Executive Summary

• The LSK token will be moving from an infinite to a fixed supply.
• The LSK token will become an ERC-20 token on the Ethereum mainnet, allowing for interoperability across all dApps within the Ethereum ecosystem.
• There will be a DAO vote to burn 100m of the LSK tokens 2 to 4 months after the migration.
• There will be an airdrop campaign running in 2024 and 2025.
• There will be a staking campaign running before Lisk’s move to decentralized sequencers.

A Brand New Reality

Lisk's integration with Optimism’s Superchain as a Layer 2 (L2) is a monumental leap forward that brings a multitude of benefits to the Lisk ecosystem and community. The LSK token will be one of the prime beneficiaries of this transition, as it will be migrated to become an ERC-20 token on the Ethereum Layer 1 (L1).

With that, it will soon become seamlessly interoperable with the entire Ethereum ecosystem and any project or company that supports the ERC-20 token standard. This will allow for the LSK token to be used on any DeFi protocol, like DEXs or lending platforms, all Ethereum wallets, and many more dApps and tools across the Ethereum ecosystem while also enabling a more frictionless integration with centralized exchanges, cryptocurrency custodians, and other services.

This new reality is something that the community has long asked for, and will immediately enhance the LSK token’s accessibility, usability, utility and liquidity.

This exciting move unlocks a world of possibilities, but also requires us to adapt and innovate to ensure continued success.

• Token Utility & Infinite Supply: Initially designed as a utility token to bolster protocol security and facilitate transaction fees on the L1 blockchain, LSK’s former infinite supply no longer aligns with current needs and would undermine future growth.

-> LSK 2.0 moves towards a fixed supply.

• Improving Token Standards: Lisk was among the first movers of Initial Coin Offerings (ICO), playing a crucial role in shaping the early blockchain industry! While token allocation strategies have evolved significantly since then, we recognize the need to adapt our approach to better align with current best practices and maximize our impact in achieving our mission.

-> LSK 2.0 aligns with improved token standards.

By tackling these challenges head-on, we're setting the stage for Lisk's explosive growth in the coming years.

Token Utility & Fixed Supply without Inflation

As an L1 blockchain secured by Proof-of-Stake (PoS), continuous inflation has been necessary to ensure that validators remain incentivized to uphold the blockchain's security. This is about to change. As we are evolving towards being an L2, Lisk will now "inherit" the security from Ethereum's well-established validator network while the fees can be paid in ETH.

Thanks to this shift, it is no longer essential for LSK holders to be responsible for funding the network's maintenance and security through inflation. To reflect this change, we will implement a fixed supply token model at the migration event.

After migrating to the L2, the LSK token will primarily take on 2 purposes. First, it will encourage participation in the Lisk DAO, empowering holders to shape the network’s future through governance. Second, by locking their LSK tokens to participate in governance LSK holders will be able to earn staking rewards.

To further enhance the utility of the LSK token, we’re also actively researching and implementing additional utilities with a focus on two key areas:

• Transaction Fee Payments: Thanks to account abstraction, LSK can be used for paying transaction fees on the Lisk L2 in the future.
• Decentralized Sequencer Validator Staking: Once decentralized sequencing becomes available on the OP Stack and Optimism’s Superchain, LSK holders have the ability to stake their LSK tokens with decentralized sequencer validators.

The L2 continues to feature the full range of LSK’s original utilities from the L1, while also introducing new features like governance. Combined with improved usability and composability with the wider Ethereum ecosystem and all its dApps, increased liquidity and a fixed supply, we believe the LSK token is well-positioned for a promising long-term future.

Updated Token Supply & Community Vote

Since Lisk’s ICO in 2016, we’ve strived to be responsible stewards of the LSK token. The initial allocation prioritized ICO participants with more than 85% of the total LSK supply allocated to them, while only 7% was reserved for community initiatives and growth campaigns, and with no allocation for market making, liquidity improvements or additional strategic investors. Missing token standards and non-existing best practices at that time, were in hindsight limiting our options to incentivize a robust ecosystem and community, as well as to create liquid markets.

Today’s leading projects no longer hesitate to allocate a significant portion towards their growth initiatives, some even allocating up to 80% of their total token supply. Recognizing this shift and the need to more effectively empower our own ecosystem, we plan to cap the total LSK token supply at 400 million LSK tokens.

Of these 400 million LSK tokens, 100 million LSK tokens will be submitted to a community vote to be either burnt or allocated to a 10 year vested DAO Fund.

Community Vote: 10 Year DAO Funding

In creating the new LSK token supply and allocations, the team originally wanted to ensure the DAO Fund had consistent funding for a full 10 years, providing a stable long-term runway for the Lisk ecosystem. However, after having valuable discussions with our community and listening to feedback, we have decided to let you, our esteemed community, choose how much total funding the Lisk DAO Fund would ultimately receive.

A community vote will take place 2 to 4 months after the migration on the new Lisk DAO (utilizing Tally). The exact date and length of the vote will be set to ensure that community members have ample time to claim and stake their new ERC-20 LSK tokens in order to participate in the vote.

To ensure a fair and community-driven decision, the Onchain Foundation will not participate in the voting process.

The community will have two options:

• Option 1: Allocate to DAO Fund Keep the 100 million LSK tokens in the total supply and allocate them to the DAO Fund. With this approval, the DAO Fund would receive a consistent allocation of 15 million LSK tokens per year for a full 10 years instead of only 3 years (to be exact: 15m LSK tokens for the first 9 years, followed by 10m LSK tokens in the 10th year).
• Option 2: Burned from Supply The 100 million LSK tokens will not be allocated to the DAO Fund and will be burned from the LSK token smart contract, taking the total LSK supply down to 300 million LSK tokens.

We’d like to emphasize the importance of having a large DAO Fund treasury at the community’s disposal. In the past, the Lisk community was limited significantly in making their own decisions towards community initiatives and growth campaigns. With the additional 100 million LSK tokens in the DAO Fund entirely controlled by LSK holders, we are giving Lisk the future it deserves. As a best-in-class example we’d like to mention Optimism and their Retroactive Public Goods Funding campaign to show what’s possible with a large DAO Fund treasury. We believe that it would put Lisk on the same trajectory.

New LSK Token Allocations

Of the new LSK tokens, 70% or more will be allocated to initiatives that directly benefit the Lisk community, and the vast majority of the new tokens will be vested over a 3 to 10 year period, ensuring responsible allocation and alignment with the long-term success of Lisk. This strategic increase in the total LSK supply ensures we have the resources needed to support projects, developers, and initiatives that contribute to Lisk's long-term growth through incentive programs and partnerships that many in the community have repeatedly asked for, such as:

• Airdrops (to ensure a growing community and active ecosystem of dApps and users)
• Market making (to ensure healthy liquidity, tight bid-ask spreads and more exchange listings)
• Venture capital investors (to ensure strategic leverage and access to a wider network)
• Integrations with top dApps (DEXs, lending protocols, NFT marketplaces, and others)

To ensure our updates to the LSK token are as robust as possible and in alignment with industry standards, we partnered with the leading Web3 accelerator and venture capital firm, Outlier Ventures. For the past months, they have consulted us on our new tokenomics.

Find out more about the specific new token allocations below.

Airdrops

We’ve designed an extensive airdrop program aimed to reward our community, old and new, as we launch our L2 and grow our ecosystem! This program will distribute LSK tokens throughout 2024 and 2025, benefiting LSK holders, developers, and users of our L2 through multiple airdrops.

The purpose of these airdrop allocations is to kickstart the Lisk L2 ecosystem by providing incentives for old and new LSK token holders, contributing developers, projects launching and integrating with Lisk, and users utilizing the network and its dApps.

More details regarding the various airdrop programs will be provided in an upcoming announcement. Stay tuned for it, we’re sure you’ll love it!

Liquidity & Market Making

To ensure a healthy ecosystem, we’re allocating resources towards market making and liquidity enhancement. By having market makers actively involved, we expect reduced price volatility and higher trading volume, making the LSK token more attractive to investors and traders, and easier to list at new exchanges.

This represents a significant shift in our strategy, putting a higher emphasis on the LSK token and its markets. By achieving higher confidence levels among existing investors and encouraging new ones to join our ecosystem, we are solidifying Lisk’s position within the blockchain industry.

Ecosystem Fund

The Lisk Ecosystem Fund, driven by a focus on community development, is specifically designed to promote the growth of the Lisk ecosystem. It directly supports projects, companies, community builders, and token holders joining us to build out our network. These funds are intended as a temporary and proactive initiative to help bootstrap the new Lisk L2 ecosystem in its early phase with the goal that these programs transition to becoming DAO-funded initiatives over time.

Three of the primary use cases for the Ecosystem Fund will be to provide incentives for:

• The Lisk Grant Program: Providing developers with access to up to $100,000 in hard funding, as well as a wealth of invaluable resources. To do so in the most efficient way, we've structured it to be accessible to everyone, whether you're just starting out, at a turning point, or already advanced.
• Existing dApps: Providing incentives to help attract some of the best existing dApps to build on the Lisk L2 as we bootstrap our new ecosystem. We will be announcing several new, awesome partnerships over the coming weeks and months!
• Our community: Running community programs and incentivising ambassadors, to be able to reward those making active contributions to the growth of Lisk and our wonderful community.

Staking Rewards and Transition to L2 Governance

We are transitioning from our L1 tokenomics model with inflation and an infinite supply to a sustainable L2 tokenomics model with no inflation and a fixed supply.

While we work towards enabling decentralized sequencers, we've established a multi-year staking rewards program to incentivize your participation in the ecosystem.

Here's what you can expect:

• Governance Power: By locking your LSK tokens (previously used for staking on L1), you gain voting rights within the Lisk DAO. This allows you to directly influence important decisions concerning the network's development.
• Rewards for Participation: Similar to staking, locking your tokens earns you rewards. This also incentivizes active participation in the Lisk DAO.

This locked token system bridges the gap between the L1 staking model and our intention to distribute future decentralized sequencer rewards. The longer you choose to lock your tokens, the greater the rewards you'll receive, promoting a shared focus on Lisk's long-term success.

More details regarding the staking rewards will be provided in an upcoming announcement. It’s going to be worth it for all LSK holders!

DAO Fund

The DAO Fund establishes a sustainable funding model driven by the Lisk community. This ensures LSK tokens are used in alignment with community wishes over the long run.

Funds will be available based on proposals submitted to the DAO and voted on through a secure onchain process using Tally, a battle-tested tool trusted by DAOs from Arbitrum, Compound, and Aave.

It’s important to note that this is an entirely community-led and decentralized decision making process. No single entity or individual has control over these funds as they are locked and vested in the DAO.

Operations

This allocation is split into two parts:

• Team Incentive Options: Aimed at attracting the best talents in the space, these tokens are allocated to our team members as options, vested over five years. This rewards and incentivizes our team members who make longer term commitments to supporting the growth and success of the Lisk L2.
• Team Treasury Allocation: As the vast majority of LSK tokens will be reserved for the DAO, this smaller treasury allocation provides the team with some buffer funds for additional needs and priorities.

Strategic Investors

While we're incredibly grateful for our 100% community based funding and contributions so far, we've also recognized the massive benefits of strategic partnerships. Nowadays, many successful Web3 projects leverage the guidance, connections, and market access that experienced investors and Venture Capitalists (VCs) offer to gain in efficiency and speed.

Over the years, we have often been approached by the industry’s leading VCs interested in investing into Lisk and the LSK token. However, due to missing token standards at the time of our ICO, we were missing an investor allocation and therefore were unable to hold concrete conversations with them. These strategic partners can become instrumental in accelerating Lisk's growth and expansion. Conversations are already underway with several strategic investors who recognize the strategic potential of Lisk moving forward.

Potential strategic investors include VCs with a wide network to existing dApps and blockchain firms, market makers which give better offers to their portfolio companies, exchanges who prioritize listings for their portfolio companies, as well as angel investors who can lend us their expertise and advise for our future decision makings. To avoid any unwanted market volatility, these sales will always be conducted Over-The-Counter (OTC) and will often involve additional vesting periods for the investors who buy LSK.

Full LSK Supply & Vesting Schedule

With the token migration, the circulating supply of LSK will increase by roughly 30% from currently around 153 million LSK to nearly 200 million LSK. The increase in circulating supply, representing 46 million LSK, is composed of the following:

• 5,000,000 LSK for the Ecosystem Fund
• 6,250,000 LSK to seed the DAO Fund
• 10,000,000 LSK to seed the Strategic Investor Fund
• 10,000,000 LSK for Liquidity and Market Making
• 15,000,000 LSK for Airdrops

After the token migration, the circulating supply will gradually increase as shown in the following graph. The detailed vesting schedule is described in the table below.

Migration Timeline and Further Information

The LSK token migration will involve a snapshot of all LSK token holders at a yet-to-be announced block height. This height will be made public four weeks before the migration itself.

We expect to be able to announce the snapshot height in the coming weeks, therefore, this post also provides a 6 week notice to current L1 validators and LSK holders prior to the LSK token migration.

Further details about the LSK token migration process, including instructions on how to claim the new ERC-20 LSK tokens, will be provided in a blog post released alongside the snapshot announcement.

Additionally, there will also be a subsequent blog post that delves further into the Lisk DAO, staking rewards, airdrops and more information on the various utilities we are planning for the LSK token.

To learn more about the LSK 2.0 migration and ask all your questions, we invite you to come to our dedicated Discord AMA. It will take place on Thursday, April 4, at 5pm CET.