Summary

This proposal establishes KlimaDAO as a curator of environmental asset pools by introducing Klima Pools. Establishing and governing its own pools will enhance the DAO's asset management capabilities and reduce risks associated with relying on third-parties for the structuring and acquisition of environmental commodities.

Context

Since launch, KlimaDAO has relied on third parties to create the carbon pools that the treasury holds as reserve assets. In particular, bridging partners like Toucan or Moss both facilitate creation of the tokenized representation of the carbon credits themselves, as well as pooling of those assets into baskets of similar projects suitable for treatment as environmental commodities rather than individual project-and-vintage credits.

However, without appropriate governance mechanisms to implement changes to these pools over time in a predictable and systematic manner, KlimaDAO has limited ability to respond to changing market conditions that may affect the carbon pools it holds as treasury assets.

With the acquisition of the BCT pool, KlimaDAO has made its first step into pool curation, with a clear mechanism now available via KlimaDAO governance and the associated DAO multisig to modify the BCT eligibility criteria and other aspects of its functionality.

In response to the evolving demands of carbon markets and the need for robust and flexible infrastructure, Klima Pools will serve as targeted vehicles for stakeholders interested in various environmental projects. This initiative represents a strategic expansion of KlimaDAO's offerings, enabling the DAO to cater to a wider range of environmental objectives and compliance requirements while removing any custodian risk or smart contract risk of third parties controlling the assets held by the KlimaDAO treasury.

Implementation

Pool Logic and Gating Criteria:

Klima Pools will only accept eligible carbon tokens. Gating criteria will feature:

  • Eligibility Check: Only tokens from whitelisted issuers (e.g. Toucan, ICR, etc.), and their associated smart contracts, will be accepted.
  • Adaptability: Klima Pools will be designed to adapt to changing market demands and regulatory criteria, allowing for updates to pool criteria and the rebalancing of pool compositions as necessary.
  • Gating Attributes: Specific attributes will be required for any carbon token to be deposited into Klima Pools, including but not limited to:
  • A minimum first project issuance period and/or vintage.
  • Specific methodologies, with eligibility extending across registries, provided they meet all other criteria and have been accepted via KlimaDAO governance for inclusion in the ecosystem.
  • Geographic location, such as country or region.
  • Prior to launch of each pool, a clear definition of inclusion criteria for eligible tonnes will be provided in the corresponding governance proposal, and subsequently published in the KlimaDAO documentation (https://docs.klimadao.finance), with the flexibility to incorporate additional methodologies through governance votes as market and regulatory landscapes evolve.

Initial pool criteria will be announced by the protocol team, prior to any pool construction, and is amendable via governance.

Fee Structure:
Klima Pools will implement a fee structure to support the sustainability of the pools and contribute to the DAO's revenue, including:

  • A deposit fee for adding eligible carbon projects to the pools.
  • A transaction fee on swaps for KLIMA/CARBON liquidity pools.
  • A selective redemption fee, with the initial implementation calculated as:

(1+federal funds rate)selected redemption vintage − oldest pool vintage-1

To understand what this means in practice, see the calculator here. To fiddle with the parameters, just make a copy and see how a changing interest rate would affect redemption fees.

*NOTE: the pool smart contract will need access to the current Federal Funds Rate. This will be either taken from an existing Oracle source, or a new Oracle network will be created, for example via Pyth, Chainlink, or a similar service provider.

Any changes to this fee structure or the selective redemption fee algorithm may be made by the protocol team, and would be clearly communicated prior to any changes being made.

Platform Integration:

The KlimaDAO web application will facilitate deposit and redemption of carbon tonnes, with a user-friendly interface to ensure easy access and participation in Klima Pools. As always, the KlimaDAO application code and smart contracts will all be open source, so ecosystem partners are of course welcome to integrate this pooling functionality into their own applications.

Launch Procedure

  • KlimaDAO contributors will prepare the necessary infrastructure, including smart contracts, liquidity management, and specific pool criteria to support the functionality of each Klima Pool.
  • Prior to deployment of a specific new Klima Pool, a governance proposal will be posted including the nature of the pool, eligibility criteria, fee levels, and other pool-specific details, as well as a proposed initial liquidity allocation.
  • Upon deployment, eligible carbon tonnes will be deposited into the pools, with a portion of the resulting tokens used to seed liquidity pools, ensuring market accessibility and liquidity.
  • The https://app.klimadao.finance/ frontend will be updated accordingly, allowing users to deposit, redeem, retire, and swap.

Conclusion

By creating a flexible and robust structure for the pooling of diverse environmental assets, KlimaDAO enhances its asset management potential and minimizes reliance on difficult-to-govern third-party pooling mechanisms. This proposal invites the KlimaDAO community to indicate support for the launch of future Klima Pools, furthering the DAO's impact on global carbon markets and reinforcing its role as a public governance mechanism for environmental commodities.

    Let’s simplify Federal Funds Rate:

    Think of the Federal Funds Rate like a basic interest rate set by the people who manage money in the U.S. It influences how much it costs to borrow money overnight. In the context of KlimaDAO's proposal to manage carbon credits, they’re using this rate in a special formula to decide how much people need to pay if they want to take out (redeem) their carbon credits from the pool.

    Here’s how KlimaDAO plans to use it:

    • They add 1 to the Federal Funds Rate (so if the rate is 2%, they use 3%).

    • Then, they look at how old the carbon credits are that someone wants to take out and subtract how old the oldest credits in the pool are.

    • They multiply those numbers together to get the fee.

    So, if the economic conditions change and the Federal Funds Rate goes up or down, the fee for taking out the carbon credits will change too. This way, the fee matches what’s happening in the economy, making it fairer and helping to keep the pool stable.

      Let's simplify this Proposal:

      Imagine KlimaDAO is like a big club that wants to handle special tokens (carbon credits) all by itself, instead of depending on outsiders to do it. Here's what happens when they decide to manage these tokens with their own smart contracts:

      1. DIY Smart Contracts: KlimaDAO decides to build and control its own smart contracts instead of using someone else's. This is like making your own toys instead of buying them from a store. They can make these toys work exactly how they want.

      2. Protecting Their Toys: Since they made their own toys, they need to make sure they are safe and no one can break them. This means checking them regularly and fixing them if something goes wrong.

      3. Choosing the Rules: They can decide the rules for how these toys are used. If they think something needs to change, they can just decide and do it, without asking for permission from anyone else.

      4. Need More Helpers: Because they are making and looking after their own toys, they might need more people to help them out, like experts who know a lot about toys.

      5. Taking Care: If something goes wrong with the toys, it’s their job to fix it. They can’t blame anyone else because they are the ones making and looking after them.

      In simple terms, KlimaDAO wants to have more control and do things their way by managing their own smart contracts for carbon credits. This lets them be more flexible and quick in making decisions, but it also means they have to be careful and possibly get more help to manage everything.

      Why You Might Not Support the Proposal:

      • Increased Complexity and Risk: Managing smart contracts in-house adds technical and security risks.

      • High Costs: The financial investment required for development, maintenance, and audits could be substantial.

      • Unproven Capability: The acquisition of the BCT contract may not sufficiently demonstrate the DAO's ability to manage more complex or numerous contracts effectively.

      Developer Confidence:

      • Developers might be confident if the BCT acquisition went well, showing that the DAO can handle such tasks.

      Financial Concerns and Green Ratio:

      • The costs of implementing and maintaining the contracts need to be justified by their environmental impact and financial return, measured by the Green Ratio. If the costs outweigh the benefits, it may not be a worthwhile investment.

      bRawlaphant Thanks for these 😄

      Some notes:

      We only add 1 to the FFR to manage the exponential function - that 1 gets subtracted back out to find the end fee 🙂

      Fed Funds Rate is slightly different from the overnight repo rate, but they're usually within 5-20 BPs of each other.

      It's 100% correct that if the underlying economic conditions change, the redemption fee changes. The FFR goes up or down, the fee will follow - as the cost of borrowing money and therefore the time value of money has increased or decreased, so too does the cost of buying that time and retiring more recent credits.

      This move will enhance KlimaDAO's asset management capabilities and mitigate risks associated with third-party dependencies.

      Positives of the proposal:

      • Enhanced Control and Governance: By curating its own pools, KlimaDAO gains greater control over the composition and governance of its environmental assets. This enables more responsive and adaptable management in line with changing market conditions and regulatory requirements.
      • Risk Reduction: Direct management of asset pools reduces the risks associated with third-party custodians and smart contract vulnerabilities, providing a more secure and stable framework for asset holding.
      • Market Responsiveness: The introduction of Klima Pools, with their built-in adaptability to market and regulatory changes, allows for dynamic adjustments to pool criteria and compositions, ensuring continued relevance and compliance.
      • Strategic Expansion: This initiative allows KlimaDAO to cater to a broader array of environmental goals and stakeholder requirements, potentially broadening its impact and appeal within the environmental and carbon credit markets.

      Potential risks and mitigation activities

      • Implementation Challenges: The development and governance of Klima Pools will likely require resources to ensure robust and secure smart contract functionality. ---> My understanding is that some of this work is being co-opted from similar workstreams at highly aligned ecosystem partners and that therefore this risk is being partially mitigated.
      • Governance Load: The need for active and ongoing governance to adjust pool criteria and manage assets could place a considerable burden on KlimaDAO's governance mechanisms, requiring efficient decision-making processes and potentially leading to governance fatigue. ---> Here is one where I'd appreciate a bit more insight from Klima's policy team regarding how pool criteria/composition will be managed. I assume a similar approach could be taken to the 'carbon evaluation framework' that we've utilized in the past wherein pool designs are shared publicly across the DAO and our advisor/partner network. A public commenting period could then be held via our existing governance frameworks and processes.
      • Market Acceptance: Despite the strategic advantages, there is always a risk that Klima Pools may not gain the anticipated traction or acceptance in the market, potentially due to competition or mismatches between pool offerings and market demands. ---> See the above. It's important to mitigate this risk through close consultation with industry partners that have their fingers on the pulse of the market as it continually evolves. Furthermore, as pool assets are interoperable, there is always the opportunity to launch new updated pools or shift their acceptance criteria and allow inter-pool arbitrage to let the market find the best price for pooled projects

      so this will allow us to originate our own pools as well as inherit whitelisted partners without their unforeseen governance decisions? And this involves smart contract development and more liquidity provisions, and governance.
      In a way we are in and out of the door, making us more adaptable.

      Governance fatigue is not an issue imo, its marketable. Environmental development is a small economic activity, too small for the world right now.

      25 days later

      optima This proposal establishes KlimaDAO as a curator of environmental asset pools by introducing Klima Pools. Establishing and governing its own pools will enhance the DAO's asset management capabilities and reduce risks associated with relying on third-parties for the structuring and acquisition of environmental commodities.

      Context

      Since launch, KlimaDAO has relied on third parties to create the carbon pools that the treasury holds as reserve assets. In particular, bridging partners like Toucan or Moss both facilitate creation of the tokenized representation of the carbon credits themselves, as well as pooling of those assets into baskets of similar projects suitable for treatment as environmental commodities rather than individual project-and-vintage credits.

      However, without appropriate governance mechanisms to implement changes to these pools over time in a predictable and systematic manner, KlimaDAO has limited ability to respond to changing market conditions that may affect the carbon pools it holds as treasury assets.

      With the acquisition of the BCT pool, KlimaDAO has made its first step into pool curation, with a clear mechanism now available via KlimaDAO governance and the associated DAO multisig to modify the BCT eligibility criteria and other aspects of its functionality.

      In response to the evolving demands of carbon markets and the need for robust and flexible infrastructure, Klima Pools will serve as targeted vehicles for stakeholders interested in various environmental projects. This initiative represents a strategic expansion of KlimaDAO's offerings, enabling the DAO to cater to a wider range of environmental objectives and compliance requirements while removing any custodian risk or smart contract risk of third parties controlling the assets held by the KlimaDAO treasury.

      Implementation

      Pool Logic and Gating Criteria:

      Klima Pools will only accept eligible carbon tokens. Gating criteria will feature:

      Eligibility Check: Only tokens from whitelisted issuers (e.g. Toucan, ICR, etc.), and their associated smart contracts, will be accepted.
      Adaptability: Klima Pools will be designed to adapt to changing market demands and regulatory criteria, allowing for updates to pool criteria and the rebalancing of pool compositions as necessary.
      Gating Attributes: Specific attributes will be required for any carbon token to be deposited into Klima Pools, including but not limited to:
      A minimum first project issuance period and/or vintage.
      Specific methodologies, with eligibility extending across registries, provided they meet all other criteria and have been accepted via KlimaDAO governance for inclusion in the ecosystem.
      Geographic location, such as country or region.
      Prior to launch of each pool, a clear definition of inclusion criteria for eligible tonnes will be provided in the corresponding governance proposal, and subsequently published in the KlimaDAO documentation (https://docs.klimadao.finance), with the flexibility to incorporate additional methodologies through governance votes as market and regulatory landscapes evolve.

      Initial pool criteria will be announced by the protocol team, prior to any pool construction, and is amendable via governance.

      Fee Structure:
      Klima Pools will implement a fee structure to support the sustainability of the pools and contribute to the DAO's revenue, including:

      A deposit fee for adding eligible carbon projects to the pools.
      A transaction fee on swaps for KLIMA/CARBON liquidity pools.
      A selective redemption fee, with the initial implementation calculated as:

      (1+federal funds rate)selected redemption vintage − oldest pool vintage-1

      To understand what this means in practice, see the calculator here. To fiddle with the parameters, just make a copy and see how a changing interest rate would affect redemption fees.

      *NOTE: the pool smart contract will need access to the current Federal Funds Rate. This will be either taken from an existing Oracle source, or a new Oracle network will be created, for example via Pyth, Chainlink, or a similar service provider.

      Any changes to this fee structure or the selective redemption fee algorithm may be made by the protocol team, and would be clearly communicated prior to any changes being made.

      What are the chances of winning?

        17 days later

        cpt35 Chances? Chance?

        Main hurdle is development time.

        I don't think it's a matter of 'if' , more so 'wen'

        Write a Reply...