• Proposals

  • KIP-45: Separate Carbonmark from KlimaDAO and fund expansion strategy

Archimedes an interesting set of perspectives!

Thus far the DAO has spent ~$11,000,000 since it was launched - with budget approvals on a six monthly basis all that have been required for accountability. This level of spending / unaccountability cannot continue, and although internal cuts are hard, that ~$200k all in spend we now find ourselves at feels much more reasonable and where it should be.

The proposal clearly continues to force efficiency within the CM team, whilst also cutting off the proverbial lifeline -a step required to force it to become viable within 18 months.

By all accounts this feels like an efficient and responsible next step for the project. Far more so than continuing to try and navigate the internal challenges, and expose dev work to uncertainty due to the difference in opinion on funding the project is facing internally.

Re PMF and market thesis -- your POV is one we have discussed at length and as you well know I disagree with it. I do however think there is a general misunderstanding on the USP of Carbonmark: scalable, automatable solutions will be an important component of the next iteration of the VCM. Carbonmark would do well to position itself at the front of the pack as the market begins to turn (and we need more work to achieve that). In any case, we can hypothesize on this forever and likely won't align at this point; more importantly is how do we force an outcome to either stick to our guns and try it, or go home, instead of stuttering along in a setup that doesn't work.

Therefore for a number of reasons (arbitrary and counterproductive requirements for productivity being phased in; maturity and needs of Carbonmark; needs of KlimaDAO; challenges we will likely face with conditioning funding; issues that tranches funding continually pose for the project) I am personally in favour of the proposal as it stands.

I look forward to more comments from the team and community as we chart out next, and critical steps, in the DCM.

    While I generally support spinning off Carbonmark into a separate entity, this proposal does not clarify how Carbonmark and it's future contributors will be aligned long term with KlimaDAO, hence I have voted no on this proposal.

    I'd like to suggest the following amendments:

    a. Milestone based funding as many have outlined here
    b. Some way for KlimaDAO to verifiably benefit from funding CarbonMark. This can be done in any of the following ways:

    I'd like the community and core team to think of this step from a long term perspective. If we as a DAO are able to successfully spin out CarbonMark and ensure that there is a verifiable way for it to add value back to the DAO, then this gives a roadmap for other groups to spinout of the DAO and form their own legal entities and add value back to the DAO. However, if this legal entity spins out without proper value alignment, then there is no guarantee that future employees of CarbonMark will be as value aligned as current contributors and may decide to take the legal entity to follow its own independent path.

      KlimaDAO also did not start with specific target milestones in terms of retirement volume, product features, adoption .. etc. The main reason was that we pioneered the launch of the DCM and it would've been impossible to set milestones for a nascent market with everchanging dynamics.

      In less than 2 years, KlimaDAO has built the base layer for carbon by creating a permissionless, frictionless, open-source inrastructure for the on-chain carbon market.

      We did have unpredictable setbacks when Verra stopped bridging. But we continued to build with an eye on the future.

      I think the vision should be the same for Carbonmark. To build a frictionless, permissionless carbon marketplace with unparalleled user experience for retiring or trading carbon credits.

      While the VCM as a whole is going thru multi-dimensional changes (Verra FUD, Quality issue, additionality, bogus claims..etc) and retirement volumes are unpredictable, we should be building Carbonmark with an eye on the future (net zero goals, new partnerships, on-chain registry, climate finance, institutional investment)

      Then KlimaDAO x Carbonmark combination would be rock solid. Also, I strongly believe that Carbonmark is just the first of many to come.

      jengajojo I've a couple of thoughts

      Firstly, I think setting milestones and tracking them is possible for matured systems / processes where metrics can be set as they've been modelled and proven to be replicable. I think it's difficult to do it for the DCM - ecosystem, products, marketplaces.. etc. But, I'm definitely open to ideas on what to track and how.

      Secondly, if you tie funding to milestones and if due to external factors it's not met, then do we stop funding? (Imagine Verra stopping tokenization, what if we stopped funding KlimaDAO). I don't think it's prudent. There is no DCM marketplace for web2 companies which can feed into KLIMA's growth. That's the reason Carbonmark was built. If that halts, then I'm not sure if there's an alternative.

      I definitely value accountability, but I think we are in very early stages of an evolving market. I'm just not sure how to do it in a way where we don't hamper growth.

        Arthurian There were milestones for previous requests. Check out this one: https://forum.klimadao.finance/d/230-kip-38-dao-funding-request-for-h2-2023

        This proposal, it looks good, you know, if we want more people to use Klima's products. I understand that making a whole market switch to a new technology can be tough. It's like taking a big chance, but with a big potential reward. When you compare it to other DAOs that are out there, the way they've been showing what's been happening behind the scenes here is quite good. Check out the office hour recordings for example.

        If you think that using markets are an important part of how we deal with climate change, I still think KlimaDAO and Carbonmark are the best options around. The whole industry is only set to grow.

        keep building. I support.

          jengajojo

          Appreciate the comments and ongoing input you give to the project!

          To elaborate on the challenges with milestone & tranche based funding:

          • Accountability: Carbonmark primarily represents a product and engineering effort for the time being - this group are in reality already the most efficient and accountable group within the DAO, and are building out against a clear vision to operationalize KlimaDAO's carbon - is it even proportional to milestone them given the track record and professionalism demonstrated?
          • Decision making: who would be the adjudicator of performance in a tranched funding model? There are already differences in opinion in terms of what and who should be funded. Would it not make most sense to have a CTO (or other leadership structure) with a defined funding package & mandate to call the shots and drive growth. I say this as CM essentially looks like an internal tech company already, and I don't think anyone is querying whether going further down that route (for CM only) is a good idea. Alternatives are essentially an internal DAO team who (may) have different stated priorities? Or the Community which is demonstrably a mix of stakeholders with different perspectives and timelines for their priorities? There will at best be inefficiencies here, or unintended consequences at worst.
          • Tranched funding creates consistent problems internally: already discussed elsewhere in the RFC period. One of the objectives is to protect Carbonmark from the volatility of building software in this manner in the short-term, whilst also forcing it to seek viability without subsidy in the med-term.

          On a personal level, I am not against clear milestones -- although P&E have already defined their roadmap and give extensive updates on a weekly basis internally, and monthly externally. This roadmap is given ample opportunity to be reviewed and challenged publicly. Commercial milestones will likely be challenging to define until the appropriate business infrastructure can be wrapped around the product itself.

          Regarding long-term strategic alignment: KlimaDAO's interest is in Carbonmark utilising DCM liquidity. I think other "nice to haves" from the DAO perspective could dilute CM's ability to pursue this mission and are not particularly pertinent to either organization's success (e.g. IP is currently open-source). P.S. one would of course expect Carbonmark to be an important "governor" of KlimaDAO over the long-term to solidify that strategic alignment!

            The last 6 months have been difficult as we’ve navigated several internal challenges and worked to respond to an increasingly competitive market. Carbonmark’s core function has always been to serve as a gateway to the DCM landscape – making it easier for players both new and old to the Web3 world to access the liquidity that KlimaDAO has incentivized and facilitated on-chain.

            A number of community members have highlighted the need to ensure alignment between Carbonmark and KlimaDAO. I certainly understand this sentiment, and believe the following factors will de facto ensure that these entities are aligned long into the future:

            1) There is no other widely available interface for players to access KlimaDAO’s carbon liquidity. Period. While there are some players in the past that have promised such access and alignment, they’ve since turned to playing the same old games that the traditional industry has been by gating off their marketplaces and trying to own their own DCM tech stack. Long term, I don’t see these actions as viable strategies, and believe openness leveraging the network effect of countless builders together will be vastly superior. What’s the point of building a blockchain-based system if you’re not utilizing the advantages that come from the composable and interoperable nature of DeFi tooling?

            2) Carbonmark’s entire raison d'être is to open demand channels to KlimaDAO’s liquidity while making it easier for supply-side participants to add their own liquidity to the Klima ecosystem. The projects have been symbiotic from the start and will continue to be because it makes clear sense. We expect KlimaDAO to continue servicing the base layer infrastructure necessary for a fully interoperable DCM, and Carbonmark will build atop those foundations and ensure the overall throughput of the system is increased.

            3) Core contributors to Carbonmark’s infrastructure have heavy skin in the game to KlimaDAO’s success (including the majority of Klima’s actual founders). Our upside from the continued growth of the KlimaDAO protocol is what drives us forward to bring in new carbon supply, improve Carbonmark tooling, and build partnerships with demand-side players.

            I'd also like to clarify a key point that was made by @Archimedes

            “The biggest retirements and offsets that occurred in the history of the DAO came from personal connections to larger orgs, none of which came during the time of Carbonmark or from the team that currently works on it. These were all largely done in 2021 and early 2022.”

            Number one, I was intimately involved with all of those deals and am still on the Carbonmark team. Number two, without any reasonable Web2 interface for corporates to connect to, of course the only large retirements that could have been made would be made by Web3 protocols at the tail end of the bull market. All of the low hanging fruit from that segment of the market were taken by mid 2022, and therefore the sales strategy was altered as per the feedback we began to receive re. integration partners (and from countless carbon market participants that we’ve spoken to over the last two years).

            On the integration side, we can leverage the programmatic nature of tokenized carbon while abstracting away the Web3 pieces through a fiat-enabled partners (e.g. Provide Services). This is precisely where we’re seeing exciting partnerships develop now and where we believe the advantages of tokenized carbon shine. As I spoke about at Token2049, the next wave of adoption is only going to occur when fiat onramping/offramping and wallet abstraction are further developed (across the entire blockchain space) and this is a core objective within Carbonmark’s development over the next few months.

            We have an opportunity to chart a promising path forward for the DAO by focusing our efforts on the commercialization of Carbonmark, increasing access to the DCM and KlimaDAO’s infrastructure stack, and having the organizational structure necessary to succeed in the market. Stagnation and straw man arguments are the exact opposite of what we need right now.

            In summation, I trust that the community will recognize who is working tirelessly to drive innovation forward in this organization and vote in the best interests of that endeavor.

              Can somebody comment on the core team external funding? Has that ended now and the whole core team is funded by DAO?

              Ooh, it's getting a bit hectic in here
              if this is all true @Dionysus, I don't know what to think, I guess I'm more disappointed in the team member

              I'm in favor of the proposal.

              btw, thanks for trying to explain all this to us.

              Dionysus thank you for addressing these points.

              On the merits of the separation: KlimaDAO is aiming to disrupt a high margin, low volume incumbent industry with a high volume, low margin business model.

              That model relies on demand for carbon credit retirement, and the biggest consumers of carbon credits are outside of the web3 bubble. Furthermore, most web3 projects are not prioritizing sustainability initiatives given the difficult conditions and need to preserve runway.

              So we must seek out end-users who are not yet onboarded on-chain, which requires providing a clean, clear and user-friendly experience, more akin to Goldfinch's new UX or friend.tech rather than assuming users have a wallet with funds onboarded already. Automated integrations via Provide's SAP integration and the Carbonmark API also represent key levers for attracting new demand.

              On the specifics of the proposal, my concern with tranched funding is that it perpetuates the tenuous short term funding asks that have created uncertainty for existing KlimaDAO contributors and limited our ability to attract and retain top talent (especially engineers).

              That said, I am in favor of some formal mechanism to ensure that Carbonmark's product development accrues value to KlimaDAO.

              This has been one of the biggest disappointments in the development of the ReFi/Digital Carbon ecosystem: very few players are proudly standing alongside and building products that support KlimaDAO's pioneering infrastructure, instead extracting value from the pools we provide liquidity for or building around it by avoiding the retirement aggregator.

              As Dionysus said, all of the initial contributors to the new Carbonmark organization will be KLIMA holders, and therefore values-aligned, but some formal mechanism in the new Carbonmark organization would ensure that even if those contributors move on, the new organization would still be aligned with KlimaDAO's long term success.

              I think a revised version of this proposal, KIP-45a, could incorporate the feedback provided so far and chart a clearer path forward for the new Carbonmark organization. In particular:

              1. Lay out the planned roadmap for Carbonmark (though it will be much the same as that outlined in the previous funding ask for Product & Engineering)
              2. Clarify the source of funds, estimated budget breakdown, etc. that 0xy as shared in his responses to comments since the original proposal
              3. Specify that a mechanism must be included in the founding docs/bylaws of the new Carbonmark organization to align with and accrue value to KlimaDAO based on the success of Carbonmark's products.

              As for the size of the ask, personally I don't find it excessive at the reduced burn rate, and 18 months is already on the edge of a viable runway for a new organization just starting out (especially in the current funding environment).

              There is a lot of work to be done integrating new credit supply into Carbonmark from ICR, Coorest and others in the pipeline pending governance approval.

              This important work will both benefit KlimaDAO by providing more throughput in the retirement aggregator and any liquidity pools launched to support these new credits, as well as Carbonmark by providing users with a broader range of high integrity credits. There is also potentially an opportunity to integrate forward credits from the Solid World pools into Carbonmark, which will entail additional engineering work.

                The provided reasons for making Carbonmark a separate entity are sound and I support it. The amount of funding is significant, but may be reasonable, given whatever the team size is. Carbonmark, as a separate entity, could pivot away from KlimaDAO and actually I would support it, if it helps to grow short- or long-term. But it would be fair towards the Klima token investors to create a formal guarantee for value accrual based on the provided investment. Perhaps a model with KlimaDAO being an actual shareholder of Carbonmark with a defined range of decision-making power (limited to value-accrual-related issues, but nothing operational (or whatever might interfere with the reasons for separation)) could be a solution.

                  rrrmmmmm But it would be fair towards the Klima token investors to create a formal guarantee for value accrual based on the provided investment.

                  There it this quote from optima in the Office Hours chat: "The revenue generation is largely figured out - there've been ideas to use $KLIMA as payment token on CM for reduced fee levels (which I like, and want to be an option)".

                  That's an idea, not a "formal guarantee", but ideas like this would probably come close to something like value accrual (increase token value by giving it benefits/utility on other platforms).

                    I can’t vote for the proposal in its current form because there is no part of the proposal that sets out in a concrete way how the long-term alignment of Carbonmark with KlimaDAO would be ensured. I have noted @MarcusAurelius suggestion for a revised proposal that would take this into account.

                    If the intention is for the new entity to be a not-for-profit, I would also like to see this stated explicitly in the proposal. Otherwise we have very little idea about what we would be granting funding to.

                    And lastly, how much USDC would be left in the Klima treasury after providing this funding (also considering the expenditure that has been approved for the Aither/Limenet and Solid World KIPs)?

                    Hey! Ryan from Provide here again voicing my support once more and with some added context of the benefits I see in this proposal plus a few ideas that should address concern and encourage others to join in support of this KIP.

                    First: I'm glad to see Carbonmark's role as a web2/enterprise sales channel for KlimaDAO being pretty well understood throughout this thread (plus a big thank you to those of you recognizing Provide's contributions too!).

                    As its own legal entity, Carbonmark will be equipped with even more tools and capabilities to drive value to the DAO and to customers. Banking and invoicing is a key one. As glad as we are at Provide to invoice users of Carbonmark - we think it would be a better customer experience for the invoicing party/legal entity in such cases to strictly be Carbonmark (but still operating from the API and SAP solutions by Provide as a technology partner). Also to mention - our customers understanding, confidence, and willingness to engage with digital carbon is greatly furthered with Carbonmark as a designated legal entity. And when Carbonmark API and SAP users graduate to other enterprise blockchain offerings by Provide - this also enables us to offer a share of those revenues back to Carbonmark. Our end-to-end business process re: API simply works better with Carbonmark as a legal entity of its own.

                    I like to think as well - there will be a boom in the years to come in sustainability driven funding and grants driven by a number of businesses, non-profits, governments, NGOs, etc. KlimaDAO/Carbonmark would actually miss out on taking full advantage of such funding opportunities without the organizational structures to effectively interface with such institutions. I think this would be a good funding channel to pursue regardless of how much Carbonmark is authorized to receive from the treasure in this KIP

                    With the direct revenues of the API and this additional institutional reach, I believe you would see Carbonmark ultimately become self-sustaining and while also driving a lot of value into KlimaDAO. And KlimaDAO itself could sharpen its focus that much more purely into operating the digital carbon market protocol.

                    There's a lot of good conversation on how to protect and enhance the interests of token holders on a $3 million commitment or other significant amount. Here's a few ideas of mine:

                    • Form a board of directors at Carbonmark elected from and representing the interests of KlimaDAO to overlook operations and expenditures
                    • Find an appropriate way to reward $KLIMA holders in some way during operation of the USDC liquidity pools we use for API
                    • Carbonmark to produce an auditable financial statement and annual report to the public
                    • Carbonmark to set a goal to use its profits to accumulate $KLIMA and/or contribute directly back to treasury

                    Accountability is key when you're handling millions! All this might even make ops expenditures even more transparent than they already are.

                      ryfleisch Thanks for your post! Really good ideas how to enhance and protect Klima token holders interest still providing continuity for Carbonmarkt employees and no rigid periodic DAO funding rounds. Also good information and justification why separate legal entity for Carbonmarkt is needed. I hope there is demand upcoming for Carbonmarkt services. One viewpoint I would like to raise that have not been discussed very much: how to incentivice and engage future Carbonmarkt employees so that they have aligned interests with Klima token holders? Assuming that Carbonmarkt is a non-profit entity with Klima aligned governance. We do not want to loose good talent.

                        optima @Archimedes

                        For transparency and those who do not know me, I'm jabby the KlimaDAO and Carbonmark product manager and DAO contributor since Jan, 2022.

                        100% for accountability but your comments infer that this has not been happening which is simply not true.

                        The product & engineering (R&D) team at KlimaDAO embraces transparency and accountability, and leads the way on working in the open. This is not just a qualitative statement, we have the quantitative data to back it up. Our GitHub is available for all to see, and as you know we maintain rigorous and verbose documentation internally so all internal stakeholders have visibility on the work of the product team.

                        What we work on day-to-day is not random, it is always linked to our strategy and based on what we are learning from markets, competitors, customers, and our users. We are a problem solving, outcome focused team with well established, best-in-class, light-weight discovery and delivery processes as guard rails. This allows us to strike a balance of being structured, focused, and efficient while nimble enough to pivot based on what we are learning.

                        KIP-30 and KIP-38 (still in progress) funding proposals were already milestone based. We put forward our strategic goals and high-level tactics to achieve those goals in the proposals and the community debated and voted on the funding. I will proudly stand behind the outcomes that were delivered for that funding. The product features we shipped 100% delivered value to users and the business. Those key outcomes were shared in the office hours slide presentation but worth repeating here:

                        H1 2023 (based on KIP-30)

                        Q1

                        • Carbonmark (beta)

                        Q2

                        • Retire & Buy in CM
                        • Retirement receipt in CM
                        • Carbonmark API PoC
                        • Carbon Dashboard infrastructure migration
                        • Subgraph v2
                        • Retirement bonds

                        H2 2023 (based on KIP-38)

                        Q3

                        • Retire page in CM
                        • Retire with credit card
                        • Carbonmark REST API v1
                        • Carbonmark docs
                        • Project list & map view

                        Q4 (in progress, planned delivery)

                        • Carbonmark contract v2 & Seller listings (Oct)
                        • Carbon Dashboard (Klima Data) frontend redesign (Oct)
                        • KYC beta (Q4)
                        • New credit supply(Q4)
                        • Start of Carbonmark v2 features (Q4)

                        It is worth emphasizing that Carbonmark is just getting started. We only had a MVP at the end of March and the maturing product is barely 6 months old. We are very much still in the realm of finding product-market fit in a rapidly changing and nascent market full of competitors. Our conviction of what we are building in engineering in the next quarter is high, but future "bets" are still being shaped, researched, and de-risked (and yes we have a defined process for idea/bet management as well). At this stage we need to have flexibility and stable, longer term funding. We are not at a product maturity stage where we can predict feature development. In fact, handcuffing the product & engineering team to milestone-based funding tranches promotes premature convergence on high-risk bets and increases the likelihood of building the wrong thing which is the fastest path to wasting funding.

                            @jabby09 Thanks for the detailed breakdown Jabby. I think we have consistently been the most transparent, cost-effective, cohesive and organized team within the DAO (thanks to you). Very good point about the potential for milestones to handcuff us.

                            Still, concerns about accountability and incentives between the orgs are valid. For my own sake, I want to try re-framing things so I can better understand where there is tension, and where there isn't.

                            1. Top-level DAO strategy: we need transaction & retirement volume, and our path to get there is by building out the UI, API, and marketplace and by eliminating web3 friction. The DAO and community has been extremely well aligned here ✅.
                            2. This strategy requires heavy investments in software development, engineering, and sales. On this we have also been strongly aligned past budget KIPs have passed with little controversy ✅.
                            3. The market is best served by a standalone brand. The product, partnerships, sales, and protocol teams were all aligned when we created Carbonmark to address challenges faced with the KlimaDAO brand ✅
                            4. We critically need an organizational entity for this brand (see my post above). We have strong alignment here as well, even within this thread ✅
                            5. This new org should manage itself to reduce DAO organizational overhead, reduce DAO software maintenance burdens, and for Carbonmarks own longevity, agility and resilience. ⚠️Tension: how much management control should the DAO have over the new org?
                            6. This new org must continue to consume the DAO’s tech stack (specifically the Retirement Aggregator contracts, Retirement Bonds, and liquidity). This is a no-brainer as the products whole USP is oriented around Digital Carbon, most of which is owned by the DAO. ⚠️Tension: can we prevent Carbonmark from abandoning the stack in the future?
                            7. This new org must continue to contribute to the DAO’s tech stack. This is status-quo, as the product team already develops on both fronts. ⚠️Tension: can we prevent Carbonmark from abandoning this responsibility, switching to forked & closed-sourced versions?

                            From my perspective, Carbonmark and KlimaDAO’s fates are bound completely. Carbonmark is nothing without the DAO and nobody on the product team has any interest in rebuilding our foundations. I struggle to think of a practical arrangement that can can fully alleviate these tensions without creating more headache. I would much rather we secure a single tranche of funding so we have a guaranteed runway and peace-of-mind for contributors. Other arrangements are too far outside my domain of expertise (I’m not a lawyer) and I haven’t heard any real actionable suggestions yet.

                              jabby09 Atmosfearful KIP 45 and 45a have a large difference in the allocated funding, which seems to mostly impact the ability to develop features for Carbonmark. How much development would you see as really necessary at the current point? Isn't the current main challenge in engaging with customers the legal problem, which is unrelated to product features? In other words, if Carbonmark becomes a private company with its existing product, would this already attract customers and start generating revenue? Do you think it would be possible to build features in a much leaner fashion and directly derived from the customer experiences? To what extent would you see customers to be able to put funding into the development of their individual features wishes, which would still be part of the open source code? P.s. KlimaDAO could in still add funding, too, e.g. in the proposed way in KIP 45a.

                                    rrrmmmmm

                                    Thanks so much for your questions; appreciate your interest in our work.

                                    I'll be happy to answer these but just wanted to let you know it will be late Monday before I'll have time in my schedule to do this.