[Xangle Originals]

Written by TraceØ

Translated by Rhea

Implications of Klaytn Gas Price Increase Explored Using Xangle Analytics

Summary 

• Klaytn raised its gas price from 25 ston to 750 ston last April 3 as an attempt to reduce the number of spam transactions that showed a sudden surge since 2021.
• Xangle Analytics was able to confirm that the number of transactions did fall sharply with the bot transactions reduced since the gas price increase.
• The project also revised its tokenomics to burn the net difference of the gas price and has since burned about 1.2 million tokens as of April.
• However, a phenomenon of Klaytn user attrition is also observed due to the limitations of the network, such as low usage by non-Korean users and the centralized governance of Klaytn.
• A possibility still exists for the Klaytn ecosystem to rebound as 1) there is no Korean blockchain to replace Klaytn, backed by a strong and sound sponsor, Kakao, and 2) several major Korean game companies, who had already achieved successful performance in the global gaming market, are building their P2E services based on Klaytn.

Xangle launched a beta version of its “Analytics” service on Klaytn this May. The analytics page currently provides Klaytn’s on-chain performance indicators, with the same for many more chains to follow going forward.

Taking advantage of the newly launched Xangle’s analytics service for Klaytn, this article seeks to explore how Klaytn’s transaction volume changed since its gas price increase using Xangle Analytics’ on-chain data and analyze whether the Klaytn ecosystem will be able to succeed in making a comeback and taking yet another leap.

▶ Click to check out Xangle Analytics about Klaytn

Sudden Transaction Surges in Klaytn since 2021E

At the end of last year and early this year, bulk transactions frequently took place on the network, causing various inconveniences to its users, such as delayed processing time. Xangle Analytics results also confirmed that there was such a sudden surge in the transaction since the end of 2021. The Klaytn team saw most of these transactions to have been generated by arbitrage bots and deployed a feature to apply QoS to contracts that frequently created revert transactions last January to reduce the number of spam transactions. However, even with such technical measures implemented, the overall transaction volume persisted, leading the team to review measures to raise the transaction fees along with additional deployment of technical solutions. 

Klaytn Gas Price Increase Mitigated Bot Transactions

After the technical measures to stop the bot transactions proved not to have much effect, Klaytn conducted a community survey, as detailed in its Medium article on February 8, and raised its gas price 30 folds from 25 ston to 750 ston on April 3. One month into the gas price increase, the Klaytn team stated in its April 29 Medium article  that the gas price increase was able to remove over 90% of transaction-related bot activities. 

We were also able to confirm the reduction of bot transaction volume on Xangle Analytics. As shown on the chart below, Klaytn’s transaction sharply fell after the gas price increase on April 3.

Tokenomics Improved with Gas Price Burn Mechanism

Separate from the reduction of transaction, Klaytn’s revenue, calculated by multiplying the number of transactions and the transaction fee, has surged since April 3 due to the 30-fold increase in the gas price. Of course, not all the revenue growth goes to the node operators. 

As stated in the initial plan to cushion the blow the gas price increase may have on the participants of the Klaytn ecosystem, Klaytn introduced a burn mechanism that burns the net difference in the gas price, 725 ston. The burning is scheduled to occur on the first week of every month, and Klaytn burned about 1.2 million KLAY last May 3. 

You can also check out the burn information on Xangle Dashboard, which shows that about 1.2 million KLAY was burned between April 4 and April 30.

To promote user participation, Klaytn mints about 9.6 KLAY per block, which accounts for inflation of about 3% of the total supply per year of 10 billion KLAY. KLAY tokens have been under much downward pressure with such continuous minting since it is hard to say that the Klaytn ecosystem has a significant level of activities compared to other mainnet blockchains, and the KLAY token’s utility has not been secured yet. 

It seems that Klaytn has improved its tokenomics with the introduction of a new burn mechanism. Although the burn volume is not at any significant level, with the tokens burnt in the month of April 2022 only accounting for about 5% of tokens minted in the same month, it is a meaningful step forward as an effort to adjust the token liquidity as with EIP-1559. It may also have an effect of lowering inflation if the Klaytn ecosystem were to grow to a large scale in the future. 

Of course, the amount of Klaytn gas price burnt is expected to be reduced further down. Klaytn has declared that its gas price will be lowered from 750 ston to 250 ston, starting with block number 91,324,800. Assuming the transaction volume stays at the current level, the burn volume is forecasted to go down by about 30% from the current volume.

With the burn volume expected to be reduced, the impact of burn volume on the inflation rate is also expected to diminish even further. However, given how the Klaytn team is making continuous efforts to improve its tokenomics, such as lowering the current inflation rate, we can expect the overhang risk from a decline in the KLAY inflation rate to be reduced.

Is Klaytn Attrition Accelerated due to Limitations of the User Pool Bound to Korea?

However, we are also observing user attrition from Klaytn stemming from the limitations of the Klaytn network, including the low usage by non-Korean users and centralized governance of Klaytn. Many of the startups who developed Klaytn NFTs (Non-Fungible Tokens) are considering their migration to different chains, with MetaKongz and Syltare already having moved to the Ethereum chain. With Klaytn’s major NFT projects leaving Klaytn accompanied by the volatility of Bitcoin, the price of Klaytn, which had been successfully defended up until the beginning of this year, is going through a rough patch with a 40% drop compared to the peak point this year and a 90% drop compared to the previous high point of last year.

Klaytn Price Trend

Since the launch of its mainnet, Klaytn has had two shutdowns: in March 2020 and in November 2021. In particular, the outage in March 2020 was caused by a “block consensus delay” where the consensus of a delayed block occurred at the same time as a new consensus process, causing an error that stopped block generation for 13 hours. Xangle analysis estimated that the volume of tokens newly issued on March 29, 2020, was about 500,000. Given how Klaytn mints about 800,000 tokens per day on average, the analysis shows that the network was prevented from minting a considerable number of tokens during the block generation error.

Chance for a Rebound If Klaytn Moves Ahead of Its Competition to Dominate P2E Trend

As we saw in the Xangle report on South Korea's Crytpcurrency Market, since H2 2021, the Korean projects have been making their way onto the top five player list in terms of transaction volume in the P2E/NFT/Metaverse sector, i.e., the global trend. The biggest reason behind how the Korean cryptocurrency market was able to keep up with the global trend is most likely the fact that the Korean P2E sector, led by WEMIX, made early moves in launching killer services. 

Historically, the Korean projects were not able to produce services of much significance when it comes to the DeFi sector.The P2E market, on the other hand, is another story. Many major Korean game companies, such as Nexon, NCSOFT, and Netmarble, were already getting results in the global game market, and small-to-medium game studios were also thriving. By launching killer services based on their existing IPs, these Korean projects were able to catch the wave of the global trend in the P2E sector.

Other large Korean game companies besides WEMIX are also gearing up to launch their own P2E and related services. Gaming companies with sufficient capital strength and game publishing and developing capabilities, such as Kakao Games, Netmarble, Com2us, and NEOPIN, have plans to launch services on Klaytn mainnet. The anticipation is riding high as they tend to focus more on getting the fun aspect of playing games compared to their crypto-native P2E competitors.

It is undeniable that there is a phenomenon of users leaving Klaytn due to the limitations of the network, such as low usage by non-Korean users and the centralized governance of Klaytn. However, Klaytn seems to have successfully mitigated the bot transaction issue with its gas price increase, and also improved its tokenomics with a new burn mechanism. As of now, there is no Korean blockchain that can substitute for Klaytn, backed by a strong and sound sponsor, Kakao, and several major Korean game companies, who had already achieved successful performance in the global gaming market, are building their P2E services based on Klaytn. As such, we look forward to the Klaytn ecosystem making a rebound and returning triumphant when the timing comes for the launch of significant P2E services led by major players.

Other Articles:

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• An Overview of the Korean NFT Scene
• [Xangle Valuation Series] ① Bitcoin
• [Xangle Valuation Series] ② Ethereum and Layer 1
• [Xangle Valuation Series] ③ Decentralized Exchange (DEX)
• [Xangle Valuation Series] ④ Lending Protocol

▶ Click to check out Xangle Analytics about Klaytn