@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.

                                                It's like building a ship before you sail. Let's tweak the details later once we got more data related to the proposal. No critical dangers for the DAO rised. I'm for it, LFG!

                                                Cujo Thanks.

                                                Regarding the 5% allocation:

                                                My worry about the 5% limit is that it could be too high. Based on my level of information, something like 2% would seem safer. With 5%, after one year the treasury would already be significantly drained and based on what I see, the re-enablement of tokenization could easily take a year.

                                                An alternative proposal: We add another safeguard to this KIP, an overall limit of 25% of today's treasury. When this limit is reached, we do another evaluation of the situation and vote on a follow-up KIP.

                                                Reasoning: The retirement bonds seem to be a great driver for demand and, more importantly, provide supply to fulfill demand, but are quite a severe change for the use of treasury funds. If demand grows too strong, which may happen, because carbon is so cheap currently, we might risk of letting our treasury drain without proper value recapture.

                                                Regarding the 30% "fee":

                                                This part is still not understood by me and other community members. So far, no explanation has been given for why this is a good idea and how the 30% are justified. What effect would for example 0% or 15% have for the DAO? The general understanding seems to be that this amount of KLIMA tokens is not really taken out of circulation. Even if the DAO holds them, a release into circulation can happen some time later through one process or another. The implication on the token value is not understood. Is there any more detailed information you can provide here?

                                                • Cujo replied to this.

                                                    SVNatK-Lo rrrmmmmm
                                                    If we look at the balance sheet of the protocol from a USDC perspective, performing a retirement through the bonds has no effect on assets as equal value of BCT are exchanged for USDC. However liabilities are reduced by the 70% of the KLIMA that is burned.

                                                    The proposed 30% to send to the DAO creates the first direct source of funding for the DAO tied directly to retirement. Currently we have been allocating some of the treasury USDC to the DAO to continue executing on our strategy and drive efforts to retire. This potentially changes that dynamic so that a portion of the increased demand from those efforts can continue to support the DAO. We minted an extra 30% of every KLIMA bonded historically as well for the same reason.

                                                    Regarding the max allocation: Perhaps 5% is too much. However it is a maximum of excess reserves to allocate. Unlike the USDC inverse bonds which had a target capacity and date in which to fill them where the premium paid was adjusted to meet that time frame, there is no time constraint to fit for retirement bonds. If we have 10,000 BCT loaded for a retirement bond and only 2,000 gets retired, we can still transfer those back to the treasury. Or adjust the next month's capacity to be 4,000 BCT to match demand.

                                                          Cujo The key to KlimaDAO's success is to enable a functioning DCM, which requires the creation and retirement of carbon tokens. Until this point is reached, the DAO needs to stay operable. So, I understand that operating expenses need to be covered.

                                                          I remain skeptical regarding the overall effect of the 30% "fee" and its overall implications on the tokenomics. This is, because (a) this amount of KLIMA will likely be gradually released from the DAO to the market to cover the mentioned expenses and (b) when considering the original bonding process, it means that each carbon token leads to two times 30%, first when it was bonded and second when it's retired. Regarding your earlier mentioned argument that in the current process carbon tokens from the LPs are retired while the KLIMA supply remains the same, I assume this boils down to the question whether the LPs were deployed using carbon tokens from the treasury (which were bonded earlier and thus back KLIMA) or deployed from other funds, like the LBP, that were not used for KLIMA minting. I'm not sure, which one it is.

                                                          I see two alternatives to this approach that sound better to me, but would require more research (or perhaps can be easily refuted?):
                                                          1) Selling carbon tokens from the treasury at an actual premium, e.g. 5-10% above LP price. I don't know if that would work, but since on-chain carbon is so cheap at the moment, this might be worth looking into.
                                                          2) Requiring large retiring parties to buy and hold a stake of Klima. The idea here is that those parties, that use carbon from the treasury for retirements, support KlimaDAO until the DCM is established. In practice, this would be a fee similar to (1), but which is vested and gradually paid back over time.

                                                          For now, I hope that the proposal is indeed a step forward, as you're saying, and that the work continues to make KlimaDAO a successful project.

                                                            2 months later
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