• Proposals

  • KIP-13: Redeem and Utilize 25% BCT/USDC LP

Summary
Redeem a portion of BCT/USDC LP from the treasury to extend runway and better utilize capital.

Motivation
During the founding days, KlimaDAO required a robust BCT/USDC pool to maintain USDC->BCT->KLIMA roots into the treasury, as well as to provide the DAO with a steady stream of revenue.

As a reserve currency, KLIMA value and utility is maximized when transactions on the ReFi ecosystem are routed through KLIMA. As proposed in KIP-8 when KLIMA/USDC bonds were first introduced, the DAO looks to develop KLIMA horizontally, becoming a deep reservoir at the crossroads of the on-chain offset market.

With Klima/USDC, this provides a significant reduction in slippage for users, as it causes the user to not route and experience slippage twice by hopping USDC-BCT-KLIMA. With only a 1.4mm pool (2.3% of total liquidity) , it accounts for 30% of the total Klima volume. As more liquidity is added, we can expect to see more volume facilitated there. Below is the KLIMA/USDC (Orange) vs KLIMA/BCT (Blue) volume. The black line represents the day we added KLIMA/USDC bonds.

Over the past two months, BCT/USDC pool growth has stagnated, while the volume passing through the pool has reduced. By repurposing a portion of the $45MM currently sitting in the pool, Klima will be able to utilize the underlying assets to better facilitate the market.

Example:
25% of the BCT/USDC represents: 5,525,000 USDC, 1,172,750 BCT

This equates to an additional 10 days of runway at current APYs, with a slippage reduction of 0.008%, using the average trade seen on SushiSwap ($3.6k).
Assuming all of the USDC is utilized for KLIMA/USDC, this increases the ±2% depth from 30k, to around 250k.

Proposal
Allow the policy team to disband 25% of BCT/USDC to utilize in other methods outlined above.

Other:
The USDC can/will be used for multiple things:
Facilitate inverse bonding, where users can buy USDC with KLIMA from the protocol.
Provide a stable base for Klima in times of significant volatility.
OTC trades for carbon assets, facilitated by ReFi protocols such as Toucan, Moss Earth, and GoddessDAO.

Polling Period:
The informal forum poll begins now and will end at Feb 13th 18:00 UTC. Assuming in favor, this vote will go to Snapshot.

Resources:
Sushiswap pool: https://analytics-polygon.sushi.com/pairs/0x1e67124681b402064cd0abe8ed1b5c79d2e02f64

KLIMA/USDC vs KLIMA/BCT volume: https://dune.xyz/queries/391448

BCT/USDC Utilization:

https://dune.xyz/queries/217091/407538

KLIMA/USDC Utilization:

https://dune.xyz/queries/390828

Poll

I agree in general but I strongly suggest we opt for 50% rather than 25%. The BCT-USDC pool has significantly more depth than KLIMA-USDC and right now we get hit back a big price impact every time there is a large BCT sell. We also are not getting enough LP fees on BCT-USDC right now while the market is still developing to justify the amount of capital we have parked in that LP when it could earn more being elsewhere.

    Though I agree the BCT-USDC pool is underutilized, pulling liquidity from the asset that represents the vast majority of our treasury, almost our entire mcap worth, is quite risky. Might make sense to do this move but we should beware that there are not many buyers for the BCT in our treasury and if we dump this BCT through reverse bonds, it could spiral downwards, and with it the majority of the remaining value of Klima. I think we need to figure out how to diversify demand for BCT, if we are the only buyers, this asset has pretty limited real value and a death spiral might be imminent if we stop buying and start selling.

      DonkeyKong I think we need the burn mechanism for bct asap and we need also people in need for burning it. Any eta for that?

      What comes to this proposal I’m in favour of it. Let’s get it done. Good to put Klima capital to work

          Alanos86 I think we need the burn mechanism for bct asap and we need also people in need for burning it. Any eta for that?

          For sure we need to start raising the floor on BCT by burning it. Can't Toucan restrict the requirements for BCT or something so there is less supply?
          Saw someone on their discord say they already have a burn function in place.

            MR-MR-MR

            Yes, this is a preliminary reduction, and if the benefits continue to outweigh the risk, we will continue to reduce.

            Ideally, we would like most volume to flow through KLIMA-USDC, rather than BCT-USDC, then KLIMA-BCT.

            The next step after that would be for BCT to actually route through KLIMA, as in USDC-KLIMA-BCT, allowing us to enforce the carbon currency narrative while also providing thick liquidity for the user.

              DonkeyKong

              DonkeyKong if we dump this BCT through reverse bonds,

              sorry, for clarification the BCT would most likely be used for backing (runway), and the inverse bonds could use USDC instead.

                  DonkeyKong I don't think anyone would propose pulling all the liquidity since as you point out the majority of our treasury is still BCT (for now) and part of our mandate is to enable a on-chain carbon market where it can be freely traded.

                  The challenge is that since the space is still very young and the catalysts for more volume on all carbon pairs are yet to come. Functional catalysts like retirements on-chain and KLIMA infinity are something we can expect sooner than later but the real uphill battle is going to be educating and onboarding more traditional players and carbon traders to encourage volume.

                  I have no doubt we will get there and it could be even sooner than I'm saying, but in the meantime when the volumes are more dry we should take some of this BCT/USDC LP which is disproportionate to our other assets (BCT,MCO2,MCO2/KLIMA, KLIMA/USDC,KLIMA/BCT) and use it to diversify ourselves better and strengthen ourselves to attract continued investment

                    DonkeyKong Currently, there is about $46M BCT/USDC liquidity with ± 5% utilization (about $2.3M in volume used). The 25% proposed would only reduce this pool to $34.5M. Also for clarification, instead of just removing the 25% liquidity proposed from the market, the USDC can be utilized for KLIMA/USDC, thus re-channeling back liquidity into the market via a pool that's more efficient to the protocol.

                      Could part of the usdc be used to finance our own carbon offset projects, resulting in a steady inflow of high quality tonnes into the treasury?

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