Governance Proposal for Klaytn Block Reward Reduction

TL;DR

  • An ongoing proposal by our GC recommends reducing existing block rewards by ⅓ in order to optimize the level of $KLAY emission.
  • Results of the governance vote will be in by 25 Oct 2022.

The first of our updates, this article provides an overview of the governance proposal submitted to the Klaytn Governance Council (GC) proposing a reduction in block reward.

The submitted governance proposal recommends decreasing existing block rewards by ⅓ in order to optimize the level of KLAY emission. If the proposal is approved by the Governance Council (vote ending 10.25), the inflation adjustment will be reflected on-chain around mid November. The Klaytn team will share results of the governance vote by 22.10.25.*

* As of 10.23, of 36 GC members, 10 have voted so far.20

The proposal was submitted by the Klaytn team with the intent to address the volatility currently seen in the macro markets. If passed, the proposal will result in the following adjustments:

As-Is Block Rewards

  • 9.6 KLAY newly minted per block
  • Allocation of newly minted amount: GC — 34% / KGF — 54% / KIR — 12%

To-Be Block Reward (Proposal)

  • 6.4 KLAY newly minted per block
  • Allocation of newly minted amount: GC — 50% / KGF — 40% / KIR — 10%

Voting

Voting had been held in following blocks.

Baobab

  • block 105193190 (Oct 26, 2022, 16:38:55 KST): Block with reward.MintingAmount Vote
  • block 105193221 (Oct 26, 2022, 16:39:26 KST): Block with reward.ratio Vote

Cypress

  • block 105629058 (Nov 04, 2022 13:04:54 KST): Block with reward.MintingAmount Vote
  • block 105629111 (Nov 04, 2022 13:05:47 KST): Block with reward.ratio Vote

Schedule

Baobab Target

  • Block number: 105,840,000
  • Estimated time: Nov 03, 2022, 04:19:05 KST

Cypress Target

  • Block number: 106,444,800
  • Estimated time: Nov 13, 2022, 23:26:20 KST

*The exact time can vary depending on the network status.

Rationale for the Proposed Reduction in Block Rewards:

  1. Sustainable Tokenomics that Reflect Macro Conditions
  • In order to facilitate sustainable growth, tokenomics should be designed to drive demand for KLAY; in optimal scenarios, inflation and circulation should aim to be delta neutral in relation to demand. Achieving this balance is critical to the security and economics of Klaytn’s ecosystem.
  • The current macroeconomic landscape is causing unprecedented volatility in the crypto markets, and the current level of token emissions is not optimal in facilitating value accruement for KLAY.
  • Ultimately, in order to continue building momentum for the sustainable growth of the Klaytn ecosystem, Klaytn block rewards — thus token inflation — should be adjusted to reflect current macro conditions.

2. Emission vs. Circulation vs. Demand

  • Any changes to the tokenomics and emission schedule should be always derived from market narratives (demand). The proposed ⅓ reduction to block rewards was calculated against current market data; circulation vs. demand.
  • A ⅓ block reward reduction (annual minting of KLAY reduced from 3% to 2%), will reduce the annual inflation of circulating KLAY significantly, from 10% to 6.48%. This level of inflation is competitive to other similar L1 ecosystems (avg. Top 20 L1 token inflation is at around 8.6%*).

In conclusion, the Klaytn Team believes it will be critical for this proposal to be passed, and GC approval will result in positive momentum for Klaytn’s ecosystem.

Moving forward, the Klaytn Team will continue laying the foundations for growth by submitting proposals that will evolve and optimize tokenomics to reflect macro conditions, community feedback and protocol mechanics, as so Klaytn’s ecosystem continues to remain competitive and sustainable.

Thank you.

*Source: Messari, data as of October 21 2022, numerator: additional circulating amount, denominator: current circulating amount


[3Q Klaytn Ecosystem Update]
The 3Q Klaytn ecosystem updates will cover key initiatives the Klaytn team is currently undertaking in our continued efforts to achieve an optimal and sustainable Klaytn ecosystem.

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© Klaytn Foundation 2022. All rights reserved.
© Klaytn Foundation 2022. All rights reserved.