Unveiling Klaytn’s Sustainable Strategy
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> DISCLAIMER: This article is not intended for investment, but rather a personal blog to better explain Klaytn’s future strategy and action plan. It is not an official statement of the Klaytn Foundation and may contain personal opinions.
Hi, my name is Colin, and I’m the VP of Strategy and Operations at the Klaytn Foundation. As I take on the role of strategy, I’ve been thinking a lot about how to explain the direction Klaytn is taking. Since the Foundation’s official blog is a formal document, I thought it would be a good idea to write in a more personal and accessible way, so I started a personal blog.
Sam’s Presentation at Klaytn Square Lounge 2023
At the Klaytn Square Lounge on September 4th and 5th, Sam, the Director of the Klaytn Foundation, gave a presentation titled “Driving Real Change: Achieving sustainability through value creation” about the future of Klaytn. You can watch a replay of Sam’s presentation on the official Klaytn Foundation YouTube channel.
In this post, we’ll keep it short and to the point, but the key takeaway is that the Foundation and ecosystem participants need to work together to drive value creation for KLAY.
KLAY is the native currency of the Klaytn network, and it is a utility token. This utility token has value, and maintaining the value of this token is the most important task. There are many ways to maintain the value of the token, but the most important thing is to manage the circulating supply. If the supply of KLAY is only increasing without expanding the demand, it will be difficult to maintain the price.
Klaytn’s Current Circulation
What is the current circulation? There are 552,960 KLAY issued daily. We are currently burning KLAY through transaction fees, with an average of 5,739 KLAY burned daily. Roughly 96 times as many are being issued as are being burned. This suggests that the value of KLAY may decrease in the long run. So what can we do to increase the amount of KLAY burned?
Klaytn’s transaction fees are very low, and it’s hard for them to go up due to the high-performance nature of the blockchain. In order for fees to increase, more transactions would need to occur than the network can process, which is not easy. Klaytn experimentally measured 4,000 TPS at the start of the mainnet. Currently, Klaytn’s actual TPS is around 10 TPS, which is significantly lower than its processing capacity.
So, what does Klaytn need to do to increase its burn rate? We believe that Klaytn is a platform, and the business model of a platform should be proportional to the value creation of the services running on it.
Common Platform Business Models
First, it’s worth talking about two examples of platform business models. The first is the AWS model. While it’s not directly tied to the actual revenue of your service, it will require more infrastructure resources as it grows. Since AWS generates revenue by providing infrastructure, the growth of your service and the amount of infrastructure you provide will be proportional.
The second is the App Store model. App Store charges a percentage of the app’s revenue. Revenue is calculated when the app is purchased or paid for within the app, and a percentage of that revenue goes to App Store. The more successful your app is, the more revenue it generates, and the more revenue it generates for the app store. However, in the case of App Store, the fees can be excessive, which has led to a number of issues. (reference: Apple faces $1 billion UK lawsuit by app developers over App Store fees)
Klaytn’s Business Model?
So, which of these two models should a blockchain platform choose? If we apply the AWS model, the more the service grows, the more the blockchain infrastructure should grow and the more processing power it should have. However, blockchain is a very inefficient service from a computational point of view. Every node tries to execute the same transactions in the same order and agrees that the results are the same, which means that more nodes don’t increase processing power. As a service grows and generates more transactions, the performance of the infrastructure should increase accordingly, but this is not the case with blockchain. Therefore, we can say that the AWS model is not suitable.
But what about the App Store model? Many blockchain platforms quantify the computational cost of nodes and charge transaction senders in the form of transaction fees. Klaytn does the same. But this is the cost of using the infrastructure, not a fee that is proportional to the app’s revenue. Take DEX, a typical blockchain app, for example: if you want to exchange 100 KLAY for 100 USDT, DEX charges a fee that is proportional to the value. For example, if they charge a 0.3% fee, you’ll pay 0.3 KLAY to exchange 100 USDT.
However, the transaction fee on Klaytn is the same whether you exchange 100 KLAY or 1 KLAY. The current state is not charging a fee that is proportional to the revenue of the app. If we apply the App Store model, the transaction fee should be proportional to the fee exchanged.
However, it is not easy to apply the App Store model to Klaytn. If you are running a DEX, you can apply the value of the original token you want to exchange by converting it to KLAY to pay for transaction fee. However, it is not easy to calculate the value of the original token, and it is not efficient to convert the token back to KLAY and pay for it. What is more difficult is that many other services besides DEXs have not yet found a clear business model.
We also believe that this unilateral protocolization leads to centralized fee rates, which was a problem with App Store. We wanted to solve this problem in a more Web3-like way. Under the premise that all participants in the Klaytn ecosystem should strive to create value for the underlying currency, KLAY, why not create a culture where ecosystem participants can voluntarily burn KLAY?
A Virtuous Cycle for a Sustainable Economic System
To create this culture, we envisioned a virtuous cycle: successful services would voluntarily burn a portion of their revenue in KLAY, increasing the amount of KLAY burned, and a portion of the burned KLAY would be reissued and offered as grants to builders starting new businesses. In order for a new service to be eligible for a grant, they must include a burn mechanism as part of their business model: the more successful they are, the more KLAY they burn, and the more successful they become, the more KLAY they burn. This will allow us to effectively control the amount of KLAY in circulation and better position KLAY as a utility token.
In addition, from the perspective of the Foundation and GC (Governance Council), the amount of KLAY burned is an important factor in creating a sustainable tokenomics, so we will spare no effort to help services on Klaytn become more successful and generate more revenue.
Examples of Projects Contributing to KLAY Burning
To make sure this strategy isn’t just words, we’re working on a number of projects and specific directions. Here are a few examples.
Orakl Network
An oracle service developed in collaboration with the Klaytn Foundation. It currently provides three functions (price feed, verifiable random function (VRF), and request-response (RR)) and has built-in protocols to burn half of the fees for VRF and RR.
KlaySwap
Klaytn’s largest DEX service by TVL and trading volume. We are exploring the possibility of using a portion of its fees to burn KLAY.
SuperWalk
SuperWalk is the largest M2E (Move-to-earn) protocol in the Klaytn ecosystem, and to boost the value of KLAY, they made the first anniversary NFTs available for purchase only with KLAY. We will continue to work together to boost the value of KLAY.
Klaytn Name Service (KNS)
It is a domain protocol in the Klaytn ecosystem, and we have discussed and are finalizing a burning plan to use a portion of the fee for each domain purchase.
We’re also continuing to refine our discussions with other projects about burning KLAY, and we’re not just asking protocols to make the sacrifice of burning KLAY, but we’re trying to communicate more closely about business development, technical support, and more so that we can help each other grow and make the pie bigger.
As Klaytn is a platform, the success of the services running on top of Klaytn is the success of Klaytn. The Foundation and GC will continue to support the success of Klaytn ecosystem services in various ways. Moreover, if the culture of voluntary KLAY burning contributions by services is well established, the Foundation and GC will be able to focus on more fundamental platform competitiveness and policy development.
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