MetaFi is in decline: Why did Klaytn (KLAY) give up its position?

What is Klaytn?

Klaytn is a Tier 1 blockchain network based on the Byzantine Fault Tolerance (BFT) consensus mechanism. One of the leading software developers in South Korea, Kakao, created the project and was initially focused on the GameFi and Metaverses areas.

The goal of Klaytn developers was to provide tools for creating decentralized blockchain-based games, such as:

• layer-2 integrated solutions,
• oracles,
• cross-chain bridges,
• decentralized autonomous organizations (DAOs),
• NFT marketplaces, and more.

In other words, Klaytn is a ready-made infrastructure for creating metaverses on the blockchain.

The Klaytn core network was launched in 2019, long before the blockchain race for performance reached its peak. The Klaytn blockchain immediately attracted attention due to its cheap and fast transactions, and Binance backed the project. The Klaytn team has also acquired other strong strategic partners, including GMO Internet Group, Netmarble and ConsenSys, the most popular EVM wallet MetaMask developer.

How does the Klaytn network work?

The blockchain is based on the Byzantine Fault Tolerance (BFT) or Byzantine Fault Tolerance algorithm and combines two of the best-known consensus mechanisms, Proof-of-Work (PoW) and Proof-of-Stake (PoS). The combination of PoW and PoS enables high performance while maintaining high decentralization and network security levels.

Based on BFT, some next-generation blockchains, such as Cosmos Network, have been developed with high throughput, low transaction latency, and high fee costs.

There are three types of blockchain nodes in the Klaytn network:

• consensus nodes (CN),
• proxy nodes (PN),
• end nodes (EN).

According to the developers, the Klaytn network can process up to 12,000 transactions per second. Klaytn outperforms Avalanche, Polkadot, Tron and many other blockchains by this metric. According to reviewer Klaytnscope, the network processes between 700,000 and 1.2 million transactions daily, but this activity is insufficient to estimate the Klaytn blockchain's peak throughput.

The Klaytn blockchain consists of three different networks:

• Core Cell Network (CCN) — responsible for creating and delivering blocks throughout the network;
• Endpoint Node Network (ENN) — creates transactions and processes data requests sent from the "service network" SCN;
• Service Chain Network (SCN) — contains sidechains managed by decentralized applications (dApps) and connects to the CCN "key network" via Endpoint Nodes (EN).

Ecosystem

The Klaytn ecosystem includes less than 50 DeFi applications, most of which are little known. And only 4 protocols have a liquidity of more than $10 million. Of all DeFi projects included in the Klaytn ecosystem, only DEX exchange KlaySwap, liquid steaking protocol KLAYstation, and leveraged farming platform Kleva Farm can be singled out.

KlaySwap has the second highest number of blocked assets among all DEX exchanges, which is not bad, but it is not as widely known as, for example, Uniswap, Sushi or Balancer. DeFi Llama says Klaytn ranks 36th in DeFi blocked assets (TVL), over $62 million.

KLAY token

KLAY is Klaytn's native blockchain token, used to pay network fees and validator rewards for mining blocks and maintaining network security.

The KLAY token ranks 76th in capitalization among all cryptocurrencies, which is $817 million. KLAY has no maximum issuance, and the total number of tokens currently stands at 5.87 billion, of which 3.48 billion are available on the market. The capitalization peaked at $10.41 billion in April 2021, after which it began to decline rapidly until October 2023 but then resumed growth.

The KLAY exchange rate as of January 2024 is $0.23, almost 95% below the all-time high (ATH) reached in April 2021 at $4.38. In October, the KLAY price hit a two-year low of $0.11 before starting to rise again amid the general rise of the crypto market.

Problems and prospects of Klaytn

As the situation in the crypto market shows, the primary growth is in ecosystems closely linked to Ethereum, which accounts for the lion's share of DeFi liquidity. "Isolated" ecosystems like Tron, Solana, Cosmos and Polkadot have become more of an exception. Still, these blockchains have been around for several years and have firmly established a high position in the crypto market.

In April 2021, Klaytn was among the top 20 blockchains in capitalization and even surpassed Tron, Dogecoin, Solana and Cosmos. However, the platform lost ground as demand for GameFi and metaverses plummeted.

Although Klaytn lags far behind the leading blockchains in terms of development, this project is among the top ten largest networks focused on the field of metaverses (MetaFi). It should be noted that the sphere of metaverses in the crypto-industry takes a small share: the capitalization of MetaFi projects reaches about $22.5 billion, which is only 1.3% of the crypto-market.

Analysts believe that the trend for metaverses may start in 2024-2025, and by 2030, this market will reach $500 billion. If the forecasts come true, Klaytn may take the position of some of the critical decentralized projects in GameFi and MetaFi.