As of now if I want to make offset it happens like this: I choose a pool, let's say BCT. The offset event takes BCT from the pool paired with klima and retairs it meanwhile klima token is not burned. Meaning that Klima is backed less with the BCT. -> this puts growing pressure on BCT bonds (once active) and more klima is minted by new bonding -> inflation for klima token.

KIP-31 makes it so that you retaire BCT and equivalent amount of Klima is burned (minus the dao fee) so that the weights of the pool BCT/Klima stays the same.

As of now, If there is small pool (let's say NBO) and I need to make huge retairment on that specific credit, I would need first sell my klima tokens and then swap them to NBO. This would lower the price of Klima token and rise the price of NBO on AMM (slippage) and that would be inefficient. With the new bond I'm covered from that slippage.

Did I get it right?

    Nikodemos
    The first part of your deduction is correct, retirement bonds would be a new piece in the toolkit that makes retirement and regular bonds (when they reopen) more synergistic in the long run.

    As for your last question, instead of slippage in the open market, you would still face a slippage cap of 2% (per the original proposal) when you retire NBO but without selling pressure on the KLIMA token.

      Will these bonds be available for TCAs which price is way smaller than the price of KLIMA?
      eg. BCT => 1$, KLIMA 2$ ... so to retire 20 tonnes I need to use 10 KLIMA ... counting with fee to DAO we'll burn 7 KLIMA tokens.
      The supply will change in a way that breaks the backing 1 tonne == 1 KLIMA. With our current situation this would decrease runway, but in later stages of the project it could break the backing condition where there would be more circulating KLIMA than carbon tonnes in treasury.

      • Cujo replied to this.

        Clever mechanism. I like it.

        Interested in a response to the question by SVNatK-Lo as I'm also unclear as to why the 15,000 KLIMA fee to the DAO in this example would be removed from total KLIMA supply (assuming it will be used to pay contributors now or in the future).

        • Cujo replied to this.

            SVNatK-Lo WAGMIcapital

            The KLIMA tokens held by the DAO are considered out of circulation. The treasury still enforces the requirement that there must be at least one carbon token for each KLIMA minted. We also exclude the KLIMA held by the DAO from any market cap figures since they are not in circulation.

            Taking the assumption that the KLIMA sent to the DAO would eventually be paid out, with this scenario if someone comes to retire carbon on chain, they had to acquire the KLIMA some way initially. Assuming a direct USDC swap to KLIMA as part of the retirement, there was still more demand on KLIMA for the retirement than if the DAO immediately distributed and sold its fee back for USDC.

            hodlmao

            So that case should be outlined in a prior reply of mine. When looking at backing per circulating KLIMA, the increase/decrease amounts have been using purely the direct reserve balance of the treasury. In this proposed implementation only excess reserves would be utilized for funding a retirement bond. So any retirements made through this contract would not affect the backing of currently issued KLIMA tokens.

                    Cujo

                    I still don't agree, sorry.
                    In your example you take relative to respectively the bct reserves and the klima outstanding circulation an equal % amount of bct and klima out. So this doesn't generate value. The fact that 30% of the klima is not burned, while the full equivalent amount of bct is burned makes every klima weaker. That you don't count the 15k klima anymore in your backing calculation is an accounting trick, because you state that they are still backed by the same treasury reserves that are still, in full, part of the backing calculation.

                    The real effect here seems to be shifting excess reserves from the klima holders to the DAO. There is no real fee charged to the user for retiring.

                    I don't mean to be negative so forgive me challenging this hard. I want to understand this to be 100% sustainable and positive for klima.

                    An alternative design could be that if you want to retire for $10000 it wil cost you $10500 (in klima) and of this $10000 in BTC is burned, $10300 in klima is burned to accrue value on the remaining klima and $200 in klima is sent to the DAO for funding further operations and initiatives. Only if users pay real fees to use your product you'll obtain a sustainable model.

                        Cujo In the screenshot of the spreadsheet, why is BCT burned 83k? Since only 35k of the supplied KLIMA is burned and used for BCT retirement, shouldn't it be 35,000 x 1.66 = 58,100 BCT

                        An alternative to the 30% DAO fee issue would be to price BCT (or any other digital carbon) at 30% premium and utilize this for DAO expenses.

                        Would the retirement bonds only be utilized when the order size is expected to cause a slippage > 2% ?

                        • Cujo replied to this.

                            Many have asked for a way to burn KLIMA and clean up older credits in the treasury since the beginning. As long as the math adds up, I support this KIP.

                            @Cujo
                            I agree with the objections by @SVNatK-Lo and @andybash12 . The numbers in the table do not seem to make sense. Providing 50k KLIMA to retirement bonds should amount to 58k = 50k x 0.7 x 1.66 BCT being burned. At the same time, 50k x 0.7 = 35k KLIMA would be burned and 15k KLIMA kept by the DAO as the fee.

                            The numbers in the table suggest that the 50k KLIMA lead to 83k BCT being burned. Hence, the bond-retirer (or "customer") gets BCT offsets/retirements with no fee at all. At the same time, not burning the whole 50k KLIMA, but keeping 15k alive seems to lead to undue inflation. If this is indeed the intended model, then a different word than "fee" should be used.

                            Is it possible to receive a better insight into how the policy team performed the modeling, testing and parameter evaluation for this concept?

                            Also, on a different note, is it planned to undergo an audit with the new functionality or what is the opinion by the policy team here?

                            • Cujo replied to this.

                              SVNatK-Lo andybash12 rrrmmmmm

                              Why would I as a user ever buy and retire carbon through a retirement bond if the total execution price is more than going to Sushi and doing the swap myself? If I have to pay 13k to use a retirement bond or 10k to do it myself, I'm going to just do it myself.

                              The terminology here may be a bit dense/poorly chosen. We went ahead and used the word fee due to the fact that that is how we represent the fee the treasury pays to the DAO for regular reserve bonds. That fee is not added on top of the price someone would pay for a reserve bond. Additional KLIMA is minted and sent to the DAO instead.

                              Current token flow for a retirement of BCT from USDC:

                              • Swap USDC => KLIMA => BCT on Sushi.
                              • Retire BCT.

                              End results:

                              • More USDC in the KLIMA/USDC pool. (more USDC per KLIMA)
                              • More KLIMA in the KLIMA/BCT pool. (fewer BCT per KLIMA)
                              • Total KLIMA supply unchanged.

                              Token flow using a retirement bond:

                              • Swap USDC => KLIMA on Sushi.
                              • Provide KLIMA to the retirement bond contract.
                              • BCT from retirement bond contract is retired.
                              • 70% of KLIMA received is burned, 30% sent to DAO.

                              End Results:

                              • More USDC in the KLIMA/USDC pool. (more USDC per KLIMA)
                              • No change in the KLIMA/BCT pool. (same BCT per KLIMA)
                              • Total KLIMA supply reduced by the amount burned.

                              The end result is instead of swapping KLIMA for BCT in the Sushi pool held within the treasury, you swap directly for reserves. This is only because the reserves are forced to be retired. The same USDC impact is seen on the KLIMA/USDC pool in both scenarios.

                              In the retirement bond scenario we have also maintained the number of BCT that one KLIMA can buy. This by extension allows reserve bonds to maintain their effectiveness (the more BCT/UBO/etc per KLIMA the more efficient reserve bonds are).

                              The retirement bonds could be utilize for any order size as long as there is both enough capacity and it is under the max bond amount. The current contract builds on top of the aggregator to perform the retirements as well.

                                      This is a great step forward, I'm very excited for retirement bonds

                                      I am in favor of the proposal, other than the current proposed pricing mechanism (which goes by market rates). I don't think we should have it go by current market rates if our mcap is lower than the value of our carbon in the treasury. But I would be in favor when that changes in the not so distant future (it could be dynamic, the policy team would decide when to use either), or if the why was better explained, maybe I missed something

                                      Instead, while our mcap is lower than the carbon in our treasury, I would much prefer what you'd typically expect from inverse bonds, where the inverse bond would return proportionally what is in the treasury relative to current circulating supply. Although I think the proposal is a great solution on how to do inverse bonds when mcap is higher than our assets.

                                      Doing this would imo add more confidence, as when markets are bad, we'll always be proportionally entitled to the treasury (through retiring). Just going by market rates kinda makes the treasury seem less important to the individual, atleast it would to me. We're supposed to be a carbon reserve currency. Doesn't sound like it.

                                      It would be great if we could have an additional option on the vote

                                      • Cujo replied to this.

                                        Cujo Of course. A fee for the bond-retirer could in principle be justified with higher liquidity of the treasury compared to the LPs, due to the fact that the majority of the on-chain carbon resides within the KlimaDAO treasury. This would be something like "the price" to buy assets from KlimaDAO. Whether 30% would be justified, is another question.

                                        Perhaps part of the confusion regarding the backing could be resolved by looking at where the BCT in the LP come from. Were these BCT taken from the treasury, aka are there KLIMA tokens backed by them or were these BCT purchased without having gone through the Klima/bonding process? I'm not sure which one it is.

                                        Also, how would the retirement bonds work if the "fee" was set to 0%, meaning that all KLIMA would be burned? Or if instead a fee (in the sense I imagined) for the bond-retirer of 3-5% would be introduced, that the DAO keeps? I'm sure these scenarios have been modeled, too, right? Are there any disadvantages?

                                        Regarding my question about an audit: Are the retirement bonds using an existing functionality to remove assets from the treasury or is this a new one? For example, are they using the inverse bonds functionality? If new smart contracts are deployed, do you see an audit in order?

                                          Is it possible that the treasure wraps Klima tokens received as a fee from the retairment bonds and keeps them wrapped untill they are needed for other purposes?

                                          Cujo

                                          Thanks for clarifying further!
                                          The flow of this new proposal is indeed better than the current (assuming that indeed the bulk of bct in the klima/bct LP also originate from the treasury reserves), so I support this step forward.

                                          I nevertheless still believe that the backing impact calculation is misleading and that this proposal hardly brings any sustainable value/growth to klima itself. Your argument that people will not pay fees if there is an fee-less alternative which is equally good, is correct . So this is the real challenge here: finding ways to have people willing to pay fees while using the klima infrastructure/treasury. And they will if these fees represent an added value of that usage.

                                          Thanks for the debate and for the essential and hard work already done with the klima team!

                                              SVNatK-Lo Thank you for raising some challenging points thus far. Could you elaborate further on your point on "hardly brings any sustainable value/growth to Klima" itself? In my mind, retirement bonds are a significant step forward when compared to the current retirements done through the retirement aggregator. Retirement bonds burn the supply of KLIMA and when regular reserve bonds reopen in the future, we will have a dynamic supply. The demand for retirement bonds and reserve bonds could inform policy/governance decisions which then increase the utility of the KLIMA token.

                                                  khyezr

                                                  Sure, I agree that the retirement bonds are are a step forward in terms of flow thanks to the klima burning. However, there still is also the same face value of btc burned (even more if you take the DAO fee in to account) . This facility allows end users to retire carbon credits in a way which is neutral for klima. You just shrink both sides of the balance sheet in the same way. One could argue that increased usage on its own is of value, which probably is the case. What I mean is that klima does not generate revenue by offering this facility.
                                                  Cheers.

                                                  [edit a few hours later:]
                                                  thinking about this a bit more, I'm even less sure why we should stimulate a 'free of charge' giveaway of on chain credits for retirement (in larger lots through these bonds) as the credits black hole that was envisaged at the start, the crazy amount of amassed credits so far is on of the big reasons that makes klima a force in Refi to reckon with.

                                                  Imagine the BTC reserves to have shrunk by half due to these retirement bonds, before Verra or Gold Standard allows for bridging again. What did we then achieve?

                                                      khyezr Again, I'm supporting SVNatK-Lo 's objections. 5% max allocation looks risky, given that it might take a year until tokenization is re-enabled. More importantly, I won't vote "for" the proposal, because justification for the chosen parameters is not given and questions are not being answered. Even if the proposal is meant to be positive and well worked out, explanations need to be given to the community.

                                                            SVNatK-Lo
                                                            If KlimaDAO can drive demand to retire 4M tons of the carbon held in the treasury before there is an official response from the registries on bridging, I'd say that is a massive win for the community and the ReFi space. During that time I'm sure participants who do the retiring would also increase visibility and requests for action as well.

                                                            rrrmmmmm
                                                            The 5% max allocation is meant to be a safety lever against the treasury. Looking at the current volume of retirements flowing through our infrastructure, I would personally advocate for an initial offering of say 5,000 BCT. This is a new process and we also want to collect some real data to look at before jumping the gun and devoting too many excess reserves towards a retirement bond.

                                                            Garmon
                                                            The current implementation of inverse bonds (and all bonds) we use actually used the current market rates to determine the offering. It is on the bonder to act when the discount/premium is sufficiently high for them to act.

                                                            For the USDC inverse bonds, generally the USDC that we utilized ended up in the KLIMA/USDC pool at a slight premium to the value for which those bonds were executed. Through the retirement bonds it is essentially swap directly with the treasury. Where instead of adding BCT from the treasury into the KLIMA/BCT pool (which may swapped out for USDC), the current BCT market rate in USDC would go to the KLIMA/USDC pool.

                                                            These bonds and updated token flow associated are in anticipation of new reserve bonding to position the protocol to continue growing the treasury as the DCM grows. Reinforcing KLIMA as the go to token you use when you want to retire carbon strengthens us a currency, and burning the KLIMA used for retirement to maintain our premium needed for reserve bonding strengthens the treasury's ability to ensure it has the ability to continue to expand.

                                                                    Cujo

                                                                    I understand your demand driver and visibility argument.
                                                                    What's your view on my point that the protocol is not generating revenue from offering these bonds. In fact it's even worse, by retaining 30% of the klima in the DAO while burning all related btc, the klima token is weakened.

                                                                    • Cujo replied to this.

                                                                        Cujo Reinforcing KLIMA as the go to token you use when you want to retire carbon strengthens us a currency, and burning the KLIMA used for retirement to maintain our premium needed for reserve bonding strengthens the treasury's ability to ensure it has the ability to continue to expand

                                                                        This is an underrated point in favour... The utility of KLIMA increases from an end-user perspective – not only is KLIMA going to be the favoured liquidity pair for all carbon assets, it will also be the favoured utility token for large offsetters looking to meet their sustainability goals. More reason for them to hold and stake KLIMA as well, in order to protect themselves from KLIMA inflation / accumulate more KLIMA to meet their offsetting needs over time.