Cairo steps. StarkNet was born for computation and this measures how much computation itโ€™s doing,โ€ Bakhta told The Defiant.

Boosting Engagement

Bakhta explained that StarkNet is taking a โ€œmulti-faceted approachโ€ to increase transaction volumes and boost user engagement.

โ€œFirstly, bringing in new developers and supporting the creation of new applications inherently boosts the entire ecosystem,โ€ he adds. โ€œThe StarkNet Foundation has user incentive plans to encourage participation and activity on the network. The Foundation also provides seed grants to help developers build new apps, which in turn drives more transactions.โ€

He mentioned the DeFi Spring Program is specifically targeted at increasing transaction volumes and the Propulsion program will focus on gaming and is โ€œdirectly aimed at enhancing user engagement.โ€

Also, StarkWare proposed a StarkNet Improvement Proposal (SNIP) to introduce staking to the Ethereum Layer 2. If approved by the community, staking would be rolled out in stages, allowing stakers to connect to StarkNet, interact with staking contracts, and follow the proposed protocol rules.

โ€œWe are looking beyond raw numbers, and are aiming to support developers in the creation of high-quality apps that create real, ongoing engagement,โ€ Bakhta added. โ€œIn the past six months alone, over 100 new teams have started building new products and apps on StarkNet.โ€



Read More: thedefiant.io

Tags: DeFiEthereumfootingLayerMaintainNetworkpostairdropStarkNetStruggles
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