I'm not sure I understand the motivation for this. From the initial post:
"...Klima is trading at a premium because of this."

"The backing of Klima is composed of carbon assets, which assist in giving Klima a treasury to derive value from, and market operations that the Klima protocol does should aim to increase this backing."

Based on the example given, people would take advantage of inverse bonds until Klima is backed by the amount that it trades for. In this example, it would eventually drive Klima to be backed by 2 BCT. The actual value is 6.23 BCT ( ~$27.72). So it would almost certainly cause downward pressure on the price in the short term.

On the other hand, "This allows users to acquire assets in the treasury at a discount..." So it seems like the KLIMA treasury would become a market maker for whichever carbon assets it supports. Allowing you to trade KLIMA for BCT, MCO2, etc. at certain times and BCT, MCO2, etc for KLIMA at other times. But until when? What is the balance we are trying to achieve?

I suppose it would be a useful tool if used responsibly to meet the Treasury's goals. The more and more I type this, the more and more I have respect for how difficult the Fed's job is 😆 . (Stimulate growth while fighting inflation)

Brian33 so inverse bonding 4 BCT, I'd expect 4 Klima to burn in order to keep the backing accurate?

    Brian33 yes, the Klima would be burnt, contracting supply and alleviating pressure on the protocol.

    So we would reduce the assets in treasury in exchange for burning some Klima.

    Meanwhile we are inflating supply by about 50% per month in order to get those assets. This feels very counterproductive.

    Brian33 these BCTs would be used for offsetting, but it stands to see whether that is the case or not.

    Appreciate the clarification and understand you have thought this through as well.

    That would be ideal but if we burn the BCT it becomes worth nothing so we would need to find corporates or DAOs that we can OTC sell BCT to for them to offset which would require a big effort to grow the ecosystem around BCT. I just don't see that happening as we try to diversify from BCT and major portions of the Klima team jump ship in favor of launching a BCT alternative.

    If we don't secure alternative demand for BCT, we can't really use it for inverse bonding without blowing ourselves up. But we barely have any other assets to inverse bond so why should we allow the use of this tool? Not sure what I am missing but this isn't making much sense to me how this benefits Klima holders.

          This is not how carbon blackhole works. How can we get anything back from the otherside of blackhole?

          Very interesting.

          1. How is the backing decided? The backing keeps changing depending on the price of KLIMA, the BCTs in treasure vs KLIMA issued.. etc. Is it based on a moving average (MA)? MA could be considered for calculating the backing.
          2. Assuming no additional demand for KLIMA (say in a crypto winter), the price will hover around the backing and it'll be a cycle of bonds and inverse bonds. Wouldn't the backing value stagnate? We should've a mechanism to keep increasing the backing.
          3. Currently KLIMA is backed predominantly by BCT. But in the future each KLIMA would be backed by xBCT + yMCO2 + zNCT +...+... and so on. Then, how would the backing be determined and how would inverse bonds work for all the assets.
          4. Are those who buy the inverse bonds primarily bonders, who'll eventually bond with KLIMA? If so this is just a stabilizing mechanism and won't help in increasing the backing.
          5. Any thoughts on increasing the floor of KLIMA? This would automatically bring up the IV and hence the price. But yes if the floor is increased, then if the KLIMA price falls, then the protocol might have to shell out more KLIMA to buy a high quality Carbon Tonne.

          1 KLIMA was supposed to be backed by 1 Carbon Tonne (CT) not 1 BCT. But what happens if the price is below 1 CT. For example, at present, if we had BITMOs and an EU based CT was $100, then based on today's price, we've to issue 3.33 KLIMA for 1 EU CT...

          I'm confused on this aspect... Maybe Brian could shed some light on this during the policy chats that are planned.

          Brian33 I think that this should be given a lot of thought as I see the potential of a death spiral where people sell the BCT as a huge possibility.

            is this pertaining RFV (~$18) or the IV?
            Is the Intrinsic Value 1 BCT?

            Agree with all the sentiments of skepticism here.

            I understand the mechanics of the proposal, but not sure I understand the incentive from Klima's side of things?

            How does this benefit the protocol? Unless I'm missing something, seems like it only hurts it. Would love to be proven wrong and shown otherwise though!

            In this proposal the protocol can buy Klima from the market with less price than backing value of each outstanding Klima. So it is profitable because after protocol burns the newly bought Klima token the backing value per Klima token goes up. So I’m in favour of this proposal.

            It’s possible that inverse bonders’ Carbon tokens get then dumped and Carbon price in USD terms go down. But Klima backing in terms of Carbon tons go up; that is the priority. The Carbon price should then be bought up again to fair market value by those willing to burn tokens for offsetting alongside new investment flowing to klima. At least I hope so but it remains to be seen. I think burning is the key missing piece to validate onchain Carbon market. It’s just not very likely that DAO participants can suck up all that Carbon and alone fund the onchain Carbon market forever. At least not with current market conditions.

              DonkeyKong
              Sorry, I mean to say that the users who would trade their KLIMA for BCT (if we gave it in that asset) would use it for offsetting.

              The most easiest path forward is utilizing some of the freed up USDC if part of the BCT/USDC pool was redeemed. In other words, users are able to redeem USDC for Klima.

                Alanos86 in that scenario, wouldn't KLIMA no longer be backed by 1 carbon tonne per token, it wild have a backing that shifts higher or lower over time?

                    InTheDark It seems that there are a couple of different backing figures if you look at the Main Dune https://dune.xyz/Cujowolf/Klima-DAO. The current backing seems to be about 4 BCT that is BCT in treasury divided by Klima supply. Another backing figure is about 6 BCT. That counts also BCT that is owned by Klima and exist in liquidity pools. Yes, those two backing figures may move up and down. The intrisic value (IV) of Klima, that is one Klima equals one carbon tonne, is another story. Maybe somebody more knowledgeable could explain that. And that IV will be defended too if needed but with no inverse bonds but directly buying Klima?

                      Why a inverse bond Klima/USDC have a vesting period of 5 days? With a regular bond a vesting period is necessary to prevent instant selling, but since the bonder will receive USDC, couldn't be instantaneous or shorter?

                        gui_m_p

                        A vesting period allows us to manage our resources more effectively, as its spread out over time. If we did it instantaneously it would be similar to a rage-quit and use all the resources at once.

                        The most common example of this you see in banks today is the insurance a bank gives you to prevent bank runs. Because insurance is in place, many people are content with leaving their assets their, securing a larger value than what actually can be secured.

                          I dont understand at all how inverse bonds would work, how this would affect KLIMA, or how so many people can be for something that is so unclear. I don't want to spread FUD, but I think we need to have a much more clear explanation of the value proposition, impact, and how this would actually play out.

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