Token Economy


Klaytn’s token economy is designed to create sustainable funding structures for empowering its ecosystem, growth initiatives, and strategic investments. Many public blockchain projects have monetary systems that solely incentivize their node operators (miners or block producers), focusing only on the technical aspect of network maintenance. However, such designs miss out on the importance of incentivizing other types of participants who contribute to the growth of the network’s token economy or invest in long-term growth prospects. In contrast, Klaytn’s token economy is designed to compensate more diverse forms of contributions from a wider range of participants, and has built-in funding structure to procure sustained resources to fuel future growth initiatives and strategically sourced investment projects in addition to maintaining its blockchain nodes.

Funding Structure

Klaytn’s funding structure runs continuously with Klaytn network’s block generation. With every new block, newly issued KLAY and the sum of transaction fees used in the block (collectively called “block reward”) are aggregated and distributed to the following three destination accounts in accordance to the predetermined ratio:

  • Klaytn Governance Council (GC) Reward:

    • GC Block Proposer Reward: 10%

    • GC Staking Award: 40%

  • Klaytn Community Fund (KCF): 30%

  • Klaytn Foundation Fund (KFF): 20%

6.4 KLAY will be minted for every new block. This implies that approximately 200 million KLAY will be minted annually, which is equivalent to 2% annual inflation against the 10 billion KLAY issued at genesis (the annual inflation rate is subject to change through the Klaytn Governance Process). Transaction fee is charged per OPCODE and is metered according to the transaction fee table. For detailed information on the transaction fee table, please refer to Transaction Fees.

Klaytn Governance Council Reward

Klaytn Governance Council is the collective group of Core Cell Operators (CCOs). Council members are responsible for maintaining Core Cells (CCs), which makes the Council an essential body in the Klaytn ecosystem responsible for providing the underlying infrastructure. To become a Council member, the candidate must undergo a qualification review by the Klaytn Governance Process and must stake at least 5 million KLAY. The Klaytn Governance Council Reward is a structure for incentivizing Council members to continue to provide a stable foundation for the Klaytn ecosystem.

Klaytn Governance Council Reward Mechanism

For every block, a Committee composed of randomly selected Council members is formed. Each Committee has one member assigned the role of Proposer; all other Committee members assume the role of Validators. When a block is successfully created and added to the Klaytn blockchain, the Proposer of the said block is rewarded with 100% of the block reward. The probability of a Council member being selected a Proposer is proportional to the amount of KLAY staked by the member; that is, the more KLAY a member stakes, the more likely that the member will be selected as a Proposer and potentially claim the block reward.

As long as the minimum 5 million KLAY staking requirement is met, Klaytn Governance Council members can freely stake or unstake his or her own KLAY. Staking information is updated every 86,400 blocks, and newly staked KLAY comes info effect two update cycles later from when the staking is completed. Withdrawing staked KLAY requires one week of delay to prevent malicious members from immediately exiting.

To prevent monopolized claiming of Klaytn Governance Council Reward by small groups of highly invested Council members, Gini coefficient may be used to adjust the effective amount of staked KLAY. The application formula is as follows, where G stands for gini coefficient of Governance Council's KLAY staking distribution:

  • Adjusted staking amount = (Council member's staking amount)^(1/1+G)

Penalty for Misbehaving Council Members

A Council member may be subject to penalties for conducting misbehaviors defined below. In the future, more penalty rules can be established and refined through the Klaytn Governance Process.

Causing Safety Failure:

  • A Council member selected as Proposer may not create more than one block in the same height

  • A Council member selected as Proposer may not intentionally omit certain transactions

Causing Liveness Failure:

  • A Council member selected as Proposer must create a valid block

  • A Council member selected as Validator must validate the block proposed by the Proposer

Klaytn Community Fund

The Klaytn Community Fund (KCF) was established to support Klaytn's mission of enabling greater transparency and verifiability. It's important to keep in mind that the former Klaytn Growth Fund (KGF) and Klaytn Improvement Reserve (KIR) have merged to become the new Klaytn Community Fund (KCF).

The Klaytn Community Fund will be used to fund activities that improves the Klaytn ecosystem, such as:

  1. Rewarding Proof of Contribution: The KCF will provide follow-up support, such as gas fee support to projects that have made significant on-chain contributions to the Klaytn ecosystem among services that have already been developed.

  2. Building our Developer Community: The KCF will support various initiatives including hackathons, development education programs, collaborative research with the industry, and collaboration with various DAOs to foster and grow the Klaytn developer community.

  3. Fostering Ecosystem Services and Infrastructure: The KCF will support essential ecosystem infrastructure, alongside the development of services with clear utility and provide marketing support.

  4. Klaytn Eco Fund Indirect Investment: The KCF will make indirect mid-to long-term investments by entrusting specialized crypto VCs, and most of the profits generated upon subsequent investment recovery will be returned to the Klaytn ecosystem.

The administration of the Klaytn Community Fund follows a process in which the GC reviews and approves the use of funds in public forums on Klaytn Square. The Foundation will submit a budget proposal for each category to the GC for approval. Within the approved budget, each specific use will be reviewed and approved again by the GC. In the meantime, the KCF is currently being run as a pilot program and interested parties can visit the Klaytn Governance Forum for more details about the program.

Klaytn Foundation Fund

Klaytn Foundation Fund (KFF) is an operational fund that will focus on this two main categories:

  1. Ecosystem Support: This includes providing minor financial assistance, securing new GC members, liquidity provisions, and developing / funding services led by the Foundation.

  2. Foundation Operations: This includes operating expenses such as development, accounting, infrastructure operations, marketing, and labor, as well as financial management and investment attraction costs.

Similar to KCF, KFF will be executed autonomously and transparently after obtaining approval from the GC via on-chain voting.

For more information, kindly read this article.

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