Kaia Tokenomics Reform: Ending Proposal Reward (PR) and Introducing Contribution Reward (CR) (English)

Notice from Kaia
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[EN] Kaia Tokenomics Reform: Ending Proposal Reward (PR) and Introducing Contribution Reward (CR)

TL;DR: We are ending the current Proposal Reward (PR) and transitioning entirely to Contribution Reward (CR), a system that distributes rewards based on measurable on-chain contribution. Staking Reward (SR) will be maintained, with the PR allocation replaced by CR. The specific ratio between SR and CR will be determined through community discussion outlined in Section 7 of this post. Unearned rewards will be burned immediately, reducing effective inflation and creating a deflationary effect. This transition is a prerequisite for the introduction of Kaia’s Permissionless validator system in 2026.

0. Overview

This post covers the first phase of Kaia’s tokenomics reform. Before diving into the details, we would like to share where this proposal sits within the broader tokenomics roadmap.

The Foundation is pursuing a comprehensive structural reform of Kaia’s tokenomics. This reform is not a single proposal, but a phased roadmap designed as Distribution → Supply → Demand, where the operational results of each phase inform the design of the next.

  1. Distribution - Scope of This Proposal:

    1. End the current Proposal Reward (PR), which distributes rewards uniformly regardless of contribution, and introduce Contribution Reward (CR), which distributes rewards proportionally based on on-chain contribution. Unearned rewards are burned, producing a net reduction in effective inflation.

  2. Supply - Subsequent Phase:

    1. A comprehensive review of token supply structure, including block issuance rate and inflation rate, will be conducted. This phase will be designed based on ecosystem activity and actual operational data, and will be proposed as a separate governance agenda.

  3. Demand - Long-Term Goal:

    1. Achieve structural deflation through mechanisms such as protocol fee-based Buyback & Burn. This phase becomes meaningful once the network has established a sustainable revenue base.

Design Principles Behind the Phased Approach

As outlined in the PGT Roadmap, Kaia is preparing to transition to a Permissionless validator system within 2026. In an open network, the number of validators can scale significantly, and the current distribution structure — which allocates rewards uniformly regardless of contribution — has inherent scalability limitations. Establishing a contribution-based reward system before the Permissionless transition is not optional; it is a structural prerequisite.

Furthermore, if supply is adjusted while the distribution structure remains contribution-agnostic, reduced resources are simply allocated over the same inefficiencies. By reforming distribution first, contribution-based allocation and unearned reward burning take effect immediately. The operational data accumulated during this process then serves as the design basis for the subsequent supply phase. Each phase builds the foundation for the next, and this sequencing represents a more robust approach in terms of both network stability and execution.

This post shares the specific direction and design principles of the performance-based tokenomics reform outlined in the recently published ‘PGT (Permissionless · Governance · Tokenomics) Roadmap Introduction,’ and is written to gather feedback from community members.

1. Current Reward Structure and Its Structural Limitations

1.1. Current KAIA Token Issuance Structure

Kaia’s annual inflation rate is approximately 4.87%, with 9.6 KAIA issued per block. Of this, 50% (4.8 KAIA per block) is allocated to Validators and Community, while the remainder is distributed to the KEF (Kaia Ecosystem Fund, 25%) and KIF (Kaia Infrastructure Fund, 25%).

The internal structure of the Validators and Community reward is as follows:

  1. Proposal Reward (PR):

    1. 20% of GC block rewards (10% of total block rewards)

    2. Allocated equally to all GCs participating in block production

  2. Staking Reward (SR):

    1. 80% of GC block rewards (40% of total block rewards)

    2. Allocated proportionally based on staked amount

PR was a rational bootstrap subsidy designed to incentivize participation of global nodes during the early stages of network launch. However, with the network now mature, the structural limitations of this model are evident.

1.2. Structural Limitations of PR

  1. Disconnect Between Contribution and Reward

    1. Under the current PR system, rewards are allocated equally regardless of the level of contribution to network growth. When GCs that invest resources in attracting user delegation and supplying ecosystem liquidity receive the same reward as those that do not, the economic incentive to actively contribute is insufficient.

  2. Disconnect From Economic Activity

    1. PR is not linked to on-chain economic activity (TVL, transactions, etc.). Whether the network grows or stagnates, a fixed amount of tokens is issued, creating persistent supply pressure independent of token value.

  3. Incompatibility With Permissionless Environment

    1. Through continuous technical improvements and network architecture optimization, node operating costs are expected to decrease by approximately 50% following the Permissionless transition. As outlined in the PGT Roadmap, Kaia is preparing to transition to a Permissionless (open) validator system within 2026. In an environment where the number of validators can expand significantly, a model that equally allocates a fixed reward pool dilutes per-node rewards to negligible levels. This weakens participation incentives for new validators and creates a structural limitation where the network cannot provide the level of incentive necessary for network security. Establishing a contribution-based reward system is a necessary step before the introduction of an open validator system.

2. An Industry-Wide Structural Transition

The reward structures of blockchain networks naturally evolve as the networks mature.

Most L1 networks incentivize validator participation through high inflation and uniform distribution during their early stages. In the beginning, since the network itself has not been sufficiently validated, rewarding the act of participation itself is a rational design choice.

However, once a network enters its stable phase and real economic activity begins to emerge, the limitations of this model become apparent. Rewards for mere participation fail to incentivize network growth, and unconditional inflation exerts persistent downward pressure on token value. At this point, reward structures need to transition from “rewards for participation” to “rewards for contribution.”

This is not a theoretical argument — it is a transition actively underway across the blockchain industry. Notable examples include:

  1. Aptos - In February 2026, Aptos announced the end of its bootstrap-era subsidy model and a transition to performance-driven tokenomics. The proposal includes reducing staking reward rates, expanding transaction fee burns, and introducing tiered rewards for long-term staking participants. It also includes the introduction of a protocol-level hard cap to limit total issuance.

  2. MegaETH - Alongside its 2026 mainnet launch, MegaETH introduced a structure that ties 53% of total token supply to KPI achievement for unlocking. Instead of time-based fixed vesting, tokens are released to the market only when the network achieves predefined performance milestones. The TGE (Token Generation Event) itself is also designed as a conditional structure that executes only upon achieving predefined KPIs such as TVL, stablecoin circulation, and Dapp activity. If KPIs are not met, the corresponding tokens remain locked.

  3. Cosmos - In November 2025, Cosmos officially launched a tokenomics research program to redesign ATOM’s high variable inflation (7–20%) into a model linked to network fees and real activity. Key areas under review include preferential treatment for long-term stakers, inflation reduction, and the introduction of fee burns, with phased implementation through community governance as the goal.

  4. Optimism - Optimism operates a structure that allocates funds to Retroactive Public Goods Funding (RetroPGF), distributing rewards to ecosystem contributors in proportion to measured impact. Starting in 2025, it transitioned from annual rounds to a Continuous Impact Evaluation model, combining on-chain metrics with expert assessment to measure contribution.

These examples share a common pattern: a shift from “rewards for operating a node” to “rewards proportional to the value added to the network.” Ending unconditional bootstrap reward models and transitioning to performance-based models is not an individual choice by specific projects, but a structural transition that emerges as the industry enters maturity.

Kaia’s introduction of Contribution Reward (CR) is aligned with this industry-wide transition.

3. Why Now: Kaia’s Current Position

Since its creation through the merger of Klaytn and Finschia, Kaia has grown into one of Asia’s leading Web3 ecosystems. Over six years since mainnet launch, Kaia has achieved its initial goal of building network infrastructure and is now preparing to transition from an infrastructure-focused network to an on-chain financial network.

3.1. Network Infrastructure

  1. 1-second block time, 4,000 TPS throughput, and Instant Finality

  2. Expansion to 10,000 TPS planned through the KaiaBFT upgrade in 2026

  3. Seamless interoperability with the Ethereum ecosystem through EVM compatibility

  4. Enhanced validator revenue structure through MEV Auction (KIP-249) introduced in the v2.1.0 upgrade

3.2. User Connectivity and Messenger Integration

  1. Access to over 240 million users across Asia through KakaoTalk (MAU 47M+) and LINE (MAU 196M+)

  2. Integration of Web3 services and on-chain financial services (payments, savings, yield generation) within LINE messenger through Project UNIFI

  3. Crypto accessibility in the Philippine market through GCash’s GCrypto - based on the Philippines’ largest mobile payment platform (MAU 94M+)

3.3. Stablecoin and Financial Infrastructure

  1. Native deployment of Tether’s USDT completed in May 2025 - ranked 9th globally by USDT issuance among native deployment chains

  2. USDT deposit/withdrawal support on the Kaia network by major domestic and international exchanges including Upbit, Binance, and Bithumb

  3. Onboarding of regional fiat-linked stablecoins including IDRX (Indonesia) and MYRC (Malaysia) - a “one chain, multiple local payment rails” approach

  4. Japan Blockchain Association (JBA) membership (first L1 full member)

  5. USDT/KAIA Tap-to-Pay payment service at Visa merchant locations (Korea, Thailand, Philippines) through partnership with Oobit

  6. Upcoming onboarding of core financial products including SuperEarn, AlphaSec, Hann Finance, and Ratio

3.4. RWA Expansion (In Progress)

  1. OpenEden - Planned introduction of Tokenized Treasuries products on the Kaia network

  2. Galactica: Asia’s first Tokenized Ship Financing through a joint venture with PT. Pelayaran Korindo - enabling fractional investment in traditionally illiquid maritime assets

  3. On-chain issuance and management of gold-backed tokens through Goldstation

As demonstrated above, Kaia’s ecosystem has moved beyond the infrastructure operation phase and is entering a stage where real financial activity - stablecoin payments, on-chain finance, and RWA tokenization - is taking shape. At this juncture, it is natural for the network’s reward structure to evolve in a direction that is directly linked to this financial activity.

If PR was the incentive for the “infrastructure building phase,” CR is the incentive for the “activation phase.” Kaia’s core resource - its token - should be allocated where it drives real network growth, and CR is the structural foundation that makes this possible.

4. Contribution Reward (CR): Core Design Principles

The detailed parameters of CR will be finalized in a subsequent governance proposal following ecosystem feedback. This section shares the core mechanisms and design principles of CR.

4.1. From PR to CR: A Structural Transition

  1. The Proposal Reward (PR), which currently accounts for 20% of GC block rewards, will be replaced by Contribution Reward (CR). The existing Staking Reward (SR) will be maintained, with the PR allocation transitioning to a contribution-based model.

  2. Under the PR system, this 20% was allocated equally to all GCs. Under the CR system, the same resources are distributed in proportion to actual contribution to network growth. Total issuance and the inflation structure itself remain unchanged — only the distribution method changes. The specific ratio between SR and CR will be determined through community discussion on the options presented in Section 7.

4.2. Rewards Proportional to Contribution

  1. Under the CR system, tokens are earned based on measurable performance metrics. Key performance metrics include:

    1. On-chain TVL contribution of core assets (KAIA, stablecoins, etc.) to Foundation-designated protocols

    2. User delegation activation

    3. KAIA staking participation (lock-up)

  2. GCs can earn CR rewards through multiple pathways, including direct contribution via self-stake or earning commissions by attracting user participation. The scale of CR participation is determined in proportion to a GC’s network contribution, and GCs that participate more actively can secure greater reward opportunities.

  3. An important point here is that CR is not a simple redistribution of existing rewards. By introducing on-chain TVL contribution as a new reward pathway, participants who actively contribute to ecosystem growth earn rewards that increase in proportion to their contribution. This aligns all participants’ incentives toward the single objective of network growth.

4.3. Designation and Operation of Qualifying Protocols

  1. Protocols eligible for CR TVL contribution recognition are selected by the Foundation based on a comprehensive evaluation of the following criteria, and are announced in advance:

    1. Strategic importance and positioning of stablecoins within the network

    2. Protocol security and operational stability

    3. Sustainability of offered yield

    4. On-chain verifiability and transparency

  2. Qualifying protocols are not fixed. They are periodically reassessed based on ecosystem development, onboarding of new protocols, and changes in market conditions, with advance notice provided for any changes. This ensures that the CR system is not dependent on any specific protocol and remains flexible in responding to the growth of the broader ecosystem.

4.4. Structural Burning of Unallocated Rewards

  1. Another core mechanism introduced by CR is the automatic burning of unallocated rewards.

  2. Under the current PR system, rewards issued at block creation are fully distributed regardless of contribution level, exerting persistent supply pressure on the market. Under the CR system, rewards that do not meet the contribution criteria are burned instead of distributed. This structure creates two clear pathways:

    1. Active participation: Rewards are distributed to contributors, which increases TVL and on-chain activity, strengthening network fundamentals.

    2. Low participation: Undistributed tokens are burned, reducing KAIA’s effective inflation.

    3. In other words, even under the same inflation structure, the actual number of tokens entering circulation is reduced, and either pathway contributes to value preservation for all KAIA token holders.

These mechanisms do not operate independently - they form a single cyclical structure. When GCs and users participate actively, TVL increases and on-chain financial activity is stimulated, strengthening network fundamentals. In areas where participation is low, unallocated rewards are burned, reducing effective inflation. In both cases, the value foundation of the KAIA token is strengthened.

5. Impact on Ecosystem Participants

5.1. Governance Council

GCs are inherently entities responsible not only for block production but also for network growth and ecosystem contribution. However, the current PR structure has had limitations in reflecting these contributions at the reward level. CR introduces a structure where such contributions are directly linked to rewards. As core token holders who also stake KAIA, contributing to network growth is simultaneously an act of increasing the value of their own holdings. GCs that contribute through user delegation acquisition, TVL contribution, and on-chain activation will receive differentiated rewards commensurate with their contribution, directly linking contribution to revenue. Additionally, CR designs multiple revenue pathways combining self-stake and user acquisition, enabling GCs to actively configure their revenue structure according to their own capabilities and strategies.

5.2. Users and Token Holders

In addition to the existing pathway of delegating KAIA to GCs via Public Delegation and receiving staking rewards, users gain additional reward opportunities through CR. Under the current structure, there is no meaningful difference in rewards regardless of which GC a user delegates to. Under the CR system, GCs that more actively contribute to network growth will attract more users, and users’ choice of GC becomes substantively meaningful. This functions as a market mechanism that drives healthy competition among GCs. Furthermore, the burning mechanism for unallocated rewards suppresses effective inflation, providing value preservation benefits even to token holders who do not directly participate in CR.

5.3. Protocol Builders

The on-chain TVL growth driven by CR provides structural bootstrapping liquidity to protocols onboarded in the Kaia ecosystem. As GCs actively supply liquidity and attract users to contribute to TVL, protocol liquidity depth and user base grow in tandem.

Currently, the ratio of stablecoins on the Kaia network that are actually utilized in on-chain finance, relative to total stablecoin issuance, is extremely low. The majority of stablecoins are used solely for transit between exchanges, and the proportion of capital deposited in protocols to generate yield - that is, actual “active capital” - remains minimal. In contrast, networks with healthy DeFi ecosystems have a significant share of issued stablecoins deposited in on-chain protocols, serving as the backbone of liquidity. CR functions as a structural incentive to convert this idle capital into active on-chain financial assets.

Moreover, once liquidity of sufficient scale concentrates in core protocols, money lego effects begin to emerge - for example, deposit receipt tokens being used as collateral on other DEXs or perpetual protocols. The TVL target that CR aims to achieve represents the structural threshold at which self-sustaining financial circulation can operate within the Kaia ecosystem, and the ongoing stablecoin liquidity expansion strategy is reinforced through CR as a structural incentive.

6. Phased Transition

To maintain network stability throughout the transition, this reform will proceed as a phased transition.

In the initial phase, the existing Staking Reward (SR) structure will be preserved while the current PR allocation is transitioned to the CR model. This preserves network operational stability and the base validator reward system while enabling real-world validation of the new contribution-based structure and parameter optimization. This approach enables the following:

  1. Maintenance of existing network security and operational stability

  2. Real-world validation and parameter optimization of the CR mechanism

  3. A transition period for ecosystem participants to adapt to the new incentive structure

Going forward, the scope of CR may be gradually expanded in line with network growth, TVL expansion, and increased financial protocol utilization. In the long term, alongside the introduction of the Permissionless validator system outlined in the PGT Roadmap, the goal is to transition the entire token reward structure to one that is linked to contribution and performance.

7. Discussion: Transition Ratio Options

One of the key parameters in introducing CR is the ratio between SR and CR within the existing GC block reward. As discussed above, CR is a mechanism that simultaneously strengthens network growth and token value through contribution-based distribution and unearned reward burning. The effectiveness of this mechanism depends on the proportion that CR occupies.

Total block issuance and the inflation structure are identical across all options - only the SR/CR split within GC block rewards differs. The principle of burning 100% of unearned CR rewards also applies uniformly across all options. The Foundation presents the following three options to gather input from the community and GCs.

[Option A]

SR 80% / CR 20% Maintains the current SR at 80% and converts only the PR 20% allocation to CR. This option focuses on preserving the stability of the existing reward structure while validating CR’s core mechanisms - contribution-based distribution and unearned reward burning - in a live environment. 20% of GC block rewards transitions to a performance-linked allocation, while the remaining 80% continues under the existing staking-proportional distribution system.

[Option B]

SR 70% / CR 30% Adjusts SR to 70% and expands CR to 30%. With 30% of GC block rewards operating as a performance-linked allocation, the economic incentive for contribution is strengthened compared to Option A. GCs that actively contribute are given greater reward opportunities, and the expanded unearned reward burning pool also strengthens the deflationary effect.

[Option C]

SR 60% / CR 40% Adjusts SR to 60% and expands CR to 40%. With 40% of GC block rewards operating as a performance-linked allocation, network contribution is most strongly reflected in the reward structure. This option increases the proportion of both contribution-based GC rewards and unearned reward burning.

Option A
(Maintain Current Ratio)		 Option B
(Expand CR)		 Option C
(Expand CR)
Staking Reward (SR) 80% 70% 60%
Contribution Reward (CR) 20% 30% 40%

Each option presents a different intensity of performance-linked structure, and we seek the community’s input on the direction the network’s reward system should take. The final ratio will reflect the outcome of discussion on this forum, and the confirmed ratio will be reflected in the subsequent formal governance proposal (GP). We encourage active input from the community and GCs on the direction of Kaia’s reward structure.

In the event that sufficient discussion does not take place or no clear consensus emerges on a specific option through this forum, Option A (SR 80% / CR 20%) will be applied as the default, prioritizing the stability of the existing structure. This represents the minimum-change scenario, converting the current PR allocation directly to CR. The ratio may be revisited in the future based on operational data and community feedback.

8. Next Steps

This post gathers feedback from the community and GCs. The subsequent process is as follows:

  1. Community Discussion (Current): Gathering feedback on the direction of the transition through this forum.

  2. Governance Proposal Submission: Reflecting the discussion, a formal governance proposal (GP) including CR’s detailed parameters, transition timeline, and technical implementation plan will be submitted on Kaia Square.

  3. Governance Vote and Implementation: Final approval through GC vote, followed by reflection in on-chain logic.

9. Closing Remarks

Across the blockchain industry, the era of bootstrap subsidy models is reaching a turning point. As networks mature, reward structures must evolve in a direction that is linked to real economic activity.

What the CR system means for each participant can be summarized as follows:

  1. GCs: Contribution is directly linked to rewards, with multiple revenue pathways that can be actively configured.

  2. Users: Additional reward pathways are secured, along with token value preservation through burning.

  3. Builders: Structural liquidity foundations are established, enabling the construction of a self-sustaining financial ecosystem.

When Kaia’s core resource - its token - is effectively allocated to where it drives real network growth, the value of the entire network grows together. CR is the structural foundation for this, and a critical step toward Kaia becoming a Permissionless financial infrastructure.

This proposal is the first phase of the tokenomics reform. The operational data accumulated through the distribution reform will serve as the design basis for supply structure reform, which will be proposed through a subsequent governance agenda. Each phase of this roadmap — Distribution → Supply → Demand — will be carried out transparently, together with the community.

We look forward to hearing from the community and GCs.

Thank you.

This document is a preliminary draft for community discussion. Detailed parameters and technical specifications will be disclosed through the subsequent formal governance proposal. Final content will be determined through community feedback and governance procedures.