In this video, I'll be doing a full review of the Starkware and Starknet ecosystem. DK Roll-Ups could be the next big narrative in the crypto space, and all signs indicate Starkware will be one of the market leaders. The competition for layer 2 dominance is only just beginning, so in this video, we will cover the history, technology, ecosystem, and future roadmap of Starkware and Starknet to see where this project fits in the fierce layer 2 space. Welcome back to the Virtual Bacon Channel, where I teach you how to build wealth in crypto. Real quickly, I just want to say thank you to all of you watching. I'm so humbled by how quickly the Virtual Bacon Community is growing, and know that I am committed to keep sharing the tools and knowledge for us to conquer the world of crypto together, so I'm really grateful for you guys. Okay, now let's get into it. Layer twos are finally giving us a solution for all of Ethereum's scalability problems, like the incredibly high transaction fees and

super long transaction times, all while maintaining the same level of security. And if you've seen my other layer 2 ecosystem explainers, you know just how prevalent these problems are. So get ready to learn about Stark, where their Technologies, StarkNet and Stark X, and how the overall layer 2 Community views this project. Plus, I'll give you my unfiltered and unbiased analysis on the developments so far of this project and its future potential. Before getting into the weeds of Starkware, it's always important to know by whom and why a company was started. Starkware's technology was created by an Israeli cryptography development firm known as Starkware Industries back in 2018. Remember, 2018 was long before most people knew about the problems Ethereum would face, so this shows you the foresight that the Starkware team has. And with this in mind, Starkware's goal was to improve Ethereum scalability issues via ZK or zero-knowledge technology. Since then, they raised five investment rounds totaling 273 million dollars. This puts them right behind

zksync for the second biggest race among layer 2 solutions. Make sure to check out the CK sync project highlight video if you haven't yet because they are Star Quest's top competitor in the DK roll-up ecosystem. That video is linked in the description. It's also worth noting that these investments came from some pretty reputable investors like Naval Ravikant from Angeles, Pantera Capital, Sequoia, and a 12 million dollar grant from the Ethereum Foundation and Vitalik himself. One of the reasons Starkware was able to attract so much investment interest is attributed to its world-class team. Starkware is led by co-founder and president Eli Ben-Sasson, who has been researching cryptography and zero-knowledge proofs since 2001 and once held research positions at institutions like MIT, Harvard, and Princeton. The other co-founder is CEO Yuri Kolodny, who has also co-founded several other tech companies like Omniguide and Mondria. Starkware currently employs around 90 team members, making it one of the

biggest teams in the space, but more on that in a bit. Remember, when you're doing your own research, don't just focus on the technology, the metrics, the vanity aspects. You should also look at the history and founding team because it gives insight into the project's roots and why the project was created in the first place. And this shows if the team is really in it for the long term. Now, let's move on to what makes Starkware so unique. When we talk about Stark core technology, you need to know that they have released two main products, both focused on scaling Ethereum. They are Stark X and Stark net. And I know it can get confusing with the naming overlap, but let me explain. Stark X is an older solution that's been in production since June 2020. And when you hear of projects using Stark core technology today, they are likely referring to Stark X. Stark X is a framework that lets developers build permissionless application-specific scaling solutions. And we've seen it used for projects like dydx, SoRare, Immutable X, and Apex. Like the name

Stark X suggests this technology is best used in an exchange or Marketplace type of situation, and you can see this in all four of the largest projects we just mentioned that's built on starkax. The framework also includes an application flow toolkit that projects can utilize for low-cost off-sharing Computing, which makes it great for exchanges, marketplaces, gaming, and other high-frequency use cases. Starknet, on the other hand, is a permissionless and decentralized CK roll-up layer 2 that is built on top of Ethereum, and it allows any dap to achieve Limitless scalability while preserving Ethereum's composability and security. Starknet also lets developers deploy their own smart contracts using its own native programming language called Cairo. This is different from Ethereum's programming language Solidity and Viper, and this does introduce some friction, and it's important, which we'll talk about in a bit. Now the starknet alpha was deployed on the Ethereum mainnet in November 2021, but it was still in Alpha until today, and not everyone is able to use it just yet. And while these are two completely

different products. They do share some similarities. Both Solutions use what are called the TK Starks, which is the type of zero knowledge technology that stockware invented. When a layer 2 scaling solution uses zero knowledge technology, this lets them not reveal all the information that they want to process and not store huge amounts of data back on the ethereum layer one. So, this saves a lot of gas costs and improves transaction scalability in general. This is why you see so many layer 2 projects trying to employ zero knowledge proofs in their project in some way. The ZK proof is the key technology breakthrough that can bring much higher scalability to all the ethereum layer twos, but we are yet to see a working product coming live. Now, both Stark X and starknet can also process tens of thousands of transactions per second while backing up with ethereum and maintaining the same security. However, the main difference between the 2 is that Stark X is a toolkit designed specifically for Enterprises and only functions within each application. Stark net, on the other hand, is a general purpose roll-up chain.

which eventually will allow anyone to build on and use. You can think of it like Stark X being a pure technology solution but not a blockchain network, while Starknet is a standalone layer 2 network that has an overarching blockchain that always keeps running. Speaking of Stark X, if you're fed up with centralized exchanges, there is a great decentralized alternative called Apex Exchange, which is built on the Starkax technology. The platform also has world-class security and liquidity as they are built by the same team from Bybit. I have been personally using Apex since the very early days, and I think compared to the other decentralized alternatives like DYDX, GMX, and other decentralized perpetual exchanges, Apex does come out on top in terms of feature and liquidity. As more and more traders are forced out of centralized exchanges due to regulation and KYC, decentralized alternatives like Apex is really good option as you can easily onboard onto it directly from Metamask without signup or KYC. There's no tracking of your IP whatsoever. Apex also lets you control

all your funds from your wallet directly. Plus, Apex has all the advanced features like limit orders, stop losses, and margin, just like a traditional exchange. If you're interested, sign up with the link in the description and use code bacon for 10% off your trading fees. It's free and it helps support the channel. Okay, coming back to Starkware, let's look at all the previous updates since Starkware's technology went live in 2020 and what kind of partnerships and milestones the project has accomplished. On May 8th, 2020, Starkware and Immutable joined hands, and Starkware's scalability engine entered into the blockchain gaming and NFTs space. This eventually led to the launch of the Immutable X Network, which is a top project on the coin rankings today. I think it's ranked around 50th. Then, in June of 2020, Diversify 2.0, another decentralized exchange, integrated Starkware to enable 9000+ transactions per second. Starkware brought high-speed trading, instant settlement, and withdrawal certainty in

August of 2022, another huge decentralized exchange called DYDX also partnered with Starkware to integrate layer 2 scaling technology. The trades are submitted on-chain in CK Roll-Ups, which reduces the amount of gas required per trade. DYDX is able to pass on these savings to users in the form of reduced trading fees across the board. Since there are smaller fees per trade, DYDX can offer much smaller trade sizes, allowing traders to try out the platform by starting with a smaller amount of capital. Not to mention instant settlement and funds guaranteed by backing up to Ethereum through this CK technology. And that's why you see so many advanced decentralized exchanges that choose to go with Starkware's technology. Now fast forward to June of 2021, Starknet launched its Alpha testnet. Then in August of 2021, Starkware released the first trustless bridge solution between StarkX and all the other side chains like BSC, Polygon, etc. This offered cheap and fast deposits and withdrawals to all of StarkX's clients.

such as the dydx, Apex, diversify, Immutable X, etc. But this still does not sacrifice the security, and the whole Stark ax network is still just as secure as Ethereum. Now, in November of 2021, Starknet launched its mainnet Alpha. Then, starting from April of 2022, a ton of Ethereum applications that are OG in the DeFi space started to integrate Starknet, first starting with MakerDAO, who is the issuer of the largest stablecoin, DAI. MakerDAO added a Starknet bridge for its first step towards a multi-chain future. They claimed that they are finally getting tired of the high cost and congestion at a native Ethereum environment. Then, in June of 2022, ConsenSys, which is one of the core development firms behind Ethereum and is founded by Ethereum co-founder Joe Lubin, also announced a partnership with Starkware, and they together have brought the zk-Rollups to Infura and MetaMask. Infura is the leading API solution for accessing Ethereum nodes. Pretty much, if you are developing

Ethereum-based applications or decentralized applications. You will have used Infura in some way to read data from the blockchain and write transactions to it. So, Infura has added Starknet to the platform for faster and cheaper transactions in the Ethereum ecosystem, which means all the existing Ethereum developers have a one-click solution to start using Starknet. Then, in August of 2022, Ledger, the leading hardware wallet solution, also announced a partnership with Starknet, and they will also experiment with new wallet features such as account abstraction, which we'll talk about in a bit. During the first quarter of 2023, Ledger Live also integrated with Starknet to significantly upgrade your experience within the app. Ledger Live claims they will be the first wallet to offer large-scale Starknet support, together with comprehensive protection against malware and physical attacks. In September of 2022, Starknet announced their Alpha 0.1, which was released to mainnet. Along with this, they announced the Cairo 1.0 upgrade to their smart contract language. Cairo 1.0 will enhance usability, safety.

and convenience, and it will support Starknet's probationless network requirements and will simplify and secure the protocol. In October of 2022, the decentralized exchange, the number one decentralized exchange, Uniswap, gets warped onto Starknet. And this isn't just some old, you know, decentralized exchange fork. This is a leading decentralized exchange, which also includes Uniswap V3, which is Uniswap's latest tax technology. And finally, after a long wait, on November 16th of 2022, Starknet launched this ST RK token and deployed it onto Ethereum mainnet. Although keep in mind this token is not yet transferable, and it's not trading on any exchanges, so beware of scams out there with the same name game. Now the Starknet token is designed to help the Starknet achieve decentralization through voting, staking, and fee payments. Pretty standard when you look at other layer 1 or layer 2 networks that have a gas token. In December of 2022, an interesting announcement came from Visa, the large credit card

issuer who announced that they will be using the Ethereum layer 2 system Starknet to do potentially automatic payments on the Visa Network. Visa said that with Starknet's technology, they can allow self-custodial wallets to use a unique feature called account abstraction, which allows them to set up automatic recurring payments on Starknet and directly withdraw money regularly from their Ethereum wallet, but do not have to sacrifice giving up their private keys to Visa. Account abstraction is one of the most advanced features coming to Ethereum in the next couple of years, so it was really great to see Visa actually embracing such a new feature of Ethereum and really going the route of embracing decentralization and letting people, you know, do payments directly from their self-custody wallets instead of just saying, We integrate Ethereum, but you need to give us your keys. So, kudos to Visa for that, and definitely this was a big win for Starknet in terms of the Enterprise adoption front. In February of 2023, Starkware announced that they are committed to open source the magic wand.

of the Stark net, which is their DK proof technology, specifically the zero-knowledge proverb. At the same time, in February 2023, Chainlink, the largest Oracle provider in the crypto space, announced that their data feeds will be coming to the Starknet ecosystem. So, any DeFi developer will be able to utilize the same feeds of data and other prices in their device applications starting from day one. Okay, that brings us to the current Starkware ecosystem today. Starkware has some pretty impressive technology, but the question everyone has is, does anyone actually use it? Well, thanks to the Enterprise and SaaS-based model of the Stark X technology, there are some really large dApps built on top of StarkX already. We've talked about dYdX, Immutable X, SoRare, and Apex. And just to give you a sense of the size of these projects, just these few clients alone account for half a billion dollars in total value locked. This isn't a surprise, as dYdX and Apex are two of the largest decentralized exchanges out there today. This is not like the typical Uniswap kind of swapping model, but

rather all very advanced trading platforms that allow you to do limit orders, market orders, stop losses, use margin, etc. And these are some large enterprise clients. While the enterprise adoption is impressive, it does look like Stark Access technology is getting phased out soon. Their biggest client, dYdX, announced that they will be migrating to Cosmos and build their own native app chain. And Starkware hasn't announced any major clients in the past year. The real future of blockchain scalability is clearly around permissionless and decentralized layer twos. So that's where Starknet really comes in as the future of Starkware. Now looking at Starknet, they are pretty far behind in terms of total value locked, with only a few million dollars. The top six layer 2 networks today have between 150 million to 3 billion locked on their networks, such as Arbitrum, Polygon, Optimism, and even Starkware themselves. And funny enough, Immutable X is one of these networks that currently has more traction by total value locked than Starknet, even though Immutable X is

only one of the clients of Stark X technology, but just because the asset amount on Starknet is small today doesn't mean it's getting ignored. In fact, user growth has seen a massive jump by the end of 2022, with over 295,000 wallets registered on Starknet since June of 2022. We also saw daily active wallets jump from 600 to 6,000 during this period, all while monthly transactions surged 50% to a total of 354,000. But the most impressive number might be the growth in exposure and partnerships, because at the start of 2022, there were only 50 dApps building on Starknet, but now Starknet has more than 120 dApps live on testnet and mainnet. So, it's clear to see that while large money hasn't arrived yet on Starknet, since there is no token and no incentives to farm, the developer and user activity has picked up a lot. And this brings us to the next topic, which is the future roadmap of Starkware and Starknet.

The main goal of Starkware is to finally complete Starknet as a permissionless and decentralized CK roll-up that offers limitless scaling and a big ecosystem. So, let's look at how they plan on doing this. Stark Knight's roadmap is made up of three major phases. Phase one is called Planets and is all about the foundational technology and using it for each single application. In phase one, each application will have their own roll-up and operator, essentially governing and running their own layer 2 specifically built for their application. This is largely proven already by the Stark X technology and powers some of the largest decentralized exchanges as their clients, which we have already talked about. Phase two is called Constellations, and this is the phase we're currently in. Phase two focuses on developing a multi-app roll-up so that each application can share data and communicate with each other. This is starting to resemble that of a layer 2 network with various different applications all on the same ecosystem. However, in phase 2, there is still one

Central operator who controls the consensus of the network, so the system is still fairly centralized. You might have heard of a centralized sequencer, which is a big problem in a lot of the layer twos today. Starknet has the exact same problem. Basically, when a bunch of people are submitting transactions altogether, the sequencer decides which transaction comes first, which transaction comes after, and this sequencing ordering problem can create a lot of friction and potentially make some of the transactions less profitable for the end users, essentially creating somewhat of a centralized censoring/profit extraction problem if the sequencer is not honest. After Phase 2 completes, we'll see the third and final phase called Universe, which is focused on a fully decentralized CK roller. The goal of phase three is to make the operators and the provers permissionless to offer a fully censorship-resistant network. If we want to look even more ahead into the future, Star Core has also proposed the idea of layer 3s, which will function as application-specific Roll-Ups on top of

this starknet layer 2. The main idea is to further tweak the security and decentralization parameters of the layer 3s in order to offer extreme speeds and zero-cost transactions. They can do this by holding off on syncing all transactions with Ethereum so they can finalize at faster speeds for high-frequency and low-value transactions like gaming and social use cases. This likely means you have to sacrifice decentralization, but the benefit is you get extra extremely fast speeds and are much better suited for enterprises. Now, this type of application-specific rollup has been proposed by many layer 2 projects, including Polygon Supernets, Arbitrum Nova, Avalanche subnets, and even more recently, Optimism have announced their super chain and essentially built the same thing already, along with Coinbase as a Coinbase layer too. But you can even call the thing a Coinbase layer 3. We have also seen other projects do this way in the past, such as Polkadot's parachains, which was actually kind of a failure because it was too close to the ecosystem, and a better option would have

been Cosmos with their app chain model, which is closely resembling a layer 3 that is application-specific. So clearly, this is a big trend that is happening in the crypto space overall, which is building self-sovereign chains, whether that's a layer 3 or layer 2 or app chain that is specifically tailored for the security and decentralization compromises of the application needs. So if you're building a DeFi-heavy application, you want higher security and low throughput, versus if you're building gaming or social aspects that's not dealing with money all the time, then you can have less security but much higher speed and much lower and even zero costs. Starknet is definitely one of the early pioneers in this scene, as you can see with all the large clients of StarkX. So definitely look out for Starknet's layer 3 approach in the future. And while this all seems great, I'm not expecting this anytime soon, and I like to see the layer 2 roll-up getting running up on mainnet at first before focusing on layer 3s now.

for Starkware and Starknet to stay competitive in the future, we also need to look at where it stands compared with other layer 2 scaling solutions like Polygon, Arbitrum, zkSync, and many others in the Ethereum layer 2 wars. And although I am bullish on Starknet's technology, there are a few concerns I want to point out. So let's look at some of their headwinds first. Starknet's journey does not support the Ethereum Virtual Machine, or EVM. This means in order to use Starknet, you need to set up a dedicated wallet instead of simply adding a new network to your existing Ethereum wallet like MetaMask. This is the first hurdle that puts Starknet behind in the race. Think about all the alternative layer ones that have gained traction in the 2021 bull market: Binance Smart Chain, Polygon, Avalanche, Phantom, Harmony, and many other networks quickly attracted users because everyone already had a MetaMask wallet set up. On the other hand, non-EVM layer ones like Solana, Cosmos, Polkadot, Algorand, etc.

had a much more difficult time with adoption since they have to start at the wallet step and convince users to add yet another icon to their home screen. When it comes to layer 2's, it's a similar story. Arbitrum, Optimism, Metis, and the upcoming Polygon DK UVM and CK Sync all have an inherent edge in the race as they can be easily accessed by adding a new network to Metamask. Starknet will have some trouble with adoption as they have to convince users to download a new wallet. The second big concern to know about Starknet is that it uses a proprietary language called Cairo instead of the Solidity and Viper languages used by Ethereum. Developers already. This means that developers will have to learn a separate language in order to migrate their applications to Starknet and take advantage of the speed and cost improvements. This is again in big contrast to other layer 2s like Arbitrum, Optimism, Polygon, and ZK Sync, which all use the same language and tooling as Ethereum. Thus, this enables

Ethereum applications to copy-paste order code onto these layer twos, and they should work just fine. So, in order for Starknet to compete in attracting new developers, they have a lot of work cut out for them as well. And lastly, we need to talk about the Starknet token. Yes, there is a token already confirmed by the team, but no, you cannot buy it just yet. The token has actually been live for quite some time, but people are starting to get tired of delays, especially with no timeline. Because the token right now, while it is live and deployed, it is not transferable and not traded on any exchange. Starkword did release a token breakdown, and the community allocation is only 18% of the token supply. On the other hand, the core contributors will get 33% of all tokens, and even more will be under their control with 17% to investors, 10% to the foundation, 12% to grants, and 8% is still unallocated. This means insiders will control 80% of the token supply at launch, which includes

team Foundation investors grants. Basically, all the Insiders can decide what to do with them. This is a little too much control, if you ask me. Usually, projects either do multiple airdrops, public sales, or have large liquidity incentive programs to attract users and developer interest. Without them, this could also slow down Network adoption. Even if you don't want to give away free tokens through airdrop or sell a ton of tokens in a public sale, you could still set aside a large portion for future liquidity Mining. Whenever your network comes live, you can start giving away tokens and instead advising people to start trying the network. This is a very natural approach for a lot of layer 1 and layer 2 projects. However, the stock net token has a very small amount allocated to this, which is 18. So, I'm not too bullish on those numbers. Now, obviously, things could still change between now and the token release, but the current tokenomics are heavily skewed against retail investors. When the token does release, Starkware may already be overvalued, and that's another

big concern you need to watch out for. This is because Star Core already has an 8 billion dollar valuation in their last funding round. Although this fundraised information is for the overall Starkware company, which includes all of their technology, it is a proxy metric to gauge the potential valuation of the Stark Knight token at launch. In my opinion, this seems pretty high given the current market. Other projects like Polygon peaked at 30 billion dollars in the bull market cycle, so Starkware doesn't have a lot of upside for investors given current conditions. Polygon, being the largest layer one today to have a token live trading, is only valued at 13 billion dollars. So if Starknet starts trading at 8 billion dollars, there's not that big a difference anymore. But with all that said, here are some of my final thoughts. Despite all the bearish points I just mentioned, I still think Starkware is one of the best DK Roll-Ups on the market in terms of technology that is back-tested in all of the top projects that they

have integrated with Star Core, achieved early success with Stark X, and is now transferring the momentum to Stark Net with a decentralized vision. Large enterprise applications like exchanges and hundreds of small device startups have all been using Stark AX and StarkNet technology, which shows that their developer adoption is real. And it really helps that the team is made up of zero-knowledge technology experts in the cryptography space, and they have been doing research since 2001. You have to remember again that ZK proof parts are the key technology breakthrough that makes or breaks a zero-knowledge Layer Two. Ultimately, the DK technology is what sets Starkware and StarkNet apart. Yes, they are not the most ready solution in terms of language and tooling support, and the StarkNet tokenomics remain a question until released. But if CK Starks are able to find an advantage over DK Snark, which are used in other TK Roll-Ups, Starkware basically has the monopoly if this technology really takes off. And if the magical DK provers of Starkware become an industry standard.

then Starknet could stand to benefit the most, as they are the one pioneering zero-knowledge technology. So, that covers all you need to know about Starknet and where it stands in the layer 2 space today. And if you like this content, check out my other in-depth reviews on the other layer 2 leading crypto projects in the scene today. Also, check out virtualbacon.com to sign up for my free newsletter with over 9000 friendly readers. Every week, I write about the latest market events, the hottest narratives, and my personal investing insights. Remember to subscribe and hit the notification bell, and let me know in the comments what you think about Starkware and Starknet, and I'll see you guys in the next video.

What is StarkWare and StarkNet? | ZK Rollup Layer 2 Airdrop Token Review

I'm Dennis, a Crypto VC investor with 100+ startups in our portfolio. On this channel I share my views on market trends and investing strategy for Crypto.