Honestly you cannot be considering further hurting early adopters to the project. Not only did we lost 80%+ of the token value and now you want to reduce the APY further? Not a good show of respect and appreciation for the current holders. Please keep the current APY until end of Q2 at the very least.
KIP-9: Protocol Maturation and APY Alignment
My thinking around this is based around numbers.
A month ago, the DAO had an average daily rewards issuance of ca 11k KLIMA. Currently, we are at ca 20k and keeping the current APY for another month, we will be at ca 32k.
A month ago, the average bonding price (across BCT and the two LPs) was ca 40, today we are at 17. The bond price has narrowed as Klima in $ was 4x where it is today and BCT is pretty much flat.
Using these, we can use the DAO PnL accounting to figure out how much KLIMA it will need to mint in order to sustain these levels. For all of you non-crypto people (like me), think of the rebases as the main "cost" item of the DAO.
A month ago, we needed ca $60k daily inflow to sustain the 11k KLIMA rebase rewards. Today we need $111k to support the 20k. All else equal (avg bonding price stays at 17), we would need $178k in a month to sustain the 32k needed. If bond price falls to 10, we'd need $187k, if it goes back to 40, we'd need $171k. If you take the calculation 2 months ahead when the DAO would need 50k KLIMA daily for rebase rewards, at current BCT prices, we'd need demand for $278k instead of $111, or 2.5x increase. At the proposed 8,000% APY, if they started today, we'd be at 41k rebase reward needed.
In case you are wondering why the range, it varies as the DAO issues a lower number of KLIMA, the higher the bonding discount is, meaning also the 10% DAO cut is nominally lower (it is all denominated in KLIMA). Given 1 KLIMA = 1 BCT for the purposes of the DAO calc, you need to add a lower number of KLIMA on top of the rebase need in order to figure out the number of BCT needed. The opposite dynamic happens when the bonding price goes down. Please also bear in mind that all the calcs above show just the money needed to support rebases, ie if we get here, the backing ratio will be 1x compared to the current 5.4x.
For example, yesterday the DAO managed to attract ca $640k, meaning this would have been enough to support 50k rebases in two months at the cost of decreased backing ratio of 1.7x. All else equal, at 41k rebases, the backing ratio would be 2x.
So my thoughts are: can the DAO wait 2 months - I believe yes, even longer IF the current activity continues, which is obviously a big IF. I can be wrong, but it looks to me like the policy team is trying to adjust the APY to be more towards the middle of the 2-30k range (as shown on the roadmap picture). One question is why this is done at 1.7mn KLIMA issued when the range is 1-10mn so we are toward the beginning. Maybe so that we can stay in this phase for longer. These are all trade offs. The timing does seem optically bad given the price action so it depends on the holding period. I hope to stay in Klima much longer than a few months so the additional 2 months at 28k would be nice, but not so detrimental longer-term.
Obviously, for the DAO to reach its desired goals, it has to survive and managing the cost side is important for stability and sustainability. For me, much more important is to work on the revenue side where the DAO needs to make a LOT of progress this year.
Anyway, just my 2 cents.
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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.
completely for reduce apy
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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.
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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.
Brian33 I would support this if it was married with additional restrictions on pKLIMA. Such as no pKLIMA sales until we reach 100 million circulating supply
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.
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.
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.
Crypto_Coin_Guy pKLIMA data is readily available and verifiable (e.g. here: https://dune.xyz/queries/279113). pKLIMA sales are a non-issue.
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.
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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.