- Edited
Summary
Introduce a new framework that aligns KLIMA supply expansion with the growth of the Digital Carbon Market (DCM). This proposal aims to create a long-term sustainable and responsive mechanism for KLIMA issuance, directly tied to the expansion of the DCM.
Motivation
KlimaDAO's unique position in the carbon market necessitates a nuanced approach to supply expansion. KlimaDAO's treasury is intricately linked to the availability of digital carbon credits. Therefore, it is imperative to align KLIMA supply expansion with the growth of the Digital Carbon Market (DCM).
At its core, KlimaDAO is not just another OHM fork or DeFi protocol; it is an economic engine designed to drive the Digital Carbon Market (DCM). While expansion of the supply is one of the long term goals of KlimaDAO, doing so too quickly would be detrimental to our ability to generate revenue through bonding. The KLIMA token serves as a representation of carbon assets. Therefore, the health and growth of KLIMA are intrinsically tied to the growth of the DCM.
- Liquidity and Market Depth: A growing DCM provides the necessary liquidity and market depth that make the KLIMA ecosystem more robust. More liquidity means less price volatility, which in turn attracts more participants to the KLIMA ecosystem.
- Price Discovery and Efficiency: The DCM and KLIMA are two sides of the same coin. As the DCM grows, it provides better price signals, which are crucial for efficient market operation. This efficiency is transmitted to the KLIMA ecosystem, enhancing its economic viability.
- Network Effects and Utility: The utility of KLIMA is maximized when it is deeply integrated into a thriving DCM. A growing DCM attracts more participants, which in turn increases the utility and demand for KLIMA. This creates a virtuous cycle of growth for both.
- Sustainability and Long-Term Viability: A growing DCM indicates a healthy demand for carbon credits, which is a positive signal for the long-term sustainability of the KLIMA ecosystem. If KLIMA supply grows without corresponding growth in the DCM, it risks becoming a speculative asset detached from its fundamental value proposition.
- Capital Allocation and Incentive Alignment: By tying KLIMA supply growth to DCM growth, we ensure that capital and resources are allocated in a manner that is directly beneficial to our core mission of carbon offsetting. This alignment of incentives is crucial for the long-term success of both KLIMA and the DCM.
Implementation
We propose a dynamic framework that adjusts the Annual KLIMA Rate (AKR) based on the growth rate of the DCM. The new framework will function as a market thermostat, where the AKR is dependent on:
- The annual supply growth rate of the DCM.
- The threshold (T) of supply divergence between current AKR and DCM supply growth
Optimal KLIMA supply expansion will be in sync with the growth of the DCM.
Framework
AKR = DCM supply growth
Initial Conditions:
Starting KLIMA supply: 8.75mn
Minimum AKR: 0.00%
Threshold for AKR adjustment: 0.50% DCM supply divergence from current AKR
Current AKR: 21.57%
Current DCM Supply: -0.23%
Resulting AKR: 0.00%
Adjustment Period: 40 epochs (2 weeks)
Mechanics:
Minimum AKR: The AKR will never fall below 0%, irrespective of negative DCM supply growth.
Threshold for AKR Adjustment: If the supply growth rate of the DCM diverges from the current AKR by more than the threshold (T), an AKR adjustment will be triggered.
Adjustment Period: Any adjustment in AKR will be implemented gradually over 40 epochs, to allow for market adaptation and to mitigate shock.
Proportional Change: The magnitude of the AKR adjustment will be proportional to the divergence from the current AKR, and will gradually adjust over 40 epochs at a standardized rate proportional to the divergence from current AKR.
Methodology:
- Calculate the 600-epoch simple moving average supply growth rate of the DCM, annualize that SMA to get DCM supply.
- Compare this rate with the current AKR. If the divergence exceeds the threshold (T), trigger an AKR adjustment.
- Implement the AKR adjustment gradually over the next 40 epochs.
- Re-evaluate the AKR and DCM growth rate at regular daily intervals to determine if further adjustments are needed, and automate as soon as the framework proves resilient.
Implementation:
Upon approval of this framework, the Policy Team will manually adjust the AKR based on these guidelines. Automation of this process remains a future objective, contingent on the framework's success and stability.
Proposal:
By adopting this revised framework, we align KLIMA's supply expansion more closely with the growth of the Digital Carbon Market, while also introducing safeguards and gradual adjustments to maintain ecosystem stability. We strongly encourage all members to engage with this proposal and cast their votes.
Ratify this new framework as the guiding principle for future AKR adjustments.
Implement the initial conditions and parameters as outlined in the Framework section.
Polling Period
The forum poll begins now and will end on 21/09/2023. If passed, the vote will go to Snapshot.