Klaytn Foundation Introduces Tokenomics Optimization Proposal to Secure Sustainable & Verifiable Token Economy

• Out of a total of 7.48 billion uncirculated KLAY, Klaytn Foundation to propose the initial burning of 5.28 billion KLAY, with remaining 2 billion to be burned after 3 years if no use case found in collaboration with Klaytn's Governance Council (GC)
• Klaytn Growth Fund (KGF) and Klaytn Improvement Reserve (KIR) to merge and be restructured into the Klaytn Community Fund and Klaytn Foundation Fund, with the GC and the community taking lead in decision-making about fund usage
• Mid- to long-term goal of KLAY's tokenomics: to establish KLAY as deflationary asset
• GC to vote on the KLAY Tokenomics Optimization Proposal (KGP-6) from February 22nd to 28th.

SINGAPORE, Feb. 22, 2023 /PRNewswire/ -- The Klaytn Foundation, established to build and decentralize the ecosystem of South Korea's leading Layer 1 blockchain Klaytn, has submitted a tokenomics optimization proposal to its Governance Council (GC) to help Klaytn develop into a sustainable decentralized network. With the long-term goal of establishing KLAY, Klaytn's native token, as a deflationary asset, the proposal includes short-term tokenomics improvements: from the initial burning of 73% of the reserve supply, amounting to 5.28 billion KLAY (approximately 48% of the current total KLAY supply), to enhancing transparency in information disclosures and modifying the management structure of ecosystem resources. The proposal will be voted on by the GC from February 22nd to 28th.

The Road to Sustainable Tokenomics

At the start of the Klaytn mainnet in 2019, 10 billion KLAY was issued in the Genesis block. In addition, the Klaytn blockchain is currently designed to generate block rewards of  6.4 KLAY per block per second, resulting in an additional 200 million KLAY per year to the initial issuance. As a result, the total supply of KLAY to date is approximately 11 billion KLAY.

Over 75 million KLAY has been burned to date through strategic buybacks and the burning of gas fees. Currently, around 3.073 billion KLAY is in circulation, and the distribution of the initially issued KLAY and the KLAY generated by inflation is as follows:

*This figure covers the quantity in circulation from 2019 through February 21 2023.

Out of the initial minting reserve of approximately 7.48 billion KLAY, the Foundation looks to initially burn 5.28 billion KLAY that has remained unused in the last three years and eight months. Approximately 200 million KLAY that has already been contracted to be paid to GroundX, the subsidiary that developed the Klaytn blockchain, for infrastructure development, network operation and management services will be transparently executed.

*To be burnt in three years

The remaining 2 billion KLAY will be designated as the 'KLAY Value Creation Reserve', which will only be channeled towards use cases and scenarios that will help facilitate deflationary KLAY tokenomics. Approval of usage will lie with the GC. To strengthen governance transparency, any decision making regarding the use of the KLAY Value Creation Reserve will be conducted via on-chain governance through the Klaytn Square governance portal. If the Foundation and GC do not reach a consensus regarding use cases within 3 years, the remaining 2 billion KLAY reserve will be burnt, effectively removing a total of 7.281B KLAY from the total KLAY supply (approximately 66% of current total supply).

Improving the Management Structure of Ecosystem Resources for Increased Transparency

The Foundation looks to merge KGF and KIR, and reorganize the combined funds into the Klaytn Community Fund (KCF) and Klaytn Foundation Fund (KFF) at a 60:40 ratio. KCF funds will be used to foster ecosystem services, infrastructure, as well as our developer community, while providing gas fee support to existing Klaytn projects with significant on-chain contributions and making indirect mid-to long-term investments via the Klaytn Eco Fund.

KFF funds will be used to cover Foundation operational expenses, attract new GC members, and provide liquidity. Both KCF and KFF funds will be managed transparently through the Klaytn Square governance portal and executed only with the approval of the GC. In addition, KLAY holders will be able to delegate their voting rights by entrusting their staking to specific GC members after Klaytn's full permissionless blockchain transition in the future, allowing all KLAY holders to participate in the operation of the ecosystem.

Furthermore, according to previously-approved Governance Proposals KGP-2 and KGP-3, GC Block Generation Rewards will be divided into Block Proposer Rewards and Staking Rewards. These rewards will account for 10% and 40% of the total block rewards respectively. This change will be implemented through the Kore hardfork, which is currently under preparation.

Long-term Direction of Tokenomics

In order to establish KLAY as a deflationary digital asset, the Foundation is working on implementing management models to allow ecosystem participants more visibility into KLAY emissions in the medium to long term, setting realistic demand targets required to turn KLAY into a deflationary asset, and managing this plan on an ongoing basis.

At the same time, the Foundation looks to increase KLAY demand in a few ways: first, increasing on-chain interactions by collaborating with major portfolio projects as well as fostering services within the Klaytn ecosystem, especially dApps that look to 'use and burn' KLAY as their main tokenomics model. Second, the Foundation aims to increase the utility of KLAY beyond transaction fees by securing infrastructure services that are necessary for the ecosystem, such as oracles, and creating a structure where KLAY can be used to access and utilize those services. It additionally plans to create a structure where KLAY can be burned in the process of using these services, further increasing deflationary aspects. Third, the Foundation looks to increase KLAY demand by increasing returns on investment. By investing in high-growth potential projects necessary for the Klaytn ecosystem, such investments will channel returns back to the ecosystem and leverage said returns to expand KLAY demand.

Dr Sangmin Seo, Representative Director, Klaytn Foundation said, "To develop this proposal, the Foundation has been closely examining overall trends in the blockchain industry, having in-depth discussions with stakeholders, and seeking community feedback. We expect that our optimized tokenomics, as well as the proposed burning of reserves, will help revitalize Klaytn's projects in the short and long term, and ultimately play a positive role in Klaytn's future."

About Klaytn Foundation

Klaytn Foundation was established in 2020 to expand the ecosystem of Klaytn, a global Layer 1 blockchain platform, and has since been actively collaborating with its Governance Council members worldwide. Klaytn Foundation facilitates the adoption and development of new technologies to ensure that Klaytn fulfills its role as an open, trusted, and sustainable blockchain platform for developers and users alike. It also facilitates decision-making to ensure that the ecosystem continues to expand optimally in the rapidly changing blockchain landscape. In line with its long-term Governance Roadmap, Klaytn Foundation plans to fully implement the Decentralization Phase of the Klaytn blockchain in 2023 and beyond.

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Kimberley Kok
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SOURCE Klaytn Foundation