TL;DR
Kroma was launched as Ethereum layer 2 chain to expand WeMade's WEMIX ecosystem to global markets and to attract new users and liquidity through its connection to the Ethereum ecosystem.
Kroma plans to strategically leverage the WEMIX ecosystem and enhance its ZK narrative through ZK Rollup technology to become more competitive in the Ethereum Layer 2 market.
While Kroma is targeting the Asian market by leveraging the strengths of the WEMIX ecosystem, it faces the challenge of building its own brand identity and strategy, which requires in-depth consideration of its interactions with the Ethereum ecosystem and redefining its relationship with WEMIX.
This report is based on interviews with Lightscale, a subsidiary of WeMade, and includes information about the strategy of Lightscale's Layer 2 Kroma gathered from those interviews, as well as independent research findings and analytical opinions by Tiger Research.
Lightscale is a subsidiary of WeMade and the team behind Kroma, an Ethereum-based layer 2 rollup platform. It recently launched the first Ethereum-based rollup in Korea called the Kroma mainnet, attracting much attention. However, since WeMade already operates its own mainnet, WEMIX 3.0, it was an unexpected move for WeMade to launch a layer 2 chain on top of the Ethereum ecosystem, which raised many people's curiosity.
WeMade's CEO Jang Hyun-Kook said that the reason for launching Kroma is to connect users and assets in the Ethereum ecosystem with the WEMIX ecosystem. While this was well-received by existing WEMIX holders, others expressed concerns about how Kroma may conversely become an outlet for WEMIX. Furthermore, WeMade is currently trying to create a global gaming ecosystem based on WEMIX, and a separate ecosystem may add to the confusion.
Despite these concerns, Kroma has ambitions to target the Web3 market with a complementary strategy to WEMIX. In this report, we interviewed the Lightscale team to learn more about their role and strategy in the WEMIX ecosystem.
Why did Kroma launch as an Ethereum Layer 2?
To fully understand the launch of Kroma, it's important to have a basic understanding of the WEMIX ecosystem. The goal of WEMIX is to build a mega-ecosystem centered around Web3 games. Currently, WEMIX is an evolved version of WEMIX 1.0. The chain was originally launched in 2019 by WEMIX Tree, a subsidiary of WEMIX dedicated to blockchain development. Currently, it runs a total of more than 10 dApps on its ecosystem.
WeMade's ambition to turn WEMIX into a vast ecosystem stems from the efforts of Korean game companies to make the leap to becoming a platform provider as they learned from the problems of high fees set by global app store operators during the golden era of mobile gaming. Google and Apple monopolized the mobile devices OS market, narrowing the distribution channels for mobile games to Google Play and the Apple App Store. Although they have a high commission rate system with an average of 10-30%, Korean game companies have been locked in with no other options to deliver their games to consumers quickly and efficiently except for those distribution channels.
Therefore, Korean game companies have been focusing on building their own platforms. In the blockchain game market, they want to preempt the blockchain game ecosystem by developing their own chain instead of relying on other public chains.
The blockchain gaming market has yet to determine an ecosystem winner like in the mobile gaming era. Therefore, the competition for game companies to build their own ecosystems is intensifying. WeMade, which is a global leader in the field, is striving for market leadership through the continuous expansion of the WEMIX ecosystem. However, there are inherent limitations to the problems that can be solved with only an independent ecosystem like WEMIX, and it seems that the company is preparing to solve them through Kroma.
1) Global orientation
The WEMIX ecosystem has been limited to Klaytn and the existing WEMIX ecosystem in Korea. Since most of the participants in WEMIX's governance system 'WONDERS' are from Korean companies, it will take a long time to rectify its local orientation and move towards the global market.
In comparison, Kroma's strategy has been centered on going global from the beginning, and its foundation is directly connected to the Ethereum ecosystem. The Kroma team has been maintaining a close relationship with the WEMIX ecosystem. By fostering a synergistic relationship, Kroma will be able to focus on onboarding games in Asian countries, while the WEMIX ecosystem will be able to focus on an efficient strategy that targets other countries.
2) Attracting users from the Ethereum ecosystem
The fundamentals of sustainable tokenomics are the planned issuance and continuous burning of tokens. Of the two parts, 'burning' tokens is the most difficult to implement naturally. WeMade has launched more than 10 of its own dApps on the ecosystem, increasing the number of sources for token burning.
However, all those methods are useless without an influx of new users to support them. Even if the WEMIX ecosystem already has a large number of users, it is very difficult to maintain a healthy tokenomics system without a steady flow of new ones. This is why it is expected that Kroma, which can be connected to the Ethereum ecosystem, will play an important role in bringing users and liquidity from other platforms into the WEMIX ecosystem.
Kroma’s competitive edge through strategic leveraging
As mentioned above, games on the WEMIX platform can be onboarded to Kroma as well as WEMIX, which creates the risk of cannibalization in terms of mainnet development. However, the Kroma team stated that they do not see WEMIX as a competitor. The team plans on 1) actively leveraging the WEMIX ecosystem, and 2) strengthening the ZK narrative through the development of ZK rollup technology to overcome competition from other Ethereum layer 2s such as Polygon.
1) Scalability by leveraging the WEMIX ecosystem
WeMade is Lightscale's parent company and will actively support the development of Kroma. This will allow Kroma to stabilize its growth through onboarding WEMIX's 9 million users by supporting the chain’s major games. Also, the company said it expects to attract more users with the release of the Web3 version of Nightcrows.
In addition, the recently launched 'WEMIX on Kroma' is a form of staking in Kroma interest earned through WEMIX’s Wonder Staking to earn additional revenue. With a large number of WEMIX holders in Korea, they are expected to actively onboard to Kroma to earn additional revenue in addition to interest from WEMIX.
2) Strengthening narratives by extending ZK rollup technology
The Kroma team has stated that they intend to strengthen the ZK narrative through the development of ZK rollups. This is not just about securing the fast speed and low gas cost advantage, but also about strengthening the ZK narrative. In the scaling competition between different rollup technologies, the constant spotlight on ZK rollups can attract supporters of other rollups.
Currently, the Kroma team is still in the interim phase of combining Optimistic and ZK rollup technologies, but it plans to switch to fully ZK rollups in the second half of next year. The team is also working on a GPU-accelerated ZK proof generation technology called Tachyon, which it recently introduced at DevConnect and has attracted interest from various leading ZK research teams, including Polygon and Scroll. As such, Kroma is not just a bridge, but a layer 2 technology that is working to take control of the narrative in the Ethereum ecosystem.
Kroma targeting Asia
From the very beginning, Kroma stated that it will focus on innovative games in Asia. This seems to be an early expansion strategy that leverages WeMade's strengths, as 1) games like Mir are very popular in Chinese-speaking regions, and 2) WeMade has local offices in China, Singapore, Japan, and other parts of Asia, making it easy to leverage its network.
Kroma officials said that while they are not currently focusing on any Asian countries, they are prioritizing Vietnam, China, Singapore, Japan, and Turkey. The company has even hinted at joint AMAs with Galxe and other dApp partners to reach out to users in each country. For example, the company recently confirmed a partnership with Indian DeFi firm Flint to provide its blockchain mainnet to support Flint's cryptocurrency futures exchange “LogX’.
In the WEMIX ecosystem’s goal of global expansion, Kroma is expected to play a role in the Asian market. North America, which is already saturated with large game companies and has a high barrier for new market entrants, will be mainly handled by WEMIX, which has already conducted a lot of marketing activities. As for Asia, where there are many small and medium-sized game companies and WeMade's reputation can be actively leveraged, Kroma seems to be a reasonable choice. For many small and medium-sized game companies especially, Kroma, which is connected to the larger Ethereum ecosystem, lowers the risk and allows them to enter the WEMIX ecosystem.
Kroma's unique positioning
Kroma's strategy of leveraging the strengths of the WEMIX ecosystem may be sound, but as a mainnet, the challenge of "Why Kroma?" will persist for both games and users. At some point, it may be necessary to become less reliant on the WEMIX ecosystem and show an independent strategy, such as strengthening its ZK narrative and conducting independent game onboarding that does not exist in the WEMIX chain to find the mainnet's unique brand colors.
WEMIX has accomplished much of its proposed roadmap, but it has also lost investor confidence by delisting from domestic exchanges due to over-issuance. Currently, it has successfully relisted on Coinone and Bithumb. Nonetheless there is always risk from WEMIX’s unpredictable nature as a "first mover," which is something Kroma may need to factor into its strategic planning.
Kroma's unique positioning as an Ethereum-based layer 2 in the WEMIX ecosystem has both significant benefits and risks. This should be a top priority for consideration to Kroma especially during its early growth stages, as there is a risk of being seen as a simple bridging chain to Ethereum if its dual-headed strategy is taken incorrectly.
As mentioned in the beginning, it is still too early to tell if the concerns about 1) potential user and resource drain to the Ethereum ecosystem and 2) disruption to the ecosystem within WEMIX have been successfully resolved. However, over the course of our interviews, it was clear that the Kroma team is taking great care to ensure that they fully capitalize on the benefits of their unique positioning and minimize the downside. Kroma has stated that it will launch its own token, $KRO, in June of next year, so it will be interesting to see the team’s action plan in the time between.
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