The main reason for KLAY's recent spike seems to be a newly-introduced governance proposal for reducing Klaytn's block reward.
With the crypto market suffering from one of its worst bear runs ever, the chances of a token doubling its value in a week seemed slim. However, this is exactly what has happened with the native cryptocurrency of the South Korean blockchain, Klaytn. The KLAY token jumped from $0.1242 on October 21 to $0.2555 in seven days, a 100 percent increase.
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But what is Klaytn, and what's causing its native cryptocurrency to shoot for the moon? Let's find out.
What is the Klaytn Network?
Klaytn is an open-source, public blockchain that is designed for enterprises, the metaverse, gaming, and the creator economy. It was launched in June 2019 and enables businesses and project developers to build and customise their blockchains atop the Klaytn Network. The project was initially developed by GroundX, a subsidiary of South Korea's largest mobile platform, Kakao.
Kakao started as a messaging app more than a decade ago. Since then, it has snowballed into Korea's app for everything. Today, the company offers services that cover banking, payments, ride-hailing, maps, games and more. In fact, some studies show that up to 90 percent of Koreans use Kakao services.
Therefore, it was almost a given that the Klaytn blockchain would do well in South Korea, which it did. In its first year alone, the blockchain brought on board more than 40 service partners. This number has grown to over 150 today. And now, to accelerate the blockchain's global presence and develop its ecosystem, a non-profit called the Klayn Foundation was formed.
This foundation oversees the Klaytn Growth Fund and has also done a bit of course correction, moving the network's focus towards web3 and the metaverse. This new phase of the blockchain is referred to as Klaytn 2.0. As per its website, the renewed aim of the Klaytn network is to be "the metaverse blockchain for all" and bring users their "favourite games, entertainment, and artistes into the metaverse."
How does the Klaytn blockchain work?
Klaytn combines the features of a public blockchain (decentralised data and distributed governance) with the characteristics of a private blockchain (low latency and high scalability). This is done through the Istanbul Byzantine Fault Tolerance (IBFT) consensus mechanism, which enables transactions to be completed within one second.
The projects built on the Klaytn network are known as mini chains. They enjoy all the features of the hybrid mainnet, such as high performance, scalability, and productivity. Klaytn also offers projects a whole suite of tools for building these mini chains, including customised layer-2 solutions, smart contract libraries, cross-chain bridges, data oracles and more.
Additionally, the network provides other supporting services such as blockchain explorers, crypto wallets, NFT marketplaces, stablecoin integration, etc. Therefore, the blockchain lends itself perfectly to any web service, from entertainment and e-commerce to healthcare and finance. The only platforms not allowed on the Klaytn blockchain are those that facilitate gambling or financial speculation.
Why did KLAY spiked over seven days?
The main reason for KLAY's recent spike seems to be a newly-introduced governance proposal for reducing Klaytn's block reward. As per its October 23 announcement, the proposal aims to lower the block rewards from 9.6 KLAY to 6.4 KLAY per newly minted block. This one-third reduction of the block reward seeks to create sustainable tokenomics and reduce the annual inflation of circulating KLAY from 10 percent to 6.48 percent.
The next day, the Klayn Foundation also announced a buyback drive to minimise market volatility. As per the official announcement on Medium, stablecoin reserves held by the Klayn Foundation will be used to purchase KLAY from centralised exchanges, and the purchased KLAY will then be burnt. On the same day, FTX also announced it would list Klaytn (KLAY) perpetual futures.
All these events occurred around the same time the crypto market, in general, also experienced a significant breakout. Most coins have been in the green, with some registering double-digit gains over the last week. This uptick has been linked to the falling US Dollar Index and positive Q3 earnings reports from crypto-centric companies like Coinbase and MicroStrategy. All these factors have created a buoyant mood for the KLAY token.
KLAY's recent spike is still a far cry from the token's all-time high (ATH) of $4.25 in March 2021. Will KLAY continue its upward trend and reach its ATH levels once again, that only time will tell.