Klatyn Report by Jesse

You can’t make this stuff up folks!  Axie Infinity is back this week after recovering from the previous week’s pullback and rocketing from $15 to a new all-time high of almost $50. Out of nowhere Telcoin has also popped back up on the scene with the second largest gains of the week. Looking into the future of enterprise-grade blockchains. This week we’ll be reviewing an existing protocol that has been developed in collaboration with one of the largest messaging services in the world called Klaytn.

Introduction

Klaytn is Kakao’s global public blockchain project. An enterprise-grade, service-centric platform that brings user-friendly blockchain experience to millions. It combines the best features of both public and private blockchains via an efficient ‘hybrid’ design. Klaytn is secured by participation from many highly-reputable brands around the globe, working together to create a reliable business platform atop a robust system of decentralized trust. Klaytn enables businesses and entrepreneurs today to capture value using blockchain technology. This makes Klaytn a highly optimized, BFT-based public blockchain that aims to create enterprise-grade reliability. On Klaytn transactions have immediate finality due to their high TPS, low-fee system that lowers the average barrier of entry for existing blockchain developers. Klaytn supports a long-term plan where the number of nodes participating in block production will gradually increase as technical requirements for block production eases down through infrastructure technology advancements. This will lead to an expanded pool of block producer nodes which will in turn reinforce the network’s security while preserving performance. While blockchain-enabled products that would be offered by larger entrants may not focus on decentralization as its foremost value, and may not meet a number of key concepts often expected from a decentralized application (DApp). A new category of products Klaytn looks to enable with larger entrants, namely blockchain application (BApp), will instead focus on drawing out the intrinsic qualities of public blockchain networks to create unique use cases and value propositions before not possible without blockchain technology. But, a more fundamental reason for big business to consider adopting blockchain lies in the technology’s long-term potential to disrupt existing business models and to create entirely new ones

Klaytn launched its Mainnet back in 2019 with fully compatible Ethereum Virtual Machine Wallets to support and execute Solidity seamlessly. Solidity is adopted in Klaytn because it is a de facto standard contract programming language for Ethereum and has a large user base and an active community. The Klaytn team decided to provide the users with familiar development experience so that the Ethereum DApp developers could easily experiment with or migrate their existing smart contracts to Klaytn. To address the multi-faceted challenge of blockchain mass adoption, Klaytn opts for a multi-pronged strategy to enhance the experience of three different categories of users by delivering three separate packages; Developer experience (DX) offerings, User experience (UX) offerings, and Enterprise experience (EX) offerings. The offerings are designed to realize Klaytn’s goal of creating a business-centric, enterprise-grade blockchain ecosystem based on highly scalable and reliable infrastructure, populated by quality blockchain products and services, supported by steady inflow of end-users to consume the services, and capable of scaling in collaboration with enterprises to reach mass adoption. The goal of Klaytn’s enhanced DX is to invest in the most sure-fire way of realizing blockchain mass adoption. These DX offerings will start with integrated development environments and blockchain interoperability software, and will expand to include developer-friendly platform features and policies. To deliver better blockchain UX, Klaytn aims to provide blockchain service providers with the means to cut user acquisition hurdles and technical unfamiliarity challenges, such as account creation and management, private key safekeeping, and wallet provisioning and setup. More Klaytn offerings will include user experience guidelines, references for implementing intuitive, easy-to-use interface for wallets, and digital asset-related interaction designs. Klaytn will also provide highly usable block explorers that seamlessly integrate with a wide range of blockchain application usage scenes. To improve EX and better address the adoptions hurdles that enterprises experience, Klaytn plans to provide enterprise-grade network infrastructure with built-in reliability support and high throughput that enables companies to deliver blockchain products that meet modern end-user experience expectations without sacrificing public blockchain’s unique values of transparency, security, and censorship resistance. To provide for the flexibility and customizability required to be considered for new technology adoption, Klaytn provides Service Chain as a native scalability solution that doubles as a customization feature for enterprises to configure their own blockchain network. Service Chain will offer extensive customization for individual organizations, including data privacy policy and performance output goals, helping stakeholders get organizational buy-in and decision-making comfort.

Klaytn can be partitioned into three logical subnetworks based on their roles and purposes. The Core Cell Network (CCN) consists of Core Cells (CCs) that verify and execute transactions submitted through Endpoint Nodes (ENs). CCN is responsible for creating and propagating blocks throughout the network. Endpoint Node Network (ENN) consists of Endpoint Nodes (ENs) that mainly create transactions, handle RPC API requests, and process data requests from service chains. The outermost subnetwork, ENN, is solely composed of ENs connected to each other and also to a number of PNs. The Service Chain Network (SCNs) are Klaytn subnetworks composed of auxiliary blockchains independently operated by BApps covered earlier. All service chains are connected to the main chain via ENs. This block generation and propagation design, along with the BFT consensus algorithm used, plays an important role in reducing the latency of a blockchain platform. This all plays together to create block propagation cycles called “Rounds”. Each round generates a new block, and is immediately followed by the start of a new round. Klaytn targets each round to be approximately one second, although block generation intervals may be influenced by network traffic and node operation conditions. Klaytn is not directly involved in the selection of either the proposer or committee; instead, each CN uses a random number derived from the most recent block header to run a cryptographic operation which yields proof that the CN has (or has not) been selected for this round. Service providers and end-users on Klaytn network can freely confirm block generation results and check if the CN committee has generated the block according to proper procedures. Each Rounds block reward will be distributed to the network participants according to preset distribution ratios. The proposer of the newly created block will receive 100% of the reward to be awarded to CNs, whereas the committee will receive none.

The Token

Klaytn’s KLAY token model and governance was designed to address three large areas that include economic growth, distribution, general decision making, design, platform security, and governance. Before July 31st, 2021 Klaytn development covered 100% of all gas and transaction fees for users and businesses. This was initially installed from a fee delegation pool to influence development and widespread use of Klaytn and has since served its intended purpose. Initially 10 billion tokens will be issued and extra KLAY will be issued through each new block’s creation. For the few years after the launch of mainnet,\ the inflation rate will be kept at approximately 3% per year, which translates to approximately 9.6 new KLAY being issued for each new block. By default, the inflation rate will reflect the economic growth of Klaytn, and while they aim for lower values when possible, the exact value will be decided through governance structures. For each block, the block reward will be distributed as 34% Core Cell Operators, 54% Proof of Contribution (stakers), and 12% for the Klaytn Improvement Reserve. While no distribution model is available for KLAY it’s easy to see that a tremendous amount of capital has been given to the project. In December 2018 during the bear market Klaytn raised a total of $90 Million from iits only token offering via Seed Round. Additionally, only three capital funding agencies were identified to have provided this funding. Those being Crescendo Equity Partners, IDG Capital, and Chinese mega investment corporation Translink Capital. This investment came before Klaytns affiliation with Kakao. Since that time Klaytn has been incorporated into Kakao Corp as a direct subsidiary and official Kakao entity. Which we’ll get into further with review of the founders.

Additionally Klaytn has been working on implementation of their own stablecoin pegged to USD. This is still in development and appears to be stalling due to the changing regulatory framework in Korea. This stablecoin would be known as (KLAYTN) and runs only on the Binance Smart Chain Network. It would offer users a 250% staking APR, 5% fee distribution, 3% HODL interest without staking and incorporate a 5% auto burn mechanism on all fees collected. But since it halted development there’s been confirmed information leaks that this may be due to Klaytns’ initial discussions with the Bank of Korea to use distributed ledger technology for its digital yuan ₩ (eCNY) experiments, referring to it as a CBDC ledger. It also outlined a two tier distribution system with banks performing the distribution like cash and developing integrated KYC processes.

The Founders

While Klaytn itself is a private corporation and main fundraiser for the project. The company developing the ledger is Ground X. The team at GrundX includes seasoned CEO Jaesun Han, CFO Myeongjin J., Head of Wallet Development Sangeon Be, Head of Platform Development Sangmin Seo, and many, many other Engineers, Product Managers, Researchers, and Legal team members from both the GroundX and Klaytn entities. To maintain both entities and unite them into one group a Klaytn Governance Council was created to decide on the direction of the project. The Council members participate in key decisions related to technical updates of the platform including basic account structures, features, and economic policy. While dozens of organizations are part of the council the most notable ones are LG Electronics, Binance, Netmarble, Shinhan Bank, and all existing Kakao entities (Pay, Entertainment, Space, Games). Outside of council membership Klaytn has secured partnerships with Chainlink, Maker, ConsenSys, and Injective Protocol.

Klaytns’ integration and direct involvement with Kakao stems from the initial direction of Klaytn to build a messaging application layer. As I’m sure you can imagine for a corporation like Kakao it’s infinitely easier to just buy someone else’s technology instead of funding the research and development needed to add those features to KakaoTalk.

Market Impacts

KLAY launched its TGE back in October 2019 almost one year after initial funding. Token price remained steady between TGE and August 2020 at $0.06 to $0.20. Aside from a few slow months the daily volume for KLAY remained strong throughout this market cycle. In August started an uptick in popularity and brought KLAY just shy of $1 before settling into the $0.50 price range for the rest of 2020. January 2021 started the token’s significant price appreciation as it did most projects at this time. Reaching an all-time high of $4.20 to close out March before the following month’s sell-off began and bringing KLAY to its current price of $1 and Market Cap of $2.4 Billion. During the run-up KLAY maintained Daily Volume above $100 Million, while now it averages around $40 Million. Of the existing 10 Billion tokens currently around 2.5 Billion are in circulation. Klaytn has been busy with many upgrades and updates to the core technology since its initial release announced via their blog. With a handful of Improvements proposed to the council. It wasn’t until May 2021 that Klaytn opened up a public form to English speaking community members via Telegram where it now has 2,300 members. The technology on Github that is open-source is extensive and maintained consistently in line with the goals of the project and its developers.

Concerns

The most obvious concerns are that this is not a distributed ledger in the standard sense but rather a highly controlled corporate tool developed to serve the transition of legacy protocols into blockchain. Centralized by all accounts not just with direct control of the chain itself but in all aspects, you’d find with any type of proprietary technology. Where you sit on the decentralized fence will directly affect your monetary participation in this type of technology.

Conclusion

While we have seen many, many, many projects claim to be “Enterprise-Grade” blockchain solutions. Klaytn is the most advanced, developed and used one to date. This quite obviously has a lot to do with its backing from one of the largest corporate entities in existence. Making you hard-pressed to imagine any scenario where Kakao presents this technology to its affiliates, subsidies, and partners without receiving their full support. That influence carries a lot of weight in the business world and one could easily argue the “too big to fail’ element when discussing Klaytn. Which is the podium I’ve found myself on after carefully researching this technology. While not directly linked to KakaoTalk “yet”, it’s really just a matter of time before this technology is integrated into their corporate structure. The most recent run shows that every token is susceptible to retail speculators and, no matter how much money is backing a project, or how big the team, it doesn’t have a direct effective outcome on price depreciation. Klaytns’ ecosystem is a far-reaching net that expands into Digital Assets, Art, Games, Marketplaces, DeFi, Staking as a Service, Oracles, Interchain Bridges, Stablecoins, and development tools. Making Klaytn a snowball rolling down a large hill continuing to get bigger and bigger. Whether this will return large monetary incentives for token holders further down the road is unknown. But what is known about Klaytn is that it has continued with a steady progression of making firm on their promise to integrate blockchain technology into a much more dedicated role in the future of doing business.

Until next time, remember that the only guarantee is BTC. So keep stacking that Satoshi.

-Jesse Koz

Follow Jesse on Twitter

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