• Proposals
  • KIP-9: Protocol Maturation and APY Alignment

Summary

Adjust reward rate to 0.312%, translating to a 6.2% 5 day ROI, and 8,000% APY, to align with policy priorities and expectations from the community, as well as ensure optimal protocol development.
Empower the Policy team to correct the reward rate when realized APY deviates significantly from the current target APY, ensuring alignment with expectations as laid out in KIP-3 and ongoing reward rate adjustment KIPs.

Motivation
Over the past months, Klima has seen enormous success. The protocol has grown in strength financially (Klima has 83.8% of on-chain BCT market share), technologically (bringing an opaque carbon market on-chain), and expanded its influence (integrations with MCO2, robust deal pipeline).

Integrating MCO2 began diversifying our basket of treasury assets, and serves as a great first step toward directing the exuberance of the retail market for ReFi assets into the Klima treasury. More integrations will create more LPs that the treasury collects fees on, as well as more non-bond revenue from new products and partnerships.
As we move deeper into the Integrations phase of KIP-3, Treasury Total Carbon should be our main focus; not BCT backing of circulating Klima or BCT balance alone.

While we progress internally, externally Polygon block times have quickened and trended towards a more frequent rebase. As we saw in KIP-5, we are rebasing (and therefore compounding) at a faster pace than planned. This has led to an effective reward APY that is higher than expected for the formulas, even based on KIP-5’s adjusted 7.25 hours per rebase.

Slight bidirectional variance in rebase times should even out realized rewards over rebases, but congestion events like the recent deployment of Sunflower Farmers have demonstrated that the Polygon chain is susceptible to sharp changes in block time. In preparation of future congestion events, the Policy team will closely monitor Polygon block times for any significant deviations.

Furthermore, the realized APY has also fluctuated significantly in the past few weeks due to the change in % of KLIMA staked. As the percentage of KLIMA supply staked goes down, the projected APY goes up, since the remaining stakers are now sharing a larger portion of the same “pie” of each rebase rewards.

Proposal

In an effort to set proper expansion expectations and remain aligned with the framework approved in KIP-3, the Policy team proposes:

  1. Adjusting the reward rate from 0.417% to 0.312% to an estimated 6.2% 5 day ROI or ~8000% APY.

This is equivalent to:

  • A 0.35% Daily Reduction.
  • A 1.87% Weekly Reduction.
  • 13 more days to double your sKLIMA balance.
  1. Allow the Policy team to unilaterally (i.e. without passing a KIP) execute minor reward rate corrections,* only when the realized rebase-time-adjusted APY** deviates from the target APY approved in the latest reward rate adjustment KIP for at least 7 days, either:

    1) 10% total in either direction.
    2) Any amount outside the target APY range for the current KIP-3 stage based on total supply.

*Such corrections must be made in the opposite direction of the justifying deviation to “correct".
** See Dune for a historical chart of realized rebase-time-adjusted APY: https://dune.xyz/queries/233280/437025

This new unilateral ability to correct the reward rate will ensure that the policy team can react promptly when the realized APY diverges from the latest approved target APY, without requiring another KIP.

Polling Period
The informal forum poll begins now and will end at 16:00 UTC on January 21, 2021. Assuming in favor, this vote will go to Snapshot at 16:00 immediately after, concluding at 16:00 UTC on January 26, 2021.
Upon a successful Snapshot vote, the KIP will be implemented and the adjustment of the reward rate will initiate.

Vote

    I’m all for a reduction in APY, but not right now. The project is still new, give it another month or two. Use this time to reward holders and draw new investors with higher APY.

      I would request that this KIP is broken into two separate KIPs...
      or please add an option for "For: Grant Policy Minor APY Adjustments"

      From my perspective, the policy team should be able to react to block time changes without community approval in order to assure that rewards are consistent with expectations. However, rate reduction may be subject to more debate within the community. If I'm not mistaken, this rate reduction would accellerated based on the emissions projections dashboard.

        I think it's super important to reduce the APY and stop the price falling as quickly. That was certainly the biggest deterrent for me joining this project. The price chart is the first thing you see. In any case, 8000% APY is still insanely high so i doubt it'd impact a new investors interest. Hopefully everyone on this project understands market cap / % ownership and realises that a high APY has been hurting us overall

        I think sustainability and growth of the protocol is key. I am equally open to giving the policy team the power to adjust the APY slightly when it deviates from our target upto a % after which A KIP vote is needed for any further adjustment. I however these concerns and will be happy for any one to help clarify.

        1. In such a bearish market will a reduction in APY no significantly hurt the protocol by reducing staked % and decreasing the number nee investors needed to grow the protocol?
        2. Will it not be better if this reduction was carried out in some future date when markets situations are better?
        3. What about doing this reduction in a number of times to get to the target 8,000 and not at once.
          Thanks

          Though I understand the motivation, but its going to severaly discourage folks who's already down....this may cause a massive sell off down to $10.00

          Skip 8000% and go straight to 1000%. The DeFi/DAO community at large is broadly recognizing that these high APYs are not only not sustainable but actually harm the DAO's objectives. Look no further than the trajectory of a project like Olympus or even a more recent project like Rome which has already acknowledged and positioned themselves to start drastically reducing their APY. Having a high APY is almost synonymous at this point with being an illegitimate project.

          In other words, APY is simply not a competitive dimension anymore. Every legitimate project is going to end up at 1000% because they have to. The argument that people will invest elsewhere kinda falls flat on its face when you consider this. Given the stability of the community and the price at the moment, I think it is in a great position to handle the turbulence of an APY drop to 1000%.

          I understand the reason as to why the APY needs to be reduced. However, I think at the moment it may be the wrong time to do it.

          Perhaps (as suggested previously in the comments here) the APY can be reduced in another month? I think two months would be pushing it. It just gives early investors to make a little more back and recoup their loses, and to also attract more investors.

          Side note: if the APY is dropped, I would suggest warning new comers to the project that the APY is set to decrease.

          Such a strong reduction really necessary already? Do values fit? 1.00312365*24/7.2 != 80, but maybe I'm dumb. In the general chat it was mentioned, that lower APY is also necessary for partnerships. Could you elaborate on this? Thx

          Ludobaegman I agree to this, in that going forward, splitting up separate proposals into two separate posts to get polled about should be considered, to ensure the health of confidence in the decision-making process of the protocol.

          That said, I support both proposals here.

          I honestly think that they APY should be slowly reduced and gradually…. I think the project is amazing and definitely has a big future ahead of itself.
          The most important think will be partnerships and building up the project and adding more assets to the treasury.
          My question is, will the price rise because or reduction of emissions?