1. Introduction

Since October 2018, KlimaDAO has on boarded 100s of contributors that have participated in its development and innovation, passed 64 KIPs which have altered the way it operates or defined actions it can take, has transitioned to a Foundation Structure, and has spun out a core part of its technology into a Limited Company as a means to increase uptake of novel market solutions within the climate finance space.

After 2 and a half years of change and volatility within the markets we operate in, as well as the Protocol itself, KlimaDAO finds itself in a relatively stable position, constrained by the Green Ratio, an established forward carbon operation, the deployment of the POL on two leading blockchains, and a handful of contributors who steward the Protocol.

Today’s organisational context and relative stability affords the DAO the opportunity to consider broader strategic moves that can allow it to further mature its operations, increase its stability, and allow it to pursue broader acceptance as an innovative technology within the climate finance markets.

Future steps for KlimaDAO must consider both KlimaDAO’s economic model and its governance framework together; these aspects of the project are tightly intertwined, and both restrict and empower one another.

This RFC - Klima 2.0 Metamorphosis - proposes the transition of KlimaDAO to its end-state, a state which clearly codifies its governance and defines exactly how it will function as a stable economic engine for carbon market participants to utilise – without intermediaries – if they so wish.

To this end, the RFC summarizes KlimaDAO’s governance learnings, proposes initial thinking of an updated economic model, and defines key actions for DAO operators to take in the near-term, to prepare for the next phase of KlimaDAO.

2. Klima 2.0: New Economic Model

KlimaDAO has made significant strides in brand recognition, customer acquisition, and the accumulation of real carbon assets. Nevertheless, the current token model is imperfect, particularly by the way it solves for fragmentation and fungibility of the carbon market. The bundling of governance into a token that performs useful work for the carbon markets also creates a nebulous environment for value accrual of our token.
Below, we have included some highly pertinent pieces on future dynamics.
Fundamentally, the current token model is an accumulation model, requiring liquidity pools for distinct carbon classes - limiting potential for growth and scalability. To aggregate the carbon market, solving for transparency and fungibility is not enough: a model that also solves for liquidity fragmentation is necessary.

Why This Change is Necessary:

Our existing economic model, though innovative, is inherently inflationary and does not offer risk-adjusted carbon market exposure to participants.
Decentralized architecture with clearly balanced and dynamic economic governance - requires proper parameterization of the economic model.

Two Tokens, Equitably Distributed for the Benefit of Existing $KLIMA Holders:

  1. Asset Token (A Token): A global carbon index, initially issued 1:1 for each tonne in the system.
    2.Governance Token (G Token): G staking allows users to exert preferences on which carbon they want to earn, from the fees generated in the system. G will have a fixed supply, and will provide core utility to the system by relatively pricing carbon.

By allowing G Token stakers to select carbon classes they want, KlimaDAO will be able to relatively price the carbon within the Asset Token basket, finding the gross price from A Token staking preferences and the net price by the dynamic impact spread from G Token staking preferences. The below outlines some of the current dynamics, which are subject to improvement and further innovation as the Klima 2.0 whitepaper develops.

Relatively pricing carbon based on preferences of asset token & governance token holders removes the need for: a) carbon liquidity pools, and b) price oracles for carbon - allowing KlimaDAO to have the largest possible A/USD LP, referred to as A-Q below.

The new model will be the catalyst to decentralize this essential piece of infrastructure for the benefit of all $KLIMA holders.

Key Outcomes:

  • Aggregating Liquidity: One of the most significant benefits of the new token structure is the creation of a dynamic carbon yield curve. By allowing users to stake A Tokens for varying maturities, we can establish a yield curve that provides liquidity and prices duration risk. This bond market will attract a broader range of investors and facilitate the seamless trading of carbon credits.

  • Solving fragmentation, nonfungibility, and transparency in Carbon Markets: The new token system will simplify the minting and burning mechanisms, making them more efficient and user-friendly. This will reduce the complexity of transactions and improve the overall user experience. Sellers will find it easier to monetize their carbon credits, and buyers will benefit from a more straightforward process for obtaining offset credits.

  • Sustainable Growth: The balanced distribution and inflation management of G Tokens will ensure the long-term sustainability and value growth of our ecosystem. The pure carbon exposure offered by A tokens, balanced with a duration based yield curve, sets the stage for a highly optimized decentralized carbon market. By carefully parameterizing the relationships between participants, incentivizing participation through staking and using staking preferences to relatively price carbon - we will create a stable and robust decentralized carbon market that everyone is incentivized to interact with.

Klima 2.0 will create a more efficient, scalable, and user-friendly platform that delivers greater value to all stakeholders.

Our proposed model represents a bold and innovative leap forward, embodying a vision that has been meticulously crafted through the DAO’s experiences over the past years.

Our goal is to create a more dynamic and user-friendly ecosystem that better serves our primary users—producers, buyers, and sellers of carbon credits—while driving capital more efficiently to impactful carbon projects. When we create a real index that offers benefits to each of these key stakeholders, we become capable of onboarding more sophisticated users into the carbon markets.

The details of the economic model, specifically how we solve the problems of fragmentation, nonfungibility, and transparency in carbon markets will be fully released in the Klima 2.0 whitepaper later this year.

3. Decentralized Governance - a Case for Transition

Today, the $KLIMA token performs a critical role for the DAO across its tokenomics and governance. $KLIMA is a governance token – it de facto intertwines governance with economics. Clearly, disentangling governance from economics can simplify the value proposition of the project’s tokens to increase engagement and facilitate growth.

Nevertheless, the role of governance within DAO’s can be a divisive and complex discussion – and KlimaDAO has come face-to-face with many of the pitfalls, politics and opportunities that it offers – transitioning from the current KIP- based model to a simplified system defined by G Token requires consideration and justification.

Below (and in Appendix A), we consider the learnings at KlimaDAO from running governance as it does today, and stipulate that transitioning to more codified governance, via G Token and the implementation of a Swiss Foundation, is appropriate – and in fact needed – at this time.

The below does not intend to quantify benefits of disaggregating governance from economics, and instead focuses on the qualitative merits of progressing how KlimaDAO is governed given the project’s mission and maturity.

KlimaDAO has consistently grappled with the theory of decentralization versus centralization both on its Forum and internally – the tradeoff at the DAO has typically been framed against the extent that efficiency, and the ability to execute, should be compromised to maintain a notion of decentralization.

In practice, KlimaDAO has been constrained by the passing of KIPs to allow certain decisions, and has been unable to take decisions against anything that has fallen outside of the KIP “whitelisting” process. Ergo, requiring KIPs – voted for by holders of a highly distributed user base – to delegate power to some “centralized” body or individual, has in fact restricted the amount of delegation that has occurred.

Generally, this necessity of passing KIPs has slowed down the ability of the DAO to execute against certain strategic and tactical opportunities, but has not materially compromised its activities because engaged stakeholders have been patient with the DAO’s idiosyncratic governance process. If the governance process has constrained the DAO to do certain things (i.e. by a KIP not making it to Forum or Snapshot) – then such constraints may be considered beneficial, effectively restricting the diversion of attention and resources away from the DAO’s core mission.

Where the notion of decentralization has perhaps primarily comprised KlimaDAO’s ability to execute has been in establishing partnerships and a user-base of traditional market participants. Working with a decentralized entity is considered by many as risky; the feedback received is that it is avoided for a few key reasons:

  • to not be seen as a tacit endorsement of the types of innovation (in terms of the legal structure or technology) that KlimaDAO offers for the market.

  • a history of undoxxed individuals working at the project who are seen to be unaccountable for certain activities or decisions.

  • the implicit required interaction with “undoxxed” community members if a collaboration requires a KIP.

From an operational perspective – although wieldy – the DAO has consistently run transparent governance processes, following the sequence of soft consensus -> hard consensus -> Snapshot. Some specific powers have been delegated from time-to-time to different formal bodies within the DAO (e.g. “Core and Council”); the codification of these processes has allowed them to generally avoid being gamed. However, attempts to codify and delegate more nuanced decision-making areas (e.g. carbon forwards, KRC) have at times had little, and in some cases zero, uptake.

Clearly, the DAO and its contributors have followed a dogmatic commitment to implementing governance as it should have been since the project’s inception. Nevertheless, the implementation of governance in its current state has been one of the major overheads at the project. Attrition of skilled DAO contributors has occurred specifically because of the burden and uncertainty caused by running decentralized governance.

The same can be said for community engagement: the trend of voter turnout observed in KIPs (see Table in Appendix A for a summary) is that early KIPs that coincided with high voter turnout (proportional to circulating token supply) were focussed on key policy and tokenomic decisions that may have resonated broadly with the community and require a relatively simple yes / no perspective from the voters. More recently, lower voter turnout has coincided with more incremental KIPs, focussed on liquidity operations, specific issues relating to esoteric governance processes as well as carbon market activities.

Whether perceived as good or bad, KlimaDAO’s dogged commitment to its governance process has delivered critical learnings for the DAO from both a techno-economic and organisational perspective, and perhaps more importantly they have allowed a relatively conservative transition from a novel, if not aggressive, “crypto-carbon” project, to a more refined and measured participant within the carbon markets.

Major milestones in KlimaDAO’s grapple with the meaning of decentralization are detailed in Appendix A, as well as a deeper review of specific governance decisions that delegated responsibilities to certain groups and committees within the DAO.

Key trends relating to KlimaDAO’s governance can be broadly summarised as below:

  1. Changing nature of governance: Clearly delineated precedence around what the project can “do” has been assembled via KIP – thus reducing the scope of governance.This is exemplified by the evolution of governance initially focussing on broad policy and tokenomic pivots, to more recently looking at incremental, complex and marginal changes in operations and spending decisions.

  2. Reduced efficiency of governance: KlimaDAO runs the same wieldy governance process that it did at launch. Given that the nature of governance has implicitly been constrained by previous KIPs and the Green Ratio, a more efficient and codified governance mechanism can increase the DAO’s velocity and reduce its complexity.

  3. A continued challenge in seeking market acceptance: KlimaDAO’s dependence on dealing with traditional entities (e.g. NGOs, Limited Companies) to thrive, requires a transparent, traditional entity that has clarity around accountability. KlimaDAO has taken steps towards a foundation model, but needs to go further.

Thus, it is proposed that three key steps are taken to mature KlimaDAO’s governance in-line with the maturation of the project as a whole:

  1. Codification of Remaining Governance: the major area of KlimaDAO’s governance that requires ongoing input – carbon market activities – are in a position to be codified via G Token.

  2. Set-up a Swiss Foundation: The formalisation of a traditional, widely-accepted legal structure, in the form of a Foundation established in Switzerland, will establish clear accountability and responsibilities into KlimaDAO.

  3. Create an Internal Governance Model and Operational Teams: A requirement through the formalisation of a Swiss entity – specific, day-to-day operational tasks will be carried out by an accountable Executive and Advisory Team.

Step 1 will implicitly be achieved through the tokenomics update articulated in the previous section. Steps 2 & 3 will be formalized in the coming months, described in further detail below.

  1. Near-term Objectives

In 2024, KlimaDAO will codify its governance and iterate on its economic model.

The DAO’s existing BAU workstreams will continue in the interim period, focussing on performing its liquidity operations, increasing access to carbon within its ecosystem, and onboarding new asset types.

In addition, there are three other major work streams that require implementation ahead of a proposed relaunch.

A. Capitalize on Current DeFi Trends

The community allocation of pKLIMA is a strategic reserve that can fulfill key DAO initiatives requiring KLIMA, such as seeding new liquidity pools or bolstering existing pools. The initial use of pKLIMA to deepen our KLIMA/USDC LP is an example of how we can utilize pKLIMA to direct treasury funds where they are most needed. The recent bolstering of KLIMA/BCT on Base, as well as the incentives deployed to KLIMA/USDC & KLIMA/WETH in KLIMA terms - are prime examples of how the strategic pKLIMA reserve can be used for the benefit of all $KLIMA holders.

To continue aggressively incentivizing our core pools as the new model is built, the remaining pKLIMA budget should be completely utilized. In order to achieve this, the protocol team requests 8,090,000 pKLIMA to be exclusively used for incentivizing KLIMA/USDC & KLIMA/WETH liquidity pools.

These incentives will be incredibly accretive to existing $KLIMA holders and liquidity providers, while creating the most robust liquidity possible for future holders to enter as we expand.

These $KLIMA will only be used for incentives on KLIMA pools, and will be allocated over the coming months as the new model nears commercialization.

When using this strategic liquidity bolstering budget to incentivize KLIMA pools, the protocol does not need to be as price sensitive to factors such as POL:TVL when deploying incentives, and is much more inclined to bolster liquidity.

B. Adopt a Proven Legal Structure in Line with Major Foundations

After extensive experimentation with various governance and legal frameworks, it has become evident that a shift towards an established and structured model is necessary. Taking cues from successful foundations such as Ethereum and Cardano, KlimaDAO is considering adopting a similar approach by establishing a foundation in Switzerland.

Switzerland's favorable regulatory environment for cryptocurrencies makes it an ideal location. The country offers a straightforward process for setting up bank accounts, which has been a significant hurdle in other jurisdictions.

Moreover, Switzerland is home to the Swiss Financial Market Supervisory Authority (FINMA), the government body responsible for financial regulation. FINMA is known for its direct and transparent communication channels, which allow organizations to directly engage with regulators to clarify compliance and regulatory requirements effectively.

This opportunity for direct dialogue ensures that KlimaDAO can operate within clear legal boundaries, reducing uncertainties and enabling more focused strategic planning. Establishing a foundation in such a supportive environment will align KlimaDAO with the standards of leading blockchain organizations, ensuring robust governance and enhanced operational stability.

This strategic realignment will enable KlimaDAO to focus on its core mission with greater efficacy, leveraging a stable and clear regulatory framework to advance its objectives in the carbon credit and cryptocurrency markets.

Further notes justifying the merits of a Swiss Foundation are available in Appendix B.

C. Implement a Streamlined Internal Governance Model

To streamline the DAO’s operations, we propose an internal governance model that allows an “Executive” team to run DAO operations, and move away from the various Working Groups, Departments, and decision making bodies that have previously been implemented at the DAO with mixed results. The proposed internal governance model would supersede previous structures implemented or whitelisted at the DAO.

This structure will in future benefit from governance decisions becoming codified into Token G, with the Executive Team responsible for executing activities outside of Token G’s parameters.

Executive Team Roles & Responsibilities:

  • Relaunch: The project management and implementation of KlimaDAO’s relaunch will sit with the Executive Team.

  • Day-to-day operations: The general running of day-to-day operations at the DAO – analogous to the role of the current Protocol Team – will be carried out by the Executive Team.

  • Stakeholder Engagement: The Executive Team will primarily be responsible for engaging with the KlimaDAO’s primary stakeholder groups involved in the Web3 and carbon domains.

  • Community: The Executive Team will be responsible for the Communicating Roadmaps and key activities with the Community.

To support the Executive Team, an Advisory Board will be assembled in parallel. The individuals on the Board will have deep market knowledge of KlimaDAO’s primary markets, and / or be long-time contributors to the KlimaDAO project.

Advisory Board Roles & Responsibilities:

  • Strategic Guidance: The advisory team will engage with the Executive Team on a weekly basis, and issue non-binding votes on the Executive Team’s tactical and strategic proposals. Their expertise will be used to inform the Executive Team of key risks and opportunities for the project, and ensure there is accountability in Executive Team actions.

  • Operational Consulting: Advisors will offer practical advice on day-to-day operations, particularly in areas requiring nuanced understanding of carbon credit valuation, environmental market dynamics, asset procurement, and sales strategies. This guidance will be crucial for enhancing operational efficiencies and maximizing the impact of each project.

  • Regulatory Navigation: With their comprehensive understanding of international regulations and compliance standards, the advisory team will help ensure that KlimaDAO remains compliant with all relevant laws and regulations. This is particularly valuable in a rapidly evolving regulatory landscape.

  • Enhancing Credibility: The presence of recognized experts on the advisory team will also enhance KlimaDAO’s credibility within the environmental finance community. This can open doors to new partnerships, funding opportunities, and collaborative projects, expanding the organization's reach and impact.

  • Direct Communication Channels: Advisors will maintain direct communication channels with the Executive Team, ensuring that their recommendations are quickly relayed and considered in decision-making processes. This setup reduces the need for lengthy deliberations and streamlines the implementation of advised strategies.

In light of the proposed KlimaDAO economic and governance relaunch, there will be three primary areas that require operational oversight from the Foundation, delegated as follows:

  1. Liquidity Management: constrained by the Green Ratio to ensure the Protocol operates sustainably. To be managed by the Foundation, and reported to the community by the Executive Team.

  2. Technology deployment: delegated to the Foundation, that will use third-party development shops via bilateral contracts. Supplementary bounty / incentive programmes may be deployed at the discretion of the foundation.

  3. Carbon Agreements: delegated to the Foundation with the possibility of inserting a community designed process.

Summary

This proposal is a landmark moment for Klima DAO. Tokenized carbon and the usage of blockchain technology provide the foundation for advancing climate finance, and this economic and legal framework position our organization to efficiently scale and accelerate.
Our initial foray into this market showcased how carbon pools can partially solve nonfungibility, but they are imperfect and result in capital constraints to scale and inherent fragmentation between carbon classes.
This model removes the need for carbon liquidity pools and price oracles for independent carbon classes. Furthermore, it will codify governance and reduce the operational burdens at the DAO, whilst defining a specific set of parameters for the DAO to operate against, increasing the scope for resilience, security, scalability and automation.
Together, with our strong community, innovative tech stack, and fundamental innovation - we can accelerate the velocity of environmental markets and our transition to a sustainable future.

APPENDIX

KLIMADAO INTERNAL & OPERATIONAL GOVERNANCE EVALUATION

Below is further analysis of specific governance proposals that were passed at KlimaDAO which have been instrumental in defining its current state, or that generally aspired to decentralize areas of the Protocol (with mixed results).

These examples give practical learnings for the KlimaDAO (and others) around the effectiveness, impact, and opportunities of decentralized / delegated responsibilities within the context of a DAO.

KlimaDAO Decentralization Milestones:

  • KIP-19 Internal Governance Model: was the first time KlimaDAO challenged itself around what decentralization meant for the project. When the DAO launched, over 50 contributors began doing some work for the Protocol, and received remuneration by self-reporting their contributors. There was no structure and little direction. The KIP defined the challenges of running a fully decentralized operational model when the DAO has specific objectives to achieve - per its pre-launch mission. KIP-19’s approval from the Community led to the transition to a more structured “Core and Council” model that could focus the DAO’s work, reduce its operational spend. Although internally fractious, the KIP led to an intense period of Research, Development and a commercial focus at the project.

  • Decentralization Working Group RFC: in response to contributor concerns in KIP-19, that running a more structured operational model would compromise the DAO’s notion of decentralization, a Working Group was created to more deeply appraise what decentralization meant in the context of KlimaDAO. The Working Group issued an extensive report that identified tensions between developing a decentralized protocol who’s operations were constrained by a community of voters, and a software platform that required traditional business infrastructure (i.e. banking, KYC / AML processes). Ultimately, the DWG’s work was antecedent to the spin-out of Carbonmark into its own Ltd Co to allow it to thrive in a more traditional business structure; as an aligned, strategic partner to KlimaDAO.

  • KIP-40 Trial - Progressing KlimaDAO’s Governance Framework (Quadratic Voting): after concerns expressed by some DAO contributors and community members that larger token holders may be able to disproportionately affect KIP-outcomes (i.e. the Protocol was at risk of becoming a plutocratic system), a Quadratic Voting trial was undertaken. In practice, voter turnout reduced over the trial period, and there was no material change to the rate of proposals being ratified. In fact, running the Quadratic Voting trial may have had unintended consequences by disenfranchising KlimaDAO’s largest community members; those who held more tokens stopped to vote during this period, and therefore ceased to give their feedback to the DAO. Given KlimaDAO’s token distribution is well-decentralized, with team and founding members holding only a moderate share of the tokens – the risk of plutocracy was arguably overstated, and the trial may have come at a cost to the project.

  • KIP 53 Klima Foundation: feedback received by KlimaDAO, from the market, is that for it to be considered a legitimate player within the climate finance arena, it must be able to pass KYB with third parties. This requires committed individuals to formally represent the organisation. Transitioning to a Foundation allows the DAO to mature, be accountable to its stakeholders, and follow the path of decentralized organisations and communities that have preceded it.

  • KIP-55 The Green Ratio: the precedent for economic decision making set in KIP-19 was for the DAO’s operational team to request specific funding buckets to execute certain activities – the primary categories being i) operational expenditure, ii) forward carbon funding, iii) liquidity operations. The nature of the DAO’s spending post-October 2023 changed as headcount was much reduced at the project. Conversely, KlimaDAO stepped up its activities into carbon forward agreements. The Green Ratio KIP was implemented to reduce the overhead of requesting ad hoc funding tranches, and gave the mandate to the DAO monitor and manage its spending across its three category areas at any given time. This afforded the project more stability and efficiency around economic decisions, and reduced ability for well formulated budget asks sent to KIP taking precedence over sound and consistent economic management of the treasury.

KlimaDAO decentralized responsibilities KIPs:

1. KIP 35: Broadening Snapshot Permissions

The proposal to permit any token holder with a certain amount of wsKLIMA to advance Klima Improvement Proposals (KIPs) was initially seen as a progressive step towards enhancing decentralization and community engagement within KlimaDAO.

The idea was to empower a broader base of our community by lowering the barriers to participation, thereby democratizing the proposal process. However, despite these intentions, the practical outcomes have not aligned with our aspirations. The anticipated influx of community-driven proposals did not materialize; no token holders stepped forward to utilize this new capability. This lack of participation suggests that while the concept of decentralization was well-received, the practical commitment to engage deeply with the governance process remains low. This outcome underscores the need to reassess our approach to community involvement, ensuring that it not only facilitates but also motivates active participation and high-quality contributions aligned with KlimaDAO's strategic objectives.

A more practical framework that facilitates Community engagement with governance that is codified against specific areas of the Protocol (i.e. per Token G described above) can empower community engagement with the Protocol and allow the DAO to internalize key carbon market knowledge into its decision making.

2. KIP 35: Klimate Review Committee (KRC)

The formation of the KRC was intended to decentralize the review process of proposals by involving community members. However, the criteria for membership—based on engagement and voting history—did not necessarily correlate with expertise in carbon markets or governance. Ultimately, this risked creating a committee that is engaged but not adequately skilled to make informed decisions around KlimaDAO’s core operations.

Furthermore, the operational mechanics of the committee, including the need for a majority consensus to advance proposals, effectively slowed down the governance process, reducing the DAO's ability to implement timely changes – even in cases where there were no conflicts.

The endeavor also faced significant challenges, primarily due to a lack of applications for membership. Some participants have not provided substantial or constructive feedback necessary for informed decision-making, and ceased to engage without prior notice.

This lack of expert participation and the minimal engagement from outside persons that were not already engaged with KlimaDAO have hindered the KRC’s effectiveness, preventing it from fulfilling its intended role as a facilitative body for advancing proposals. This shortfall has not only stalled the intended decentralization of decision-making but also underscored the need for reevaluating the criteria and incentives for participation in such critical governance functions.

3. KIP 53: Transition to a Foundation Model

The transition from a complex legal structure to a foundation model was designed to simplify governance and allow KlimaDAO to participate in the carbon markets more directly through agreements with third-party businesses.

While the transition to a foundation model in the Cayman Islands was intended to simplify KlimaDAO’s governance and provide a stable legal framework, the reality has been less favorable due to unforeseeable challenges. The Cayman Islands, despite its popularity among DAOs due to their memberless and founderless structures, presented complexities that significantly slowed our operations.

For instance, the process to secure a bank account for the foundation stretched over many months without success, and the Know Your Business (KYB) requirements proved to be exceptionally cumbersome. The local regulatory framework, while robust, did not align well with the agility needed for a fast-moving Real World Asset DAO like KlimaDAO. This misalignment hindered our ability to execute transactions, impacting our overall momentum and ability to implement initiatives promptly.

Transitioning to a more robust jurisdiction (i.e. Switzerland) will enable us to perform the initial vision.

4. KIP 54: Carbon Credit Evaluation and Acqusition Framework

The proposed comprehensive framework for evaluating carbon credits, offered a detailed and methodical approach for the DAO to consider how to make its forward carbon credit allocations.

The framework’s scoring system assesses multiple dimensions of potential carbon credit projects, and requires a significant amount of data collection and processing. Demonstrating this complexity to the community can give greater confidence to the community.

However, bringing this information to the community affects KlimaDAO’s competitiveness within the market, and also slows down the execution time of deals, which can compromise the ability of finalization (as nearly occurred in the Water Filtration IOT project in KIP-61).

The effective implementation of such a detailed evaluation system necessitates the involvement of individuals with deep market knowledge and experience – encouraging engagement from external participants in this process was a major driver for developing the framework. In practice, third-party insight into the evaluation process was not given to the DAO, with existing contributors required to undertake the due diligence in the public Forum.

To address these challenges, it would be more practical to involve seasoned advisors who can evaluate sourcing on behalf of the DAO.

This advisory role could be formalized at the foundation level, ensuring that the framework is not only robust but also dynamically updated to reflect current market conditions and insights.

By situating this advisory function within the foundation’s structure, KlimaDAO can enhance the agility and accuracy of its carbon credit evaluation process, making it both faster and more attuned to the complexities of the global carbon markets. It can create an environment where advisors are happy to engage with the DAO in an arena that is not completely public; but still give the community justification around decision making.

5. KIP 59: Hats Protocol Governance

KlimaDAO's integration of the Hats Protocol Trees aimed to refine and formalize the governance structure through a system of on-chain roles, or "Hats," that could be dynamically managed to delegate and revoke permissions. This approach was designed to reduce the ad hoc nature of permissioning and enhance transparency and accountability within the DAO. The process involved adding new Hats Trees and creating new roles through a governance proposal system that required community consensus via KlimaDAO's established voting mechanisms.

However, in practice, this governance model encountered several significant challenges that affected its efficiency and alignment with the broader organizational structure of the foundation. The requirement for majority consensus to make even minor adjustments often led to delays in decision-making. This slow pace was at odds with the need for agility in managing a dynamic and rapidly evolving platform like KlimaDAO. Moreover, the complex interdependencies between different Hats and the granularity of permissions occasionally led to confusion over roles and decision-making authority.

This confusion was particularly evident in relation to the foundation structure, where the defined roles of directors and the foundation president sometimes conflicted with the decentralized governance model envisioned by the Hats Protocol. Disagreements emerged over who held the authority to make certain decisions, leading to discussions and, at times, discord among team members. These issues highlighted the inherent tension between a more-structured foundation model, which aimed to streamline and stabilize day-to-day governance, and a decentralized approach that sought to distribute operational authority more broadly.

As the governance structure evolved, it became apparent that the dual systems of the foundation's formal legal structure and the decentralized Hats mechanism were not fully compatible.

In summary, while the Hats Protocol Trees introduces a novel method for managing permissions within KlimaDAO, the practical implementation of this governance model revealed significant challenges. These issues ultimately underscore the need for a more formalized internal / operational governance strategy that can reconcile the foundational legal requirements with the principles of decentralized autonomy.

To summarize the key themes of many of KlimaDAO’s attempts to specifically distribute operational and tactical decision making authority to specific groups are as follows:

  1. Overlapping Committees and Redundant Oversight: some governance models led to conflicting roles and responsibilities, which in-turn led to decision paralysis, conflict and inertia.

  2. Lack of Clear Decision-Making Authority in Critical Areas: Despite the detailed governance structures, there is an apparent lack of decisive authority in critical operational areas. The diffusion of responsibility across multiple committees and the reliance on community voting for operational decisions again slows down execution and strategic responsiveness. Critically however, it also reduces accountability on specific individuals.

  3. Overwhelming Decision Landscape: leading to apathy in community and contributor engagement: Despite numerous attempts to encourage active community involvement through various governance models, KlimaDAO has consistently faced a lack of meaningful participation. Protocols can not expect holders to be full time governance participants, debating and understanding the implications and nuances of every decision.

KIP IMPLEMENTATION CATEGORISATION

KIP # CATEGORY
KIP 1 Policy/tokenomics
KIP 2 Use of funds (bug bounty)
KIP 3 Policy/tokenomics
KIP 4 Policy/tokenomics
KIP 4 Policy/tokenomics
KIP 5 Policy/tokenomics
KIP 6 Policy/tokenomics
KIP 7 Policy/tokenomics + use of the funds
KIP 8 Policy/tokenomics
KIP 9 Policy/tokenomics
KIP 10 Use of funds (contributor compensation)
KIP 11 Use of the liquidity pool/treasury
KIP 12 Policy/tokenomics
KIP 13 Use of liquidity pool
KIP 14 Policy/tokenomics
KIP 15 Partnership
KIP 16 Use of funds (pklima) and policy
KIP 17 Delegation for Policy/tokenomics
KIP 18 Use of funds (pklima) and policy
KIP 19 Internal governance
KIP 20 Use of funds
KIP 21 policy /tokenomics
KIP 22 LiquidityS
KIP 23 policy/tokenomics
KIP 24 Use of funds
KIP 25 Use of funds/policy
KIP 26 Use of treasury
KIP 27 Policy/tokenomics
KIP 28 policy
KIP 29 Use of funds/policy
KIP 30 Use of funds
KIP 31 Policy/tokenomics
KIP 32 Use of funds (buy carbon)
KIP 33 Policy/tokenomics
KIP 34 Use of funds (buy carbon)
KIP 35 Internal Governance
KIP 36 Policy/tokenomics
KIP 37 Policy/tokenomics
KIP 38 Use of funds
KIP 39 policy/tokenomics
KIP 40 External governance, voting power
KIP 41 Use of funds (buy carbon)
KIP 42 Use of funds
KIP 43 policy/tokenomics
KIP 44 policy/tokenomics
KIP 45 Use of funds (Carbonmark)
KIP 46 policy/tokenomics
KIP 47 policy/tokenomics
KIP 48 policy/tokenomics + use of funds (buy carbon)
KIP 49 policy/tokenomics
KIP 50 Use of funds (buy carbon)
KIP 51 Use of funds (buy carbon)
KIP 52 Use of funds (buy carbon)
KIP 53 Internal governance
KIP 54 Internal governance
KIP 55 Internal governance
KIP 56 Use of funds
KIP 57 Use of funds
KIP 58 Use of funds (buy carbon)
KIP 59 Internal governance
KIP 60 Internal governance
KIP 61 Use of funds (buy carbon)
KIP 62 Liquidity
KIP 63 Liquidity
KIP 64 Liquidity

B. Swiss Foundation Research

In Switzerland, the supervisory body for foundations is the Federal Supervisory Board for Foundations, which is part of the Federal Department of Home Affairs. This board is responsible for overseeing and ensuring that all foundations operate in accordance with their statutory purposes and comply with Swiss law. The supervision mainly focuses on the legality and appropriateness of the foundation's management and its activities.

For foundations that operate on a cantonal level, the supervisory duties are generally carried out by the cantonal authorities, specifically the cantonal supervisory authority for foundations. Each canton may have slightly different regulations and practices, but all are tasked with ensuring that foundations adhere to legal standards and fulfill their purpose as outlined in their statutes.

If a person believes that the bodies of a foundation, such as its board of directors or management, are acting improperly or violating the statutory regulations or the foundation’s purpose, they can take specific actions under Swiss law.

DAO’s can be (with or without merit) accused of operating nefariously, or within the interest of a select few under the guise of a front loaded and compelling mission to a susceptible and impressionable audience. The vast majority of KlimaDAO’s operators have pushed the project forward on – to the best of their abilities – with humility and with the interest of both the climate finance space and its community members at front-of-mind at all times. Nevertheless, the complexity of the DAO’s structure, and the distributed nature of its accountability, have been criticised in the past. Conforming to a Swiss Foundation model can allow the DAO, and its operators, to be accountable to specific mechanisms under Swiss law and continue to develop the project’s overall legitimacy as an unorthodox, but innovative and impactful, organisation, as follows:

  1. Contact the Supervisory Authority: If the internal complaint does not resolve the issue, or if the nature of the issue is severe (such as mismanagement or misuse of funds), the concerned person can contact the cantonal supervisory authority for foundations or the Federal Supervisory Board for Foundations, depending on the scope of the foundation’s activities. This can be done by submitting a formal complaint detailing the alleged violations or concerns.

  2. Legal Action: As a further step, legal action can be taken in a Swiss court. The complainant would typically need to demonstrate that they have a legitimate interest in the matter, which could be based on their role within the foundation (e.g., a member, beneficiary, or in some cases, a donor) or another direct connection to the foundation.

  3. Request for Audits: In some situations, it might be appropriate to request a special audit of the foundation's activities if there is a suspicion of significant mismanagement or legal violations. This request would generally be made to the supervisory authority, which can decide whether such an audit is warranted based on the evidence provided.

These actions are meant to ensure that foundations operate transparently and according to their legal and statutory obligations. It’s always recommended to consult with a legal professional to understand the appropriate course of action based on the specific circumstances and available evidence.

    Can I clarify a few things? let's say I have 1000 KLIMA, in what ratio will I get A and G tokens?

    if I understood it correctly, the A tokens will be covered by the specific carbon that I, as a user, will choose? and will these tokens also be stackable?

    G token will be for voting only? will it reflect "the price of the whole organization"?

    I'm sorry if I'm asking the wrong questions, but English is not my native language and I get lost in some sections..

      tomcont what a write up.

      First of all thank you for this excellent summarization of affairs. The follow up on KIPs and their tribulations is truly appreciated in the name of transparency and rigorous effort. I very much enjoyed this reading.

      You have my support.

      endwar Good questions, we haven't published exact %'s yet, I can very safely say:

      • The vast majority of A tokens and G tokens will go to existing $KLIMA holders
      • We do not need to raise money to build this, and are building this for the benefit of $KLIMA holders
      • There will be no "investors" or VCs for token A or G , the allocation is for $KLIMA holders

      G token's staking function will allow for carbon class selection, which you could think of as a market mechanism for carbon voting. G will receive upside from a share of the fees the system generates, but should not be thought of as reflecting the price of the whole system

      The value of the system is a function of all of the carbon backing the A token, and the fees generated - which are redistributed throughout the system (A token , G token, A-USD liquidity, A-G liquidity)

        optima thank you very much for the clarification

        I have one more curious question and that is how it will be with KLIMA, which I do not have directly on my wallet (like when providing liquidity on BASE or on the extra finance platform)
        Will I have to ensure that all my tokens are at my address during a specific period?
        Or have we not addressed such things yet?

          endwar We'll make sure this process is fair for all $KLIMA holders and reflects the current $KLIMA holdings at the time of transition

          We'll address these things closer to launch more specifically, as people try to game these things.

          It won't be a fixed 'snapshot' that would exclude anyone with $KLIMA. What I can safely say is that the redemption will reflect your $KLIMA holdings at the time of redemption, and that it won't matter where you hold your $KLIMA tokens - as long as you can access them you'll have the ability to redeem your share of the new ecosystem.

          Dear optima
          I am a KLIMA holder and Swiss and life in the ‚Crypto Valley‘ in Zug, Switzerland. If you need support in regard to the foundation let me know. One of my friends and his law firm (MME) has helped founding the Ethereum foundation in Zug. The Solana foundation is also in Zug and I recently met them.
          Kind regards,
          Roman

          Thank you for the great and detailed report highlighting pros and cons from past two years. Worth to read every word, appreciated.
          My opinion is about the same as in the points above. Seeing the Klima trying to choose and chase the best approach to develop carbon market, feeling like Klima is clearing up a path through forest removing fallen branches. Not necessarily bad thing trying multiple opportunities even when some limitation occurs, but in fact every of these attempts just moves us step forward as removing all bumps, non-efficient transitions or limitations.
          The truth also about Klima holders and investors that no everyone is carbon market master, law guru or crypto specialist is very visible from my observation, thus the engagement of community on these topics can be a very limiting factor.
          Exactly for this reason the proper informed communication is important key. Maintaining a fully opened, transparent and clear communication channels between community and Klima executive/advisor group can and will improve this as I believe the executive team will be responsible for comm to common public.
          Expectation that a non-skilled, non-informed and non-capable person like me for example, to make high level decision is close to zero and I will leave this task with pleasure to the right team, in the matter deeply specialized person from core team. There is trust, a very important factor, which is being built over more than two years, and if I want to fly to moon, I am not going to build racket myself. I will ask for help. Other ways, the result will follow my expertise.
          For Klima, removing those obstacles with maximizing efficiency based on feedback from internal analysis, advisors, stakeholders, community, etc. is a positive step forward.
          Thanks again

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