KIP-46: Centralized Exchange Liquidity - Rebalancing KLIMA/USDC

optima

Summary
Redeem a portion of the KLIMA/USDC liquidity pool from the treasury to bolster centralized exchange (CEX) liquidity and fund strategic investments that create long-term value for KlimaDAO.

Motivation
In the early days, KlimaDAO required a robust KLIMA/USDC pool to facilitate a smooth onboarding process for new users. However, the landscape has evolved, utilization has decreased, and there is far more liquidity on-chain than there needs to be to facilitate an efficient market. It's time to adapt our strategy to maximize utility and value creation.

CEX Liquidity: Increasing liquidity on centralized exchanges will significantly reduce the barriers to entry for new participants, thereby accelerating the adoption of KLIMA and contributing to our mission of carbon offsetting.
Strategic Partnerships: The USDC redeemed will be used for forward purchases and other initiatives that directly contribute to KlimaDAO's value proposition.

Economic Argument for CEX Liquidity

Reduced Slippage: Higher liquidity on CEXs will reduce slippage, making it more cost-effective for users to purchase KLIMA.
Increased Accessibility: Many potential users find CEXs to be more user-friendly than DEXs, especially those who are new to the crypto space.
Market Depth: A deeper market on CEXs will make KLIMA more resilient to price volatility, thereby attracting larger investors.
Onboarding Efficiency: Easier onboarding through CEXs will likely lead to increased demand for KLIMA, which in turn will drive up its value and utility.
Implementation
We propose to redeem 882,352 KLIMA and $750,000 USDC from the KLIMA/USDC pool. The assets will be allocated as follows:
882,352 KLIMA: To be used for bolstering liquidity on centralized exchanges.
$750,000 USDC: To be used for strategic partnerships and other value-accretive initiatives.
Beginning & ending KLIMA/USDC values found here.

Framework

Redeem Assets: The policy team will redeem the specified assets from the KLIMA/USDC pool.
CEX Liquidity: The redeemed KLIMA will be strategically allocated to various centralized exchanges to bolster liquidity.
Strategic Partnerships: The redeemed USDC will be allocated to initiatives that have been vetted for their potential to create long-term value for KlimaDAO.
Future Liquidity: USDC redeemed from this KIP can be used for forward purchases and liquidity provisions for new markets.

Proposal
Authorize the policy team to redeem 882,352 KLIMA and $750,000 USDC from the KLIMA/USDC pool.

Utilize the redeemed assets as outlined above.

Polling Period
The forum poll begins now and will end on 29/09/2023. If the forum proposal receives sufficient support, it will advance to Snapshot for final community approval.
Resources
Sushiswap KLIMA/USDC Pool
KLIMA/USDC Utilization Metrics

We strongly encourage all members to engage with this proposal and cast their votes. Your participation is crucial for the long-term success and sustainability of KlimaDAO.

ChazSchmidt

Voted No. -- KIPs have followed a set process. There was no RFC.

In my personal opinion, CEXes aren't your friend.

optima Reduced Slippage

This is not quite true because it will increase slippage on Sushiswap.

optima Increased Accessibility

I find it unlikely that those who don't know how to use a wallet and a DEX would also be participants in our governance or make use of the ecosystem we've built on-chain.

optima Strategic Partnerships: The redeemed USDC will be allocated to initiatives that have been vetted for their potential to create long-term value for KlimaDAO.
Future Liquidity: USDC redeemed from this KIP can be used for forward purchases and liquidity provisions for new markets.

This aspect I find my interesting and would have enjoyed the opportunity to discuss this in an RFC.

Nikodemos

Great proposal! Would like to know how many CEXs we are going for and which ones?

AndrewSaul

Why are we worried about CEX liquidity? These are walled gardens. If you bolster the liquidity on Polygon (via the main Uniswap pool) then anyone can access that liquidity. Do you have enough liquidity to deploy across multiple CEXs?

You have to transfer anything you buy on a CEX to a self custody wallet to interact with KlimaDAO, at that stage why wouldn't someone just use USDC, USDT or MATIC?

Which CEX/s is KLIMA even on? As far as I know it's a very niche token in regards to CEXs.

rittaaka

AndrewSaul some good questions here - thinking the same. I think this proposal hinges on KIP-45a passing, as it seems to imply that the retirement aggregator will be used less, as Carbonmark would no longer have an outbound sales and growth effort. This would then make more USDC available on CEXes for an alternative (?) protocol growth strategy. Without more business rationale disclosed, this feels a bit early doors for me.

optima

AndrewSaul Lower AKR makes the token much more favorable for a CEX.

Most of the worlds assets exist off-chain. DeFi / Crypto is the small purple blob in the bottom-right, above. (https://www.tastycrypto.com/blog/tradfi-vs-cefi-vs-defi/)

With current trading volumes we can reposition our liquidity to make onboarding easier. It will be far more important to bring more money to KLIMA from centralized exchanges, rather than having slightly deeper decentralized exchanges.

You can buy KLIMA on Gate.io , currently. It would be great to secure more on-ramps while costs are lower.

andybash12

I think we should wait for clarity on KIP 45 and 45a, before deciding on this.

Too many KIPs in too short duration. Let's not hurry things up.

We now have 3 proposals that are simultaneously open on what to do with funds.

Nikodemos

Would really like to see Klima tokens listed on Coinbase since BlackRock is planing to use them for storing their BTC for spot BTC ETF.

I don't see much a point for owning too deep LP for Klima/USDC on-chain. Klimas on-chain liquidity focus is on carbon assets. Shallow liquidity should make price go up if there is a lot of buys at the markets. Also markets have arbitrary opportunities if the klima/USDC is spread around on different CEXs.

Once bonding is reopening (AKR gets above 0) we could se interest for staking klima tokens and that should also drive demand for klima.

Atmosfearful

Vote No. Massive red flags here.

As engineering lead I would love to see KLIMA on every CEX under the sun, but I've been taught by @Archimedes and @TheLawyer that listings are monumental undertakings that require lobbying, pitches, legal due diligence, and lock up piles of capital.

I watched KLIMA get listed on gate.io and did not see any of your abovementioned liquidity arguments pan out. CEX's can unlock free marketing and can expose us to new audiences, sure, but they are still bound by the laws of supply and demand.

The vague $750k UDSC earmark also needs a lot more context.

Maybe I am ignorant of some potential deal or partnership opportunities, but this proposal is highly questionable at this time (lets focus on KIP-45 first?). There is no harm in maintaining our deep DEX liquidity until we have more concrete plans and some positive signals-- at which point I'm all ears!

Nikodemos

ChazSchmidt -- KIPs have followed a set process. There was no RFC.

This👆 So I changed vote for No.

optima

ChazSchmidt We can always push back to RFC if the vote shows this is too sudden, with all of the activity going on.

My argument is that we will have increased accessibility, given where the world's assets are currently held. Easy onboarding from Tradfi > less short-term slippage in DeFi.

Finding a project like KLIMA on Coinbase or Crypto.com would be the stepping stone to getting users to do the research to be able to interact with our on-chain ecosystem. CEX liquidity will be the gateway to DeFi for all of our users -> few really get their start in DeFi unless they mined coins via hardware. KLIMA will benefit from increased exposure on these platforms where users have a lower barrier to entry (both financially and from a knowledge PoV), and this will hopefully be a first step for users before staking $KLIMA, voting on governance proposals, and interacting with KlimaDAO on-chain.

0xy_Moron

I am "for". We have low utilisation of the pools right now based on where we and the market are.

Giving more flexibility to use the liquidity in other ways right now seems to make sense.

ryfleisch

Who's the intended audience for strategic partnerships?

jengajojo

While I support meeting users where they are, have we considered the impact that professional market markers may have on the price in the future? While the amount is pretty low, over time a sophisticated profit driven actor could capture sufficient supply to move the price in unfavourable direction. I'd urge the DAO to consider front running this and hiring it's own MM which it has more control over.