The Klondike V2 Proposal: Reading the Tea Leaves

TL;DR: After a few weeks of iterating on ideas, Klondike V2 sets us up with new tokenomics designed to more smartly use inflation to encourage desired behaviors in the Klondike ecosystem (such as holding/locking vs dumping) and to establish the foundation for releasing synthetic assets. We will take a look at what is in the proposal, what is left out, and what it all means.

First the important news: The V2 proposal is live on Snapshot, and will be live for three days (ending March 21 at rebase time — check the proposal for your correct local time). The link is here:

What is in the proposal?

In short, this proposal includes new tokenomics that were discussed during the AMA last week:

The Klondike developers have gone with a “short and sweet” approach to the swap — it will happen over the course of four days. Given a relatively small absolute number of KLON holders at the current time, this will hopefully be ok, but there is always the potential for some KLON holders to be left behind.

Let’s make sure we support all KLON holders who have participated in getting us to this point.

What is not in the proposal?

There are certain details that are left out of the proposal, to be delivered later. Among other questions are:

**update: The team has answered the questions in the Discord here**

What does it mean?

As evidenced by the tokenomics evolution over the past few weeks, the Klondike developers are putting a lot of thought into how to best incentivize the participants in the Klondike ecosystem. What started as a dual token model (JEDI-DROID) to stop KLON inflation has moved to a CRV-veCRV (i.e. KLONX-veKLONX) model that incentivizes time locking your KLONX tokens in the boardroom. What started as a desire to severely limit the supply of KLON has morphed into a system where inflation can be flexibly controlled by future votes to encourage behaviors beneficial to Klondike. These token supply/inflation/distribution models are different ways of solving the same underlying challenge:

How do we a) bootstrap Klondike, b) set it up for long term success as a provider of synthetic assets, and c) ultimately accrue value to KLONX holders?

Ultimately the use case for Klondike will be to create, purchase and trade among a stable of synthetic assets. Why synthetic assets? Among many reasons, they are composable and allow for usage within DeFi without relying on centralized custodians (such as is required with WBTC), and they allow for more advanced trading and speculating activities that will ultimately be a bigger market than the rest of DeFi (as evidenced by the size of the synthetics market in traditional finance).

a) Bootstrapping Klondike: Spinning up a new protocol from scratch relies on providing a useful (i.e. profitable) service and attracting the network of participants to participate. In the beginning, participants are compensated using LP rewards of the governance token (KLON), but as the protocol proves itself out, those rewards can be reduced, as we are seeing here in V2. We will need to continue to bootstrap Klondike until we can attract partnerships, as well as until kSwap or future products provide meaningful revenues to provide a return to KLONX holders.

b) Establish Synthetics: With the release of kUSD shortly after the token swap, Klondike is going after the initial algorithmic stablecoin providers, including Basis, on which Klondike V1 was based. This is big news, as there is an opportunity to surpass earlier players who are mired in their transitions to their V2 protocols. Shortly after that, kSwap should be released, as well as the ability to create and bootstrap more synthetic assets. This is the vision underlying the next phase of Klondike and we are poised to move quickly!

c) Accrue value to KLONX holders: There are two parts to this that V2 accomplishes. First, the locking mechanism rewards long term believers in Klondike. Second, the 100 Klon/day reward to lockers establishes an economic incentive to not “farm and dump” by rewarding KLONX boardroom lockers. Third, this continuous return to KLONX lockers provides an additional reason to hold KLONX in the boardroom and should reduce the volatility we have seen when rebase rewards are not happening. This structure does increase the inflation of KLONX, but is a smart way to reward behavior that ultimately makes Klondike stronger.

Well, that’s all for now! Learn more and discuss the latest developments on Discord and Telegram.