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The Klaytn Foundation, the organization behind the leading South Korean blockchain platform Klaytn, has announced a major tokenomics optimization proposal to secure a sustainable and verifiable token economy. The proposal, which will be voted on by the Klaytn Governance Council (GC) from February 22nd to 28th, aims to establish KLAY, the native token of Klaytn, as a deflationary asset.

Why Klaytn Needs Tokenomics Optimization

Klaytn is an open source public blockchain designed for tomorrow’s on-chain world. It offers a fast, scalable, and user-friendly platform for decentralized applications (DApps) and services. Klaytn has a diverse and vibrant ecosystem of over 100 partners, including global enterprises, startups, and public institutions.

However, Klaytn’s current tokenomics model has some limitations that hinder its long-term growth and sustainability. According to the Klaytn Foundation, the main issues are:

• Oversupply of KLAY: At the start of the Klaytn mainnet in 2019, 10 billion KLAY was issued in the Genesis block. In addition, the Klaytn blockchain generates block rewards of 6.4 KLAY per block per second, resulting in an additional 200 million KLAY per year. As a result, the total supply of KLAY to date is approximately 11 billion KLAY, out of which only 3.073 billion KLAY is in circulation. The rest of the KLAY is reserved for various purposes, such as protocol reserves, business development, R&D and technology, team, GC rewards, Klaytn Growth Fund (KGF), and Klaytn Improvement Reserve (KIR). However, most of these reserves have remained unused or underutilized, creating an imbalance between supply and demand.
• Lack of transparency and accountability: The Klaytn Foundation, which was established in 2023 to build and decentralize the ecosystem of Klaytn, has been managing the KLAY reserves and funds without sufficient disclosure and oversight. The Foundation has not provided clear information on how the KLAY reserves and funds are allocated, used, or audited. Moreover, the Foundation has not involved the GC or the community in the decision-making process regarding the KLAY reserves and funds, creating a centralized and opaque governance structure.
• Inefficient and ineffective use of resources: The Klaytn Foundation has been operating two separate funds for the development and growth of the Klaytn ecosystem: the KGF and the KIR. The KGF is a fund that supports the creation and operation of DApps and services on Klaytn, while the KIR is a fund that supports the improvement and innovation of the Klaytn platform. However, the Foundation has not utilized these funds efficiently or effectively, resulting in low returns and impact. Furthermore, the Foundation has not aligned the KGF and the KIR with the strategic vision and direction of Klaytn, creating a mismatch between the goals and outcomes of the funds.

How Klaytn Plans to Optimize Tokenomics

To address these issues and optimize the tokenomics of Klaytn, the Klaytn Foundation has submitted a proposal to the GC, which consists of 32 consensus nodes that operate and govern the Klaytn network. The proposal includes the following measures:

• Burning of KLAY reserves: Out of the initial minting reserve of approximately 7.48 billion KLAY, the Foundation proposes to initially burn 5.28 billion KLAY that has remained unused in the last three years and eight months. This amounts to 73% of the reserve supply and 48% of the current total KLAY supply. The remaining 2 billion KLAY will be burned after three years if no use case is found in collaboration with the GC. This will significantly reduce the oversupply of KLAY and increase its scarcity and value.
• Restructuring of KLAY funds: The KGF and the KIR will be merged and restructured into two new funds: the Klaytn Community Fund and the Klaytn Foundation Fund. The Klaytn Community Fund will be a fund that supports the development and growth of the Klaytn ecosystem, such as DApps, services, infrastructure, education, and community. The Klaytn Foundation Fund will be a fund that supports the improvement and innovation of the Klaytn platform, such as research, development, security, and governance. The GC and the community will take the lead in the decision-making process about the fund usage, enhancing transparency and accountability. The funds will also be aligned with the strategic vision and direction of Klaytn, ensuring efficient and effective use of resources.
• Establishing KLAY as a deflationary asset: The ultimate goal of the tokenomics optimization proposal is to establish KLAY as a deflationary asset that has a decreasing supply and an increasing demand over time. This will be achieved by implementing various mechanisms, such as burning of gas fees, strategic buybacks, and staking rewards. The Foundation will also explore other ways to increase the utility and value of KLAY, such as introducing new use cases, expanding the ecosystem, and enhancing the platform.

What are the Benefits and Implications of Tokenomics Optimization

The tokenomics optimization proposal, if approved by the GC, will have significant benefits and implications for Klaytn and its stakeholders, such as:

• Enhancing the sustainability and verifiability of the token economy: The proposal will help Klaytn develop into a sustainable and verifiable token economy that is based on sound principles and practices. The proposal will reduce the inflation and oversupply of KLAY, increase its scarcity and value, and create a positive feedback loop between supply and demand. The proposal will also improve the transparency and accountability of the KLAY reserves and funds, and involve the GC and the community in the governance and management of the token economy. The proposal will also enable the verification and audit of the KLAY supply and usage, ensuring trust and credibility.
• Boosting the growth and innovation of the ecosystem: The proposal will help Klaytn boost the growth and innovation of its ecosystem, which consists of over 100 partners, including global enterprises, startups, and public institutions. The proposal will provide more incentives and support for the creation and operation of DApps and services on Klaytn, as well as the improvement and innovation of the Klaytn platform. The proposal will also foster more collaboration and participation among the GC and the community, creating a more decentralized and diverse ecosystem.
• Increasing the competitiveness and attractiveness of Klaytn: The proposal will help Klaytn increase its competitiveness and attractiveness in the blockchain industry, which is becoming more crowded and competitive. The proposal will differentiate Klaytn from other blockchain platforms by establishing KLAY as a deflationary asset that has a unique value proposition and a strong token economy. The proposal will also attract more users, developers, and investors to Klaytn, as well as more partners and collaborators from various sectors and regions.

How to Participate and Learn More

The tokenomics optimization proposal (KGP-6) will be voted on by the GC from February 22nd to 28th. The voting results will be announced on March 1st. The proposal will be implemented in phases, starting from March 2023.

If you are interested in participating or learning more about the proposal, you can visit the official website of the Klaytn Foundation, where you can find the full details and rationale of the proposal, as well as the FAQs and feedback form. You can also join the official Telegram channel of the Klaytn Foundation, where you can interact with the Foundation team and the community members.