Key Takeaways:
- Ethereum zero-knowledge scaling network, ZKsync, is preparing for a tokenomics upgrade, which will see its native ZK token transition from a purely governance structure into a platform utility asset. The proposal was made by the project’s co-founder, Alex Gluchowski, on the ZKsync forum.
- Under the new model, ZK would derive its value from both on-chain and off-chain network usage. On-chain revenues include protocol fees, generated from cross-chain services and other core functions, while off-chain revenue will be derived from licensing agreements for enterprise-grade use cases.
- ZKsync is seeking community feedback on the tokenomics proposal, which focuses on creating a system where network usage drives protocol revenue, with the proceeds directed towards incentivizing participants and managing token supply through buybacks, burning, and ecosystem funding.
Alex Gluchowski, co-creator of the Ethereum layer-2 scaling blockchain ZKsync, has proposed an updated tokenomics model for the network’s native ZK token, transforming it from a pure governance asset to a cryptocurrency with “economic utility”. This model addresses the lack of tangible value in crypto governance tokens.
Gluchowski is also the co-founder and CEO of Matter Labs, the company behind ZKsync.
ZKsync Co-Founder Proposes New Tokenomics Model that Derives Value for Governance Token From Network Usage
In the proposal made to the ZKsync forum on Tuesday, Gluchowski argued that while ZK was effective as a governance token during the project’s early stages, as the “architecture and adoption path” were still in the early stages, the network has rapidly evolved since to host an ecosystem of interconnected zero-knowledge (ZK-Proof) chains, making it necessary that ZK can capture network value and drive further adoption.
Gluchowski said the goal is to align ZKsync’s usage with value to make decentralization “economically sustainable,” and ensure that the network captures a “meaningful share of the economic benefits it creates.”
He also emphasized that the need for funds to “flow back into the network’s economy,” which would allow continual infrastructure upgrade, security enhancements, public goods funding, and “long-term independence”.
Under the new economic model, the ZK token would be revamped to accrue value both on-chain and off-chain, through protocol-native fees, which will be generated from interoperability and other core settlement and agreement functions, and via enterprise licensing agreements for enterprise software components. These revenue sources would then fund ZKsync’s staking rewards, ecosystem funding, and a token buyback and burn program.
Speaking on the licensing model, Gluchowski highlighted that while ZKsync’s stack is open-source and free to use, when large enterprises adopt its “community-built infrastructure” for complex use cases such as treasury integrations, there should be an agreement put in place to provide value back to the ecosystem and its developers.
He noted that when such capabilities are self-funded by the ecosystem, it is reasonable for enterprise participants to return value. All the revenue extracted from on-chain and off-chain integrations would then flow into a “governance-controlled” system, which would then be utilized for open market ZK buybacks, staking rewards, token burning, and funding future ecosystem developments.
ZKsync to use Protocol Revenue to Incentivize Participants, Manage ZK Tokenomics, and Fund Future Development
The proposal addresses a key drawback of governance tokens: their lack of tangible value. ZKsync has been planning for months to change the structure of the ZK governance token. In June, Matter Labs’ head of business development, Omar Azhar, posted a “ZKnomics Roadmap Vision” on the ZKsync forum, where he said that it is designed to align ZK with the long-term health and sustainability of the protocol.
The roadmap proposed a system where revenue would be driven by the Ethereum scaling solution’s network usage, with the proceeds then programmatically directed towards incentivizing protocol participants and managing token supply.
Gluchowski’s economic utility proposal is an extension of the ZKnomics roadmap and is considered “part one” of the new tokenomics design, with a primary focus on a value flywheel for the ZK token. While the timeline of this transition remains unclear, the ZKsync co-creator is seeking feedback and review from the community. He also added that more details on the proposal will be provided once “broad support” is obtained.
The market has responded well to the upgrade proposal, as traders front-ran the event, resulting in ZK gaining 62% weekly. This move has breathed new life into the token, which is down over 80% from its all-time high of $0.3285 (June 2024).
At the time of writing, ZKsync (ZK) is trading at $0.06148 – up 9.38% in the last 24 hours.
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