Comprehensive Interpretation of the Korean Public Chain Klaytn: Backed by Internet Giant Kakao, Aiming to be a Metaverse Public Chain

Authors: Nianqing, Zeyi, Chain Catcher

When talking about South Korea's "star public chains," most people first think of Terra, which has now entered the top 10 by market capitalization in cryptocurrency. Another prominent "star public chain," Klaytn, has received relatively less attention. This project, developed by Ground X, a blockchain subsidiary of South Korean internet giant Kakao, completed a $90 million ICO in March 2019, and its token currently has a diluted market cap of about $10 billion.

Kakao is one of the largest publicly listed tech companies in South Korea, with a market cap exceeding $40 billion. In South Korea, over 93% of the population uses Kakao's instant messaging application KakaoTalk, and another product, Kakao Pay, is also the largest e-wallet in South Korea. After the bull market in 2017, Kakao decided to venture into the cryptocurrency space. Despite facing opposition from South Korean financial regulators, Kakao launched the Klaytn public chain in 2019 with the help of its blockchain subsidiary Ground X.

Backed by Kakao, Klaytn has strong resources and inherent developmental advantages. KakaoTalk integrates with its crypto wallet Klip, connecting to 45 million KakaoTalk users. Klaytn serves as an important tool for Kakao's transition to web3, leveraging Kakao's resources in entertainment, gaming, and technology.

Initially, Klaytn was positioned as an enterprise-grade, service-centric platform, combining features of public chains (decentralized data and distributed governance) and private chains (low latency and high scalability) through a "hybrid" design. Klaytn has also signed a project with the Bank of Korea for a central bank digital currency (CBDC).

Last September, Klaytn entered the Klaytn 2.0 era, adopting a new positioning as the "Metaverse Blockchain," expanding its target audience from enterprises to everyone. Its main ecological projects are gradually focusing on AAA games, P2E games, NFTs, and DeFi services that support metaverse businesses.

Sangmin Seo, a director at the Klaytn Foundation, mentioned in an interview: "Currently, there is no blockchain specifically for the metaverse and gaming in the world. Given the popularity of video games in South Korea and the strength of global K-culture, it is not impossible for Klaytn to become the preferred blockchain for games, especially AAA games."

Additionally, Klaytn was initially driven by Ground X. After transitioning to 2.0, Klaytn aims to expand from the limited South Korean market to a broader global market, with the Klaytn Foundation establishing its headquarters in Singapore, becoming the main driver for Klaytn's future development.

So, how does Klaytn build the "preferred blockchain for metaverse creators"? Chain Catcher will detail Klaytn's ecological projects, operational mechanisms, and future plans in this article.

I. Ecosystem Focused on Metaverse and GameFi

Klaytn's slogan is: to become the "one-stop" blockchain for metaverse builders. "One-stop" refers to open-source toolkits, high-performance mainnets, community co-construction, and financial support.

In the Klaytn 2.0 Lightpaper released a few months ago, it was mentioned that Klaytn 2.0 will provide open-source kits for metaverse developers, enhancing scalability, performance, and interoperability, supporting Ethereum equivalence to simplify the development of EVM-based DApps. The "metaverse" development toolkit includes SDKs and smart contract libraries, wallets and chain explorers, distributed storage solutions, Oracle support, cross-chain bridges, DAOs, NFT markets, DEXs, DeFi, and traditional financial interfaces.

The Klaytn Ecosystem Foundation also claims to invest $1 billion through grants, investments, and reward programs to support high-potential projects.

Moreover, Klaytn has comprehensive talent and collaboration advantages for developing the metaverse. Team members come from tech and blockchain companies such as Huobi, Ubisoft, Bitcoin.com, Samsung, Kakao, and Dunamu (Upbit). Kakao, Kakao Games, Kakao Entertainment, and Kakao Space also serve as governance committee members, providing extensive resources in entertainment and gaming for Klaytn.

Currently, Klaytn's "metaverse ecosystem" is still under rapid construction, with the following being a summary of its main projects in categories such as games, NFTs, and DeFi.

1. Games/Metaverse

Currently, while the number and TVL of game projects on the Klaytn chain are slightly inferior to its DeFi projects, they hold great potential. Klaytn has recently established partnerships with gaming giants such as Wemade, Netmarble, and Neowiz. Additionally, Klaytn has developed the official metaverse land project KlayCity.

• Wemade

Korean gaming giant Wemade was founded in 2000 and is one of the first gaming companies to complete the transition from traditional gaming to blockchain. Last year's launch of "MIR4" saw Wemade's stock price multiply several times. "MIR4" is a P2E game based on Klaytn, and since its official release in 170 countries/regions, it has attracted over 1.3 million concurrent players in less than three months.

The global blockchain platform WEMIX developed by the company allows all types of games to be transformed into blockchain games on this platform. WEMIX serves as a Klaytn sidechain (service chain), with Wemade's "MIR4" deployed on this sidechain, using WEMIX as its token. WEMIX plans to service 100 games by the end of 2022.

• Netmarble

South Korea's largest mobile game developer, Netmarble, launched the MBX (MARBLEX) blockchain ecosystem based on the Klaytn mainnet. Recently, Netmarble's subsidiary Netmarble F&C signed a cooperation agreement with the game development engine Unity to promote the launch of the "Metaverse World" platform.

• Neopin / Neowiz

Neopin was launched by the established Korean game developer Neowiz, known for "CrossFire," aiming to become an "open blockchain platform" connecting a series of blockchain-related services such as crypto wallets, games, P2E, S2E, and NFTs.

In February of this year, the project signed a strategic cooperation agreement with the Klaytn Foundation, planning to launch the P2E game "Crypto Golf Imfact" based on the Klaytn network in April. This game applies blockchain technology to sports. Additionally, Neowiz will also launch other P2E games based on the Klaytn network this year, such as "BRAVE NINE" and "AVA."

• Pocketful of Quarters (PoQ)

Pocketful of Quarters was a star chain game in 2019, with its token Quarters being the first game token in the U.S. to receive SEC approval for issuance. The game's co-founder was only a 12-year-old student at the time of its release. In February of this year, PoQ announced a strategic partnership with Klaytn and received funding from the Klaytn Growth Fund to build a compliant and interoperable game token in the metaverse on the Klaytn network.

• KlayCity

KlayCity is the first official metaverse land project on the Klaytn chain, launched on March 18 this year. KlayCity is based on exploration, cleaning, and trading, set in the year 2080, where Earth has been devastated by decades of climate change and pollution. Players need to develop the LAY007 token and clean the Earth to survive. KlayCity raised $3.75 million in seed funding led by Krust and Animoca Brands in March link.

2. DeFi

According to data from Defillama, as of April 1, the TVL of DeFi projects was approximately $1.18 billion, while Klaytn's diluted market cap was about $3.2 billion. Recently, Klaytn also partnered with Japanese fintech company SORAMITSU. Starting in April, the SORAMITSU team will work on building a scalable DEX architecture on the Klaytn network to establish the first open-source decentralized exchange.

There are three main participants in the Klaytn DeFi ecosystem: Klayswap, Klaystation, and Orbit Bridge.

• Klayswap

KLAYswap is an AMM-based instant trading protocol and the largest DEX on Klaytn, with a TVL of approximately $776 million. To achieve global expansion, Klaytn has also partnered with DeFi protocols such as Injective and Definix. Klaytn's proprietary digital asset platform Klip has over one million active users and is integrated with KakaoTalk.

Klayswap users can earn rewards in various ways, such as receiving a percentage of trading fees, KLAY staking rewards, or KSP rewards. In February of this year, the project suffered a hack, resulting in a loss of $1.83 million.

• Klaystation

Klaystation helps users browse the Klaytn ecosystem. Klaystation allows users to exchange their tokens for a packaged version called sKlay. The amount of sKLAY each user receives should equal the amount of KLAY they have put into the system. For example, if a user stakes 100 KLAY, they will receive 100 sKLAY in return. Each sKLAY token represents proof of the user's staked tokens and will be used to redeem KLAY tokens from the KLAY liquidity pool, with staking rewards of about 5% annually.

• Orbit Bridge

Orbit Bridge is a cross-chain protocol for connecting and communicating with the Klaytn network and other public chains. It is an application running on the Orbit chain that can transfer tokens from other Layer 1s like Ethereum and Terra to the Klaytn network to support cross-chain liquidity supply. Currently supported tokens include KETH, KUSDT, KORC, KWBTC, and KDAI.

3. NFTs

Klaytn is one of the four blockchain networks supported by OpenSea (the other three being Ethereum, Polygon, and Solana), supporting over 1,800 NFT projects based on Klaytn. Major NFT projects on its chain include Klapes, Klip Drops, and NFTBank.

Additionally, Klaytn has a strong inclination towards entertainment. Through Makestar, it collaborates with celebrities and artists to issue music, art, and other NFTs. In January of this year, Klaytn also partnered with the American entertainment group Animal Concerts to mint NFTs for top celebrities.

4. Wallets

The Klaytn network supports wallets such as MetaMask, Huobi Wallet, and Coin98, with local ecosystem wallets primarily including Kaikas and Klip.

Klip is a wallet embedded in the KakaoTalk messaging application, connecting its 1.67 million KYC users to various DApps in the Klaytn ecosystem; Kaikas is a browser extension wallet used by multiple Klaytn DeFi platforms and OpenSea.

II. Operational Mechanism

Since Klaytn is an enterprise-centric network, it replaces the commonly used Proof of Work (PoW) and Proof of Stake (PoS) consensus mechanisms with an enhanced Istanbul Byzantine Fault Tolerance (IBFT). Specifically, Klaytn adopts a practical Byzantine fault tolerance consensus mechanism that allows the network to operate a hybrid infrastructure, combining the advantages of private and public blockchains.

However, despite using IBFT as its primary consensus mechanism, Klaytn still allows beginners to use the PoS consensus mechanism, which supports a limited number of validators.

There are three types of nodes on Klaytn:

• Consensus Nodes (CN) and Proxy Nodes (PN) work together to form Core Cells (CC). Consensus nodes participate in the block generation process, while proxy nodes provide network interfaces. PN transmits transaction requests to consensus nodes and propagates blocks to endpoint nodes.
• Endpoint Nodes (EN) serve as endpoints for processing RPC API requests on the Klaytn network and handling data sent between service chains.

Klaytn has EVM equivalence, allowing any tools running on Ethereum to operate seamlessly in the Klaytn ecosystem, and at a much faster speed. For example, the smart contract virtual machine used by Klaytn can process at least 4,000 unique transactions in one second, with gas fees being 1/10th of Ethereum's.

To further facilitate enterprise adoption, the Klaytn blockchain has a complex architecture to support the addition of customizable blockchains. Klaytn's validator nodes call core cell operators to form a Core Cell Network (CCN) to process transactions on the Klaytn blockchain.

These validator nodes are operated by members of the Klaytn Governance Committee, with each committee member required to stake at least 5 million KLAY coins to become a Core Cell Operator. In return, they receive 34% of the block rewards.

Klaytn Governance Committee List

Klaytn allows enterprises to create and operate customized service chains on their own architecture, functioning as subnets independently, with service chains being flexible and easily customizable, capable of adapting to any type of network service.

Service chains are the default L2 solution of Klaytn 2.0, and they can connect to the Klaytn main chain to anchor data or transfer assets. With service chains, enterprises or large networks can have their own dedicated execution environment, unaffected by other blockchain applications.

III. Token Economics

KLAY is the native token of the Klaytn network, with the following uses:

• Network Utilization: Users will need KLAY tokens to transact on the Klaytn network, similar to ETH.
• Yield Farming: Users can provide liquidity on various DeFi protocols (KLAYswap, KLAYstation) to farm tokens from other projects or stake KLAY tokens to earn KLAY staking rewards. Staked KLAY tokens (sKLAY) can also be used for liquidity mining.
• Minting NFTs: Users can mint NFTs on the Klaytn network, which is supported by OpenSea.

Klaytn's funding structure operates continuously with the block generation of the Klaytn network. For each new block, the sum of newly issued KLAY and the transaction fees used for that block (collectively referred to as "block rewards") is aggregated and distributed to three target accounts according to the following predetermined ratio:

• Klaytn Governance Committee Rewards: 34%
• Proof of Contribution (PoC): 54%
• Klaytn Improvement Reserve (KIR): 12%

The initial supply of KLAY was 10 billion, with an annual inflation rate of 300 million KLAY since the mainnet launch, and 9.6 KLAY will be minted per block for block rewards (the annual inflation rate may change through the Klaytn governance process).

KLAY Token Release Schedule

Currently, the circulating market cap of KLAY tokens is approximately $2.57 billion, with a diluted market cap of about $10.02 billion, peaking at $42.4 billion last year.

IV. Recent Developments

On April 21, the Klaytn Foundation announced that Alameda Research would become a strategic partner and investor in the Klaytn blockchain ecosystem. The institution will increasingly participate in supporting the growth and development of the Klaytn ecosystem, including further investments in early projects based on Klaytn and connections with its global top funds and exchanges.

On April 14, Klaytn announced the launch of a $20 million fund to create the Blockchain Research Center (BRC) program. This fund aims to support the continuous development of research projects in blockchain technology over the next four years to deepen blockchain capabilities and support industry development.

On April 7, the Klaytn Foundation and Singapore incubator F10 announced the launch of the first Klaytn incubation program, selecting five startups to develop their innovative Web3 concepts or MVPs in gaming, social, and content into viable businesses for the metaverse.

On March 31, Klaytn announced that the mainnet had activated Ethereum equivalence to simplify the development of EVM-based DApps.

On March 16, Alameda Research and Kracker Labs joined the Klaytn Governance Committee.

On January 10, Klaytn announced its global expansion roadmap for 2022 and signed five key cooperation agreements, planning to collaborate with Japanese internet and financial services group GMO Internet Group, Indonesian innovation factory, and American entertainment group Animal Concerts to explore blockchain business on Klaytn.

V. Conclusion

Overall, despite having a strong resource background, Klaytn has developed slowly since its launch in 2019, until it clearly focused on promoting ecological construction in the metaverse and blockchain gaming scenes at the end of 2021. It has now partnered with many gaming giants to launch popular blockchain games, and its ecological landscape is rapidly expanding, but whether it can win more users' favor remains to be seen.

At the same time, Klaytn has explicitly proposed international expansion plans, reaching partnerships with companies in Japan, Hong Kong, Singapore, and other regions, indicating its attempt to shed the label of "Korean public chain." Whether it can truly embrace a broader global market is crucial for its future development.