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Roots of Resilience
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Roots of Resilience

24. Januar 2022

Executive Summary

  • Many different markets including cryptocurrency have experienced a decline in valuation.
  • The Olympus mechanism used by KlimaDAO implies certain guarantees when the token price falls below intrinsic value (for KLIMA, 1 BCT)
    • Klima is unique because it is backed by tokenized carbon offsets — not stablecoins.
    • This document outlines treasury management options available to help weather bearish market conditions and ensure the backing value of KLIMA is maintained.
    • Klima has secured a treasury of over $100 million, including nearly 15 million tons of verified carbon offset credits in less than 3 months.
    • To manage this sizable treasury through periods of short-term volatility, KlimaDAO’s policy team is equipped with a variety of tools and strategies.
  • Klima is currently seeing increasing interest from institutions and traditional Voluntary Carbon Market (VCM) players, and remains focused on realizing its long-term vision.
    • Klima has used blockchain technology to solve the problems that have plagued the VCM.
    • By bringing verified carbon offsets on-chain, Klima is leading the VCM to become more transparent, liquid, and globally accessible.
  • There are strong tailwinds propelling the sustainability sector forward, and KlimaDAO intends to be front and center to these developments on-chain — no matter what.

Introduction

In the current macroeconomic climate, investors are moving funds into more conservative assets. This has resulted in a drawdown in equities (NASDAQ down 11% in 1 month, technology stocks e.g. ARKK down 40% in 6 months), and in crypto (ETH down 40% in one month, BTC down 30%).

In this context, KlimaDAO has to prepare for the impact of broader market volatility, and utilize the tools and resources available to weather the storm. These can be broken down into three categories:

  1. Policy Tools
  2. Protocol Development
  3. Community

The DAO would like to share the available mechanisms with our community, as well as our action plans to maximize resilience during periods of volatility.

I. Policy Tools

The Klima policy team has several mechanisms to control the KLIMA token’s monetary policy. These levers can be used to defend the backing value of KLIMA. This is not intended to imply these tools will be used as there are potential consequences for each action taken by the policy team. Careful deliberation of what is best for the long term success of the Klima protocol will take place, in consultation with the community via office hours, forum posts and, where necessary, token-holder voting (KIP on Snapshot) prior to implementation.

Available strategies include:

  1. Bond parameter management
    1. Reduce capacities to minimize excessive dilution
    2. Adjust minimum prices to ensure 0% discount below risk free value (RFV)
  2. Reducing staking reward rate
    1. A KIP must always be passed for all significant reward rate reductions.
    2. NOTE: prior to recent market conditions, a reduction was already proposed in KIP-9 — the vote ends January 26, 2022.
    3. Further reward rate reductions may be proposed to extend the runway if market volatility persists.
  3. Manual buy-back-and-burn of KLIMA below intrinsic value of 1 BCT
    1. Primary existing mechanism for the policy team to directly defend intrinsic value.
  4. Inverse bonds
    1. Inverse bonds simply automate the buy-back-and-burn function: bonders provide KLIMA to the treasury in return for BCT at a discount, and the bonded KLIMA is burned to reduce supply.
    2. The policy team is only committed to enabling inverse bonds when KLIMA trades below the intrinsic value (IV) of 1 BCT.
    3. While other protocols backed by stablecoins may use inverse bonding freely, it must be carefully considered prior to applying it to Klima between RFV and IV because of Klima’s unique role facilitating the on-chain carbon offset market.
    4. NOTE: inverse bonds require a KIP to pass granting the policy team the right to implement them. The KIP granting this power has already been drafted and will be proposed in the coming days, but inverse bonds will only be deployed when market conditions render them favorable for the protocol.

If KLIMA trades below intrinsic value (IV) of 1 BCT, either option 3 or option 4 WILL be employed to defend IV.

The long term mission of Klima is of paramount importance to the Policy team. As such, decisions regarding treasury management will be made based on the protocol’s long-term goals to bring the legacy carbon offset market on-chain and develop the first carbon-backed currency.

If KLIMA persistently trades around IV, eventually the treasury will buy back and burn the vast majority of KLIMA supply, while retaining the vast majority of BCT supply. As KLIMA supply decreases, the volume of bonding required to accumulate enough RFV to renew staking rewards goes down. So once KLIMA supply decreases sufficiently to reach parity with demand, bonds would be reenabled to kickstart the positive feedback loop of accumulating carbon offsets once again.

II. Protocol Development

In order to bolster the health of the Protocol, we have a strong pipeline of developments to go live in Q1 2022. These developments aim to increase revenues to the protocol, grow demand for KLIMA, and amplify the impact of Policy decisions.

January

  • Olympus DAO: Deploy $1m KLIMA/gOHM liquidity pool and bonding, enabling KLIMA to capture trading fees from all gOHM trades on Polygon, and adding gOHM to the treasury.
  • Bankless: Educational programme about KlimaDAO to the Bankless community
  • Toucan Protocol: Introducing NBCT, a nature-based carbon token, to the on-chain market. NBCT bonds will be proposed shortly after the token launches.

February

  • Website redesign & UX enhancements
    • Professionalized, inviting new aesthetic reflecting a shift in our target audience out of DeFi and into the mainstream.
    • Multi-lingual site for broader access to international markets.
    • Simplified onboarding experience (buy, swap, bond).
    • A new self-hosted Blog to improve search-engine optimization and content-marketing efforts.
    • More utilities, dashboards, tools and integrations coming throughout 2022.
  • Mobilum: Fiat-to-KLIMA on-ramp from 82 fiat currencies, integrated with the Klima website.
  • Klima Infinity Launch:
    • Klima Infinity is an opt-in incentive program and suite of tools to help organizations become progressively climate positive by leveraging tokenized carbon assets and on-chain offsetting.
    • This product will provide greater utility to the KLIMA token and jumpstart demand from businesses and organizations.
    • Launch planned for February with several corporate partners.
  • Coinbase: Coinbase Wallet integration and discussions regarding Coinbase Earn.
  • User-friendly offset retirement interface: Enabling the mass market to retire tokenized carbon offsets.

March

  • Klima Infinity: Finalizing the onboarding of multiple Fortune 500 corporations.
  • On-ramp Partnerships: Finalizing integration with multiple fiat-to-KLIMA on-ramps.

Klima is receiving a large number of inbounds from carbon market participants off-chain that are looking to leverage their expertise to develop new projects which are digitally native, open up new bridging functionality to link off-chain and on-chain carbon markets, and provide easier access to on-chain markets for businesses and individuals alike. These interested parties understand that current crypto markets are highly volatile and are positioning themselves as long-term investors with a focus on the outlook of the on-chain carbon market rather than DeFi more broadly.

III. Community

The Community is the social layer of the Klima Protocol. A united Community can foster resiliency, and amplify the positive impact of Policy decisions. It is during times of volatility that we must rally with determination around the vision of Klima.

  1. We are strong believers that climate change is a problem that needs to be addressed with increased urgency and effectiveness. Klima is an important force within this fight. Over 60,000 individuals have invested in Klima to increase the value of carbon offset credits. Our community is demonstrating its resolve toward fighting climate change.
  2. We will continue to hold regularly scheduled and special Community engagements & support initiatives including office hours, AMAs, forum posts to keep everyone up to date and obtain community feedback.

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Positioning Klima Within the Broader VCM

For the past month Klima has been speaking with industry trade bodies at the highest level of the voluntary carbon market (VCM). These discussions were prompted due to the strong impact Klima has already had on the carbon market and the speed by which vast liquidity was brought on-chain (see e.g. IETA Launches Task Group on Integrity in Digital Climate Markets). One thing has been made clear to these stakeholders: the DeFI carbon market promises greater security, transparency, liquidity, and scale potential than what has been possible in the legacy market.

There are strong tailwinds propelling the sustainability sector forward. Directives from the Science Based Targets Initiative (SBTi) and Net Zero have clarified the role that offsetting can play in compensating for emissions while on an emissions reduction pathway. Concurrently, Environmental, Social & Governance (ESG) topics continue to gain prominence at board rooms across the world. As stated by Larry Fink of BlackRock, “The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators — startups that help the world decarbonize and make the energy transition affordable for all consumers.”

Those of you who were participants in the VCM during 2020 will recall that despite the Covid-19 induced economic crash of that year, it was the best performing year for the offset market thus far. 2021 went on to see those records surpassed to the tune of a near-60% increase in value from the previous year, propelled by corporate ambition and growing interest in carbon markets to achieve Paris climate goals.

DeFi is a proven market accelerant. Together with our partner network, we are leveraging Klima’s liquidity engine to open the next paradigm of climate finance. This is, understandably, no trivial task. Efforts must be increased to develop more user-friendly payment and access rails to this growing on-chain carbon offset liquidity; a greater variety of carbon indices must be developed to cater to a wider swathe of offset customers; and our efforts to onboard tokenized carbon assets as well as the KLIMA token itself into existing DeFI platforms, increasing their utility.

For further reading about KlimaDAO’s perspective on the DeFi carbon market and the broader VCM, see our recently released article KlimaDAO: a catalyst for innovation within the Voluntary Carbon Market.

Conclusion

KlimaDAO is well positioned within the growing DeFi carbon market and stands to be a major player in the broader VCM. While current macroeconomic trends and cryptocurrency activity have led to steep drawdowns across different protocols, KlimaDAO’s Olympus-based model provides our policy team with a host of tools to ensure protocol health and the safety of our treasury. Upcoming developments and partnerships will increase KLIMA’s utility and lead to growth in the on-chain carbon market. As a united Community, we will continue to move towards the realization of our vision.

Even in a worst-case scenario, we aren’t going anywhere. The core team has several years of financial runway and remains committed to the project. We also have the support of a massive and growing community of talented contributors and token holders. We will keep building towards the vision we outlined on day one.

If you are interested in learning more about how KlimaDAO can enable coordination and financial activism to tackle climate change, join us on Discord and follow us on Twitter.

Disclaimer

The information provided in this Medium Post pertaining to Klima DAO (“Klima DAO”), its crypto-assets, business assets, strategy, and operations, is for general informational purposes only and is not a formal offer to sell or a solicitation of an offer to buy any securities, options, futures, or other derivatives related to securities in any jurisdiction and its content is not prescribed by securities laws. Information contained in this Medium Post should not be relied upon as advice to buy or sell or hold such securities or as an offer to sell such securities. This Medium Post does not take into account nor does it provide any tax, legal or investment advice or opinion regarding the specific investment objectives or financial situation of any person. Klima DAO and its agents, advisors, directors, officers, employees and shareholders make no representation or warranties, expressed or implied, as to the accuracy of such information and Klima DAO expressly disclaims any and all liability that may be based on such information or errors or omissions thereof. Klima DAO reserves the right to amend or replace the information contained herein, in part or entirely, at any time, and undertakes no obligation to provide the recipient with access to the amended information or to notify the recipient thereof. The information contained in this Medium Post supersedes any prior Medium Post or conversation concerning the same, similar or related information. Any information, representations or statements not contained herein shall not be relied upon for any purpose. Neither Klima DAO nor any of its representatives shall have any liability whatsoever, under contract, tort, trust or otherwise, to you or any person resulting from the use of the information in this Medium Post by you or any of your representatives or for omissions from the information in this Medium Post. Additionally, the Company undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed in this Medium Post.