September 22, 2022
KIP-12 gave the Policy team the ability to add inverse bonds as a policy tool, to be used in the event of a sustained breach of the price of KLIMA below the value of the lowest carbon asset backing KLIMA (currently represented by BCT).
Although this sustained breach did not occur, the policy team decided to introduce inverse bonds, as an indicator to the market of the protocol’s willingness and ability to support the backing of KLIMA. The launch took place on 4 July 2022, earmarking 600,000 USDC to be inversely bonded for KLIMA. The experiment concluded successfully on 23 August 2022.
During the period of the experiment, KlimaDAO Policy also initiated a reduction in Annualized KLIMA Rewards (AKR) target to 100%, as too large of a supply expansion would have counteracted the supply contraction desired from this process.
For similar reasons, and due to adverse market conditions, Policy also stopped regular bonding. The contract to execute this were based on equivalents contracts from Olympus which can be found here. Link to KlimaDAO inverse bond contracts can be found here.
The performance of the inverse bonds experiment is summarized below:
On the whole, the Policy team considers that the experiment successfully demonstrated the power of inverse bonds. Inverse bonding has proven itself to be a tool for the KlimaDAO treasury to step in and provide stability in the face of adverse conditions. There are a few takeaways to highlight:
We must consider that this experiment was run with USDC, rather than the tokenized carbon in the treasury. As a result, the wider market implications of inverse bonds with carbon is still to be determined. Keeping the above conclusions in mind, KlimaDAO policy is evaluating whether a standard inverse bond contract, with BCT allotted, should be prepared. This contract could be activated whenever KLIMA trades below its intrinsic backing value.
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