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

Impermanent Loss (IL) from Klima’s liquidity providing increases as the price ratio of Klima/BCT (Klima per BCT price) or Klima/Usdc drops. In order to reduce our treasury’s IL, we need to hold a steady $KLIMA price as soon as possible. The reduction to 8000% APY will hold up our treasury’s liquidity value during the next couple of months where crypto and therefore KLIMA demand is expected to be low.

You guys are giving Klima the final headshot with this early reduction. Seems you are missing the point here how it all should work, this is going way to fast, with this pace you will have even less apy then OHM. You are just ripping all your investors a new one. Price is tanking for only 1 reasons and that's because the policy sucks. No one will invest in Klima with the apy going down like a rocket. There are only sellers and terrible low volume because no new people are getting in.

    Rene A few answers to your point. The first is our comparison with olympus, bear in mind that our backing asset is not a stable coin but an asset expected to appreciate and so Olympus needs to bring in less revenue than klima to mint new tokens. The flip side of this is that by driving up offsets prices through bonding we naturally increase treasury value as our backing asset appreciates. A robust treasury is what indicates the value of a protocol not the APY. The second point is related to your statement on why price is tanking. This has been answered hundreds of times by now in the discord but a quick summary is 1)inflated starting price not matched by treasury due to hype around launch 2) liquidation cascades by leverage 3)general bearish sentiment in the market in the last month (Olympus itself has fallen 70% in the last month). These are parts of the volatile space that we find ourselves in. As for no new people getting in that is something that is a main focus of the klima team. We have many participants in Klima who have never been in defi before which goes to show this protocol is attractive but we have to make it easier for retail people to join the space which is no easy task.

      coingecko Thank you for your input - makes a lot of sense from probably a lot of Klima investors POVs. It's a delicate balance.

      The integrations just passed (KLIMA/USDC LP Bond, KLIMA/gOHM LP Bonds) will be sources of revenue for Klima holders, but they will also be sources of dilution as capacity is required to bond them. Hopefully over the course of the polling period we can help our users see this proposal is actually going to put the protocol in an extremely strong position to sustainably expand. These reductions on the reward side are best to happen now so we can implement the capacity changes on the bond side for the least dilution, and greatest benefit, of all holders.

      I am for the APY reduction as soon as possible. I understand that some people who are down at current prices have been calculating their time to break even based on current APY, and therefore want to extend current APY until that time. I urge these investors to lengthen their time horizon and make decisions in the interest of long-term success of the protocol and thus to their investments.

      We should not hold up necessary rate reductions because people want to break even sooner. I will be voting For on this proposal.

      I’m for reducing APY to help the protocol maintain heath, but think it is too soon. I’m not talking about extending it all the way out to my personal “break even” point, but a month or so. We just had an APY reduction not that long ago, and I feel reducing it again this soon is going to drive more people out of protocol and discourage new people from coming on board. Just my opinion.

      Thanks for the proposal and all the great work the core team is doing!

      Regarding proposal 1 I advocate for more transparency. You write

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

      Regarding the first part of that sentence: the expectations were set in KIP-3:

      We are at 1.6MM supply so the current APY can be expected.

      Regarding "remaining aligned with the framework": the current APY is aligned with the framework and a drop to 8000% @ 1.6MM supply could be characterised as "unexpected".

      That's why I come back to transparency: I think most members understand if you argue to change policy, but we should argue transparently why we need the changes. I saw some contenders for good reasons in the comments:

      • Is it about the falling KLIMA price and thinner margin between BCT & KLIMA
      • Do we need more power to incentivise new bonds & project. What are the calculations behind that?
      • Do we need to stabilise the the price because of the impermanent loss on the LP
      • ...

      I would find it great if the policy team would share their thoughts in a bit more detail.

        Brian33 I am pro of the APY reduction, but not as quickly from 28k to 8k in just one day, that will be great if you spread that reduction in a 5 month span. Investor will not scare the hell out so quickly.

        grap
        great points you make. @Brian33 and the policy team please give a bit more details on that.

        BAT414TheRedApeFamily Hello ser, thanks for your input. I hear where you are coming from: If APY decreases our reward decreases - right? Well, not really.

        To clarify: An APY reduction won't hurt early holders of the project. It's actually going to help them.

        This reward rate reduction may slow the rate at which our sKLIMA grows; but most importantly it will allow us to bond more assets (BCT, MCO2, gOHM) for less KLIMA. This rate reduction is the going to be a great first step in kickstarting the age of integrations, and allowing Policy the lee-way to add more pairs and more capacity for existing pairs.

          optima Could you please elaborate on the "bond more assets" point? Do you mean that with less APY, there is an expectation that the Klima price will increase, thus the bonding price will increase? Or is this based on some other dynamic? Thanks.

            Sirob More specifically, the assets we do bond will be cheaper in KLIMA terms. The protocol will, in essence, be getting a better deal on our open market operations.

            This opens up a lot of interesting Policy doors, like potentially allowing us to redirect previously existing sell pressure (higher reward rate) to new sources of revenue...

            So a decent analogy to boil it down is kind of like this: instead of a highly inflating token backed by the same sized pie; we strategically redirect those emissions toward making the pie bigger for everyone.

              Rene Will people invest in a Klima that isn't sustainable and without ability to redirect capacity towards integrating more carbon types?

              You could make an analogy to climate change - we need to make some very serious corrections to how we handle things there, but since the measures seem so harsh to us now, we are constantly pushing them into the future - but in a way that means it'll be exponentially harder to implement and will feel exponentially worse in reality, due to the less workable baseline we will be if postponing it.

              I'm not sure everyone had the chance to attend the informa policy chat that was also a sort of 'vibe check'
              https://www.notion.so/klima-dao/Informal-Policy-Chat-12-January-b3b437b3ef7c4890a3d059f690784155
              https://cdn.discordapp.com/attachments/841609815817060393/930890734087856229/KLIMA_PolicyTalkJan12th2022.mp3

              Here are links to recording and rough transcripts, they follow through at much greater length than the how the reasoning is presented in just the OT above.

              Brian33 Why would we agree to a reduction that’s not in alignment with KIP-03? Stay the course and build the value. Too many changes confuse the average Klimate.

                If I am not missing some gigantic piece of information, a lot of what is being aimed on this KIP rides on demand not getting lower as a result of it. However I can not see any guarantees for this.

                I mean this would have been easily made into a shit sandwich like; "Here is our shiny new website online! Oh by the way we are poroposing to lower the APY a bit early in light of recent developments. And here is our new marketing campaign to keep demand up." This would have made all this much more palatable.

                As things stand a lot of people will feel you are asking too much of them, and I fear this will create the opposite effect of what is being aimed here.

                grap Hello fren, really appreciate the measured response and valid points you raise. To address these:

                1) It is less about falling KLIMA price, and more about efficient use of emissions. When we reduce reward rate, the assets we do bond will be cheaper in KLIMA terms. The protocol will, in essence, be getting a better deal on our open market operations.

                2) We certainly want to put ourselves in the best position to sustain integrations. Reduced reward rate will definitely make new bond incentives cheaper to sustain for the protocol. Also, intaking new assets aids in decoupling KLIMA & BCT price correlations - which will stabilize our volatility over time.

                3) No. We don't have any official sKLIMA or wsKLIMA LPs so IL is a minimal concern here.

                Lastly: regarding 'aligned with framework' - It's important to note this scale is exponential, not linear.

                Hopefully this shined a light on some of your questions!