As pursuant to the expansion of the Klaytn Foundation and its goals to strengthen core aspects of Klaytn’s ecosystem, the Klaytn Foundation would like to propose the following optimizations and revisions to Klaytn’s tokenomics to the Klaytn Governance Council (GC), with the aim of securing a more sustainable and verifiable token economy.
1. Current State of KLAY Tokenomics
Upon the launch of the Klaytn Mainnet, 10 billion KLAY was minted during its TGE (Token Generation Event). Token inflation is primarily derived from a fixed amount of KLAY minted as block rewards. Initially 9.6 KLAY was minted per block (approximately 0.3 billion KLAY annually) but after the passing and integration of KGP-3, block rewards were reduced to 6.4 KLAY per block, in turn reducing annual block rewards to approximately 0.2 billion KLAY.
As of 19 February 2023, the total supply of KLAY stands at 11.001 billion, of which 3.073 billion KLAY tokens are in circulation. A detailed breakdown is provided as follows:
2. Proposal Overview
The Klaytn Foundation proposes the following changes to KLAY Tokenomics:
- Of a total of 7.281 billion undesignated reserve KLAY tokens, burn 5.281 billion KLAY tokens immediately (73%).
- Designate the remaining 2 billion reserve KLAY tokens (27%) as the “Klay Value Creation Reserve;” to explore ecosystem opportunities in conjunction with the GC, to be entirely burnt after 3 years if opportunities are not secured.
- To restructure the treasury management system for the Klaytn ecosystem
2.1. Optimizing KLAY Reserves / Total Supply
Of the 10 billion KLAY minted at genesis, currently 7.478 billion KLAY is held in reserve wallets.
Of the 7.478 billion, 0.197 billion KLAY has already been designated for use as service fees for GroundX per previously agreed contractual terms. This amount will be stored in a separate wallet and any transaction will be conducted transparently.
Of the remaining 7.281 billion KLAY tokens in reserve wallets, the Klaytn Foundation proposes an initial burn and removal of 5.281 billion KLAY from supply.
The Klaytn Foundation proposes to designate the remaining 2 billion KLAY as a “KLAY Value Creation Reserve” - to be used only for eco-system opportunities and use cases that will directly help facilitate deflationary tokenomics. Approval regarding any kind of expenditure of the reserve (regardless of amount) will sorely lie on the GC, and all discussions and decision making regarding the use of the KLAY Value Creation Reserve will be conducted via public forums and on-chain voting. If the KF and GC do not reach a consensus regarding opportunities and use-cases within 3 years, the 2 billion tokens in the KLAY Value Creation Reserve will also be burnt entirely, effectively removing a total of 7.281 billion KLAY from the total KLAY supply (approximately 66% of current total supply).
2.2. Restructuring Klaytn Ecosystem Treasury Management
Acknowledging the overlap between on-chain services and network infrastructure, the Klaytn Foundation proposes to merge the Klaytn Growth Fund (KGF) and Klaytn Improvement Reserve (KIR), to be re-established as the Klaytn Community Fund (KCF), while establishing a new ecosystem fund, the Klaytn Foundation Fund (KFF).
Taking the objectives of each new ecosystem fund into consideration the Klaytn Foundation would like to propose the following allocations of block rewards:
- 30 percent of block rewards to be allocated to the KCF.
- 20 percent of block rewards to be allocated to the KFF.
The Klaytn Community Fund (KCF) will have the following purposes:
- Proof of Contribution (POC) Compensation & Rewards: Support for projects that make significant and meaningful on-chain contributions to the Klaytn ecosystem.
- Empowerment of Klaytn developer communities: to fund hackathons, education programmes, collaborative research with the academia, collaborations with DAOs
- Building and securing ecosystem services and infrastructure: Funding support for projects and teams with clear objectives / utility / core infrastructure
- Klaytn Eco Fund Investments: Work with established crypto venture capital funds (VCs) to manage Eco Funds on a medium to long-term basis - with the goal of returning investment upside back to the Klaytn Ecosystem.
KCF management and operation to be conducted under strict GC approval:
- Klaytn Foundation submits detailed quarterly / annual expenditure plans to the GC for approval (all submissions will be made via public forums - i.e. Klaytn Square).
- GC to discuss and review plans, and vote on approval.
- Within the frame of the approved expenditure budget, the Klaytn Foundation will submit granular, detailed proposals on a per-item basis, to secure funding approval.
- GC will approve or reject proposals according to the overall voting consensus.
The Klaytn Foundation Fund (KFF) will have the following purposes:
- Ecosystem support: small grants; securing / inviting potential GC members; liquidity provisions; development of Klaytn Foundation-led services etc.
- Klaytn Foundation operation: operational costs (organizational services such as development and accounting, infrastructure operation, marketing, personnel expenses and others), treasury management, securing 3rd party investments, etc.
KFF management and operation will be conducted with the utmost transparency:
- The Klaytn Foundation submits expenditure budgets and details to the GC for review and approval (all submissions will be made via public forums - i.e. Klaytn Square).
- Once expenditure budgets have been approved, the Klaytn Foundation will leverage available funds for the above purposes.
- The Klaytn Foundation will release detailed expenditure disclosures for the purpose of transparency (via public forums - i.e. Klaytn Square).
3. Voting Schedule
- Voting starts at 9:00:00 on 22 February 2023 (KST).
- Voting is closed at 23:59:59 on 28 February 2023 (KST)