Summary:

Allow KlimaDAO to redeem pooled carbon tonnes in the treasury into the underlying (BCT into an underlying TCO2 offset, for example), to convert into an equal or higher value carbon pool.

Motivation:

KlimaDAO is the largest holder of BCT, with 88% of the circulating supply. BCT itself is an index of a range of TCO2s (tokenized CO2), which are fractionalized NFTs representing the original verified carbon offset bridged on-chain. Pooling together TCO2s with similar qualities mitigates the fragmentation of trading specific offsets, allowing liquidity to be provided for a wide range of offsets.

When new carbon pools (https://docs.toucan.earth/protocol/pool/pools) are launched by Toucan or any protocol that uses the Toucan infrastructure, there may be overlap between one carbon pool and another. This allows anyone to redeem a TCO2 from one pool and deposit it into another. If the new carbon pool is on average higher quality than the original, the market should value that pool at a higher price, and thus moving offsets to a higher quality pool increases the market value of the same tonnage (https://docs.toucan.earth/protocol/pool/redeem).

Proposal:
Allow the Policy team, advised by carbon experts in the DAO, to redeem a Toucan carbon pool token held in the treasury into its underlying TCO2, with the intent of depositing into another carbon pool. The restrictions are as follows:

1) The new carbon pool must not introduce new security risks to the treasury.
2) The quality requirements of the new carbon pool must be equal to or greater than the original carbon pool.
3) A maximum limit of 10% of the total carbon treasury can be redeemed at one time.
4) Full transparency reports after the conversion has been done, in order to ensure full communication to the users.

Other:
Proper avenues of communication will be facilitated between KlimaDAO and the carbon protocol (e.g Toucan) to ensure that alignment is maintained.

Polling Period
The informal forum poll begins now and will end at Feb 11th 18:00 UTC. Assuming in favor, this vote will go to Snapshot.

Vote

    I am for. I do think the maximum is too low (creates artificial stops that may seem to prevent excessive shock, could lead to trading interference effects and, to a lesser extent, volatility spillover)

    Definitely in favor for this. Couple of suggestions:

    • Formalizing the working group of carbon experts in the DAO
    • Focus on a proactive approach rather than reactive when it comes to redeeming for TCO2s, we should be reading the market and taking out TCO2 based on market trends rather than just waiting for Toucan or others to announce
    • We will need some way to account for any TCO2s held in the treasury when looking at treasury value and backing. Suggested to peg it to BCT price at least initially so treasury value is retained until a new carbon pool comes

      So much yes! Also agree with MR-MR-MR that it would likely be in Klima's interests to pro-actively arbitrage if the opportunity presents itself in any case. Ie if someone pools into BCT something that could be pooled in NCT. This mandate should extend to all future assets that have redeemal functions.
      About the restrictions -
      Re: 3) I personally don't see a particular reason why the maximum limit is strictly necessary. Basically backing will be maintained even if the credits are in TCO2 form. Also if you don't do it at significant scale you still might run into a race with other arbitrageurs catching wind of the situation.
      Re: 4) Would probably be nice to include a specified timeframe in the mandate and not "at an undefined later time"

        No second thought given. Go for it. What are you waiting for?

        greevesie this is a recent development and right now will only apply to NCT and future pools - Toucan has assured us they would work together with us prior to implementing a contract upgrade to enable this redemption fee for BCT

        MR-MR-MR Very much agree with this. I also tend to concur that the limit either too tight or potentially unnecessary.

        MR-MR-MR
        100% agreed, another post highlighting the carbon experts will come out soon, and this team should be inclusive (e.g anyone can join if they have the proper qualifications)

        MR-MR-MR We will need some way to account for any TCO2s held in the treasury when looking at treasury value and backing. Suggested to peg it to BCT price at least initially so treasury value is retained until a new carbon pool comes
        Agreed.

        Rez

        We put 10% as the limit to reduce powers as a fail-safe. In the future, this may be automated, and may allow us to lift the limits. Worst case, we can do multiple batches of 10%!

        Rez Re: 3) I personally don't see a particular reason why the maximum limit is strictly necessary. Basically backing will be maintained even if the credits are in TCO2 form. Also if you don't do it at significant scale you still might run into a race with other arbitrageurs catching wind of the situation.

        Rez Re: 4) Would probably be nice to include a specified timeframe in the mandate and not "at an undefined later time"
        Agree with this, we'll clarify with the timeframe after more discussion with the partnership/carbon team.

        Will this affect somehow to price of on-chain carbon tons? Positively, negativity or not at all? Thank you.

        Also wider range of assets brings up more "instruments/products" to be used for offseting emissions. That could bring up arbitrary opportunitys and tailored products for offsetters (more marketing opportunitys).

        • Cujo replied to this.

          Nikodemos

          If only a redemption is done (for say BCT -> NCT) using reserves, then there is no actual market impact other than a potentially reduced arbitrage opportunity between pools. The flow would be Redeem -> Deposit, so nothing hits an LP pool.

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