Governance Proposal for Klaytn Block Reward Reduction
[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.
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%
Rationale for the Proposed Reduction in Block Rewards:
- 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.
*Source: Messari, data as of October 21 2022, numerator: additional circulating amount, denominator: current circulating amount