Klaytn as a Permissionless Blockchain: a New Approach

03 Mar 2023
9 min read
klaytn
9 min read
Article content
[KGP-4] proposal
Everstake’s opinion

In this article, we want to discuss the pros and cons of Klaytn becoming a permissionless blockchain taking into consideration the Klaytn Governance Forum discussion and other available sources. We will also share Everstake’s opinion on this matter.

The [KGP-4] proposal offered a thoroughgoing change: the Klaytn network is to become permissionless, which means anyone could join the network as a validator. The proposal was discussed on the Forum and then placed for voting on 5-16 December 2022. It was then approved by the Klaytn Governance Council (GC) based on the voting results. 

Overall, 18 of 30 GC members voted: 9 agreed, 3 disagreed, and 6 abstained.

  • YES: Wemade, Krosslab, Netmarble, Kakao Corp, Kracker Labs, Ground X, Jump-Everstake, FSN, SKnetworks.

  • NO: Gumi, Post Voyager, Ahnlab Blockchain Company.

  • Abstained: Neoply, LG Electronics, VNG/Verichains, Korea Economic Daily, Swapscanner, Maekyung Media Group.

The Klaytn network was initially architected to offer scalability and immediate finality. This is how its work is described on Klaytn Forum:

  • Endpoint Node (EN) proves the validity of blocks, offers APIs to users and allows them to create transactions. Anyone can operate EN.

  • Consensus Node(CN) proposes and validates blocks while Proxy Node(PN) protects CN from external attacks and propagates blocks to ENs transactions to CNs.

  • In order to become a Core Cell Operator(CCO) that runs CN and PN, you need to join the Governance Council (GC) as a member. GC members engage in policy making.

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[KGP-4] proposal

The proposal aims to enhance the consensus algorithm, enabling more validators to participate in the Klaytn network without compromising performance.

  • The proposal enables any node that meets specific requirements to participate in the consensus process without requiring permission from others. This means anyone can become a CCO and operate various types of nodes, including EN, CN, and PN.

  • As a result, participants can engage in the consensus process and earn rewards based on their contributions, ultimately promoting decentralization and increasing engagement within the ecosystem.

  • The Klaytn team will then offer a detailed technical specification and plan to modify the consensus algorithm while setting up the requirements for a validator, such as the minimum staking amount, share of rewards, penalties/slashing, etc.

Pros

  1. Decentralization. The Klaytn ecosystem is moving towards greater decentralization, allowing anyone who meets the minimum qualifications - currently being finalized - to participate as a block validator alongside existing Governance Council (GC) node operators. 

  2. Enhanced security. The consensus algorithms will be improved to accommodate as many validators as possible without compromising performance. Moreover, the value of assets staked in the network is expected to rise, thereby increasing the cost of chain attacks and ultimately strengthening network security, leading to better stability.

  3. Continuity. With the new approach, Klaytn will keep its current governance structure with the GC members comprising multinational businesses and organizations committed to platform governance, consensus node operation, and ecosystem growth.

  4. Fair rewards distribution. The new Klaytn compensation system for validators will be based on the block validation performance, and the amount of KLAY staked. Validators with solid performance and more KLAY staked will receive higher compensation, incentivizing positive behavior and influence on the platform while improving the profit distribution structure.

  5. Validators' wider range of privileges. The revised structure will provide end-users with broader benefits, such as rewards for block validation and node rights, creating opportunities for new businesses. The authority granted by nodes on the Klaytn network can be utilized to develop DeFi services, such as public staking services, and integrate tokenomics into new business models and operations.

  6. Adoption and growth. Klaytn would become more competitive in the global market with the help of the upcoming strategic business initiatives, which will serve the success of all ecosystem members.

  7. Concomitant Gini coefficient elimination. The Gini coefficient is set to be abolished in Q1 2023. If this is achieved, the staking rewards calculation will become more transparent.

Cons, and what we think about those (based on the Klaytn Team’s comments)

Some Klaytn validators opposed the suggestion of the permissionless system. These are the main concerns raised before the voting process:

  1. The lack of a detailed plan. More clear transition plan from the current structure to a new permissionless one is required. High-level analysis and an approximate timeline for the technical aspects of the proposal are crucial. The potential risks to the prevailing network characteristics, such as speed and reliability, remain unclear. It is essential to understand the potential impact before proceeding with any changes.

– Klaytn Foundation stressed that the GC Members would be offered a detailed design of the permissionless structure. Another vote will be then conducted to approve the proposed block generation structure before implementing any changes.

  1. Possible validators' income decrease. Back in 2022, validators were already prompted to change the staking limit. Changing a permissionless structure may decrease GC validators’ rewards, which could result in tension within the Governance Council. Most validators would agree that the proposed implementation must not affect existing block validators. The maximum number of nodes participating, epoch length, reward distribution, and other factors must be discussed and designed carefully.

– We assume the detailed plan is already in work and will be delivered by the Foundation soon. Most likely, existing GC members will be incentivized by special benefits such as higher voting power (based on the stake share) and other features. In addition to that, the [KGP-6] proposal, with the voting ongoing from the 20th to the 28th of February 2023, provides a strong basis for a better tokenomics design and, accordingly, for higher incentives for all network users.

  1. Uncertain results. Such a fundamental change will significantly impact all participants within the Klaytn ecosystem, including investors, partners, and projects built on the blockchain.

The Klaytn team has consistently emphasized the goal of gradually decentralizing the Klaytn network since the Mainnet launch. The permissionless structure proposal delivers on this commitment to the community.

  1. Leadership concerns. Would Kakao Group, the largest IT company in Korea, keep its leading approach within the ecosystem? Decentralization alone does not ensure the success of a blockchain platform. A key player leading the business with a clear vision benefits the network.

– While Kakao Group is one of the most prominent KLAY stakeholders and has been a proactive ecosystem member and key player, the Klaytn blockchain is operated by all Governance Council Members. Switching to the permissionless structure of the network does not presume changes to this approach. We expect all GC Members to contribute to the common benefit.

  1. Bear market. GC members and Klaytn users have been struggling with the Klay price drop due to the market condition. 

– With the [KGP-6] proposal undergoing voting, the $KLAY price almost doubled in a couple of days amid the news about the Klaytn tokenomics revision. On February 21, Klaytn was ranked by DefiLlama as one of the top blockchains in terms of 24-hour DEX volume. Another fact: the market witnessed ≈ $262 M in $KLAY spot trading volume and ≈ $508 M in derivatives trading (over 24 hours) on February 22. That presented a liquidity injection of $770 M to the global market. It highlights the positive pattern and proves the chosen strategy is reasonable and anticipated by the market.

Everstake’s opinion

Everstake supports the general concept of decentralization and is ready to welcome new validators to the Klaytn network. As one of the staking industry leaders for almost five years, we are fearless of competitors and prepared to share our experience and knowledge. The [KGP-4] proposal would bring more adoption to Klaytn and increase its popularity worldwide. Since we are interested in the Klaytn blockchain expanding and developing its ecosystem, we definitely vote YES for the proposal.

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