• General

  • Request for Comment - Automated Buy Back Mechanism

Hi All - Looking for feedback on an idea. I tried to keep this post as brief as I could, but I do have a more detailed working version in the google doc here (also much more nicely formatted). Don't be shy on comments or feedback, either positive or negative

https://docs.google.com/document/d/1z5WRvVBwKRdvFAx7JJ7o4Z9nGl68P49KvfaxpAZfy5Q/edit?usp=sharing

Summary
Establish an automated buy back mechanism where KlimaDAO will purchase KLIMA on the open market when the market clearing price of KLIMA falls to some level below that of the total treasury value. This would basically enable the DAO to build value incremental via arbitrage trading of its own token.

Core Reasoning
Several benefits to the DAO for this mechanism

Create value for the treasury - each trade would only be executed in specific, profitable circumstances, would increase asset base in treasury
- Increase Treasury BCT/Circulating KLIMA ratio
- Increase the Risk-Free runway with each trade.

Would potentially enable the DAO to slow the rate of KLIMA supply growth and dilution, while still paying staking and bonding obligations.

Would provide some buying support to the market - limiting some downside exposure for individual holders.
I actually think the bigger value of this point could be PR and morale boosts, rather than the pure effect on the market. With “ponzi” FUD rampant, this could help build distance from adjacent organizations as well as signal a show of support to token holders.

Context
Recent KLIMA price action has shown that klima isn’t pegged to a specific multiple of the price of BCT (yet). If the current trend continues, it could present an opportunity for KLIMA DAO to capture value for the treasury as well as create value for the token holders.

Example (all numbers made up and rounded to keep math easy) -

  • 20M BCT in treasury and 2M circulating KLIMA and Current BCT Price = $5
  • “Base Intrinsic Value” of 1 KLIMA = 10 BCT = $50
  • Current Market Price of KLIMA = $40
  • KLIMA DAO would sell 8 BCT (for $40) and purchase KLIMA at $40
    • No net change in USDC
      • Treasury BCT / Circulating KLIMA ratio has increased
        - I have an alternative model to this which doesn’t sell BCT (in google doc)
      • Purchased KLIMA would then be repurposed to pay obligations to either bonders or stakers

Lots of details and guardrails could be built in at logic layer

  • Logic for price determination
  • Volume caps? (only buy $X per day/week/month)
  • Treasury Caps? (never sell BCT taking below a certain threshold)
  • etc

If you'd made it this far - thanks for reading!

This is great but the team has repeatedly mentioned they have no intention to defend RFV values. They said if KLIMA goes to zero, they will possibly defend 1 BCT = 1 KLIMA with no guarantee or assumption.

    Yomie the policy team will absolutely defend the 1 BCT intrinsic value per KLIMA - this is a fundamental part of our protocol and has been documented since launch https://docs.klimadao.finance/tokenomics-and-mechanisms/market-dynamics

    This proposal defines terms a little differently than policy team typically defines them, and is more about how the policy team could take advantage of a situation where KLIMA is trading between IV and RFV to continue growing the treasury rather than how the policy team would defend the 1 BCT intrinsic value backing each KLIMA

        I'm strongly in favor of this proposal and would like it seen drafted as an official proposal to get more eyes on it.

        Theoretically, a rational market would step in as the arbitrager here so klima wouldn't need to, but we are very clearly not in a rational market here.

        Additionally, the only concern I can see here is the shrinking of the treasury. In my opinion, this is far less important than runway and guaranteed returns, as the treasury is plenty large to execute on current plans.

        I would recommend that the % discount be variable and modifiable by the team just like bond premiums, somewhere in an agreed upon range (minimum 15% discount off backing, maybe)

        Also, to clarify, I see it as arbitrage at any point under current backing per klima, NOT carbon tonnes per klima. As of writing, that figure is $57 (compared to 24 for carbon tonnes per klima.) As of my writing, we are at a 15% discount from backing, at $49.

        21 days later

        I strongly in favor of buyback meccanism,

        the token must be correlated to treasury!!

        This must be a linking meccanism beetwen the token and the treasury.

        i want propose the following:
        The price of klima is down of more 90%, And the treasury is far biggest of market cap of klima dao.
        I think can be profitable buyback the token (https://media.discordapp.net/attachments/841390338324824099/942058580499124264/Screenshot_2022-02-10_at_10.13.50.png?width=1206&height=670), the Treasury/Market Cap is around 130%.
        I proprose to buyback the token untill the ratio is Treasury/Market Cap is 100%. the goal must be achieved in one month from approval date

        20 days later

        I don't think the protocol can afford to do this. It needs all the BCT in it's treasury to perform a buyback to defend 1:1. Sure, it constantly has extra BCT, but only because it has debt to the stakers being paid over the course of the runway.

        It doesn't make sense to ever have the protocol purchase Klima over the price of 1 BCT as it can mint at that price. Protocol profit gets paid to stakers, we want it making the most profit it can. It can't do that if it is buying Klima over 1 BCT.

        The token IS correlated to the treasury, we can't forget that staked klima is backed too.

        I am in favor of a buyback mechanism. The specific design needs to be thoroughly considered. This community needs to wake up and force the team to face the facts. What they are doing is not working. The team is using voting power and influence towards incorrect design decisions. Price and new investors matter. Until everyone wakes up, KLIMA IV will unfortunately need to be defended. This is not sustainable.

        MarcusAurelius

        Suggestion: Pay out APY to stakers in USDC from earned Exchange fees of KLIMA when APY reaches 5-10%. Cap KLIMA supply.

        Create a KLIMA stablecoin. Peg bonding to KLIMA stable. So they receive the RFV in the form of a stable coin, not KLIMA the asset. Bonders can then stake their stable to receive KLIMA the asset.

        KLIMA benefits from the price appreciation of carbon assets in treasury. Balancing defending IV for stakers.

            Yomie What about letting the Dollar rot where it belongs?

            Why would a reserve currency pays out its users through another currency??? That would make no sense.

              Write a Reply...