- Edited
Title: RFC - NCT Value Allocation
Status: Proposed
Author: Dionysus
Contributors: MarcusAurelius, Sy Zygy, GolanTrevize
Summary
In this RFC, we propose an allocation of the funds secured by the BCT-NCT mass-balance exercise. This allocation is driven by the following thesis: those that bridged nature-based tonnes into the BCT pool did so because they believe total BCT value is an aggregate of its constituent carbon tonnes.
KlimaDAO’s reasoning was precisely this, and our purchase of nature-based offsets to seed initial liquidity was done to ensure a diversity of offsets in BCT, as it was seen as an index with a wide array of offsets. Furthermore, having a diversity of offsets in the seed pool provided additional marketing benefits, as we showcased projects taking place around the world and utilizing various technology types.
We thus propose returning the majority of value secured by the mass-balance exercise to those who bridged the nature-based tonnes. In addition, our proposal includes a bounty for Toucan for coordinating the mass-balance exercise as well as a portion for keeping within the existing USDC-NCT liquidity pool.
Background - Klima’s Context
Klima ran a Liquidity Bootstrapping Pool (LBP) in order to raise capital for purchasing carbon offsets off-chain in order to seed initial liquidity in our KLIMA-BCT and BCT-USDC pools. These offsets included 518,825 nature-based tonnes, 463,825 of which are vintage 2012 +, and thus qualify for Toucan’s NCT pool. These bridged tonnes are listed in this spreadsheet.
The current value of NCT-compatible tonnes which Klima seeded initial KLIMA-BCT and BCT-USDC liquidity with stands at $3,770,897 (considering an NCT price of $8.13).
Origin of nature-based credits converted to NCT
Per Toucan’s initial RFC, the 2012+ nature-based TCO2s that were secured were primarily deposited by Klima DAO, Moss, Regen Network and its community, with the following division:
Klima DAO: 463,825 (24.2%)
Regen Network: 271,794 (14.2%)
Moss: 600,595 (31.3%)
Others: 583,520 (30.4%)
KlimaDAO suggests that the rescued NCT value (i.e., NCT tokens) be delivered back to the original bridging addresses utilized by the entities above as per the division of funds listed below.
Qualifying nature-based tonnes bridged by ‘Others’ should be returned based on the bridging data available to Toucan.
If feasible, we propose that for the full allocation of NCTs be made back to bridging entities, they should have had to hold the BCTs for > 90 days. Otherwise, their allocation should be reduced proportional to the BCTs they immediately sold to the market and/or bonded for Klima. In the case of these BCTs being bonded for Klima, KlimaDAO should receive those equivalent NCTs. Note that Klima’s BCTs were transferred to our deployer address after bridging.
Klima bridging address: 0xAf529400FF068AFbdc907c699B9184a4381481B0
Klima deployer address: 0x693aD12DbA5F6E07dE86FaA21098B691F60A1BEa
Suggested division of funds
80% - Nature-based TCO2 depositors
10% - Long-term carbon burning liquidity
10% - Toucan rescue bounty
Depositors:
This category refers to all individuals/entities which bridged qualifying nature-based tonnes over and deposited them into the BCT pool. Note that whether or not these actors held their BCT is not taken into account due to the complexities that would bring to the operation of returning NCTs. In all likelihood, KlimaDAO is likely at a loss here given that the majority (i.e., > 80%) of BCTs were bonded into our treasury (and thus ‘purchased’ through the emissions of Klima). Nonetheless, expediency is preferred over a logistically challenging return.
Long-term carbon burning liquidity:
Refers to 10% of the NCTs of BCT origin being kept within existing NCT liquidity pools seeded by Toucan.
Toucan rescue bounty:
Given Toucan’s actions in securing these NCT-compatible TCO2s from the available BCT supply, they are entitled to a 10% rescue bounty to utilize as they please. KlimaDAO’s understanding is that this will be kept for liquidity (though we appreciate clarification from Toucan on this).
Initial On-Chain Analysis of Eligible Bridgers
In order to provide the community with a starting point for analyzing how much of the rescued value should be allocated to each depositor of NCT-eligible TCO2, we conducted an analysis of on-chain data powered by KlimaDAO’s public Bridged Carbon Subgraph.
- The results of this initial analysis can be found in this spreadsheet: https://docs.google.com/spreadsheets/d/1XNqy3e17YE9CP1jduuNwaGUGJXGRxyVTEN0T_TfvTtc/edit?usp=sharing
- The code used to extract this data can be found in this Python notebook: https://gist.github.com/0xAurelius/3cfe8c09374699214cd338b269062acc
- This Dune query was used to identify BCT pair trades on SushiSwap made by the bridging addresses: https://dune.xyz/queries/433716
Methodology
- Identify all TCO2s that fit within the published pool requirements for NCT by methodology and vintage (see NCT Methodology and TCO2 Addresses tab in spreadsheet).
- Filter all TCO2 bridging events down to those NCT-eligible TCO2s which were bridged prior to initiation of Toucan’s mass rebalancing action (using January 25, 2022 as the cutoff).
- Aggregate by bridging address, totaling the amount bridged prior to the cutoff, as well as the date of first bridging.
- Compare with BCT SushiSwap pool activity for the bridging wallet to determine if the bridging wallet swapped directly (overly simplistic assumption since BCT could have been first transferred to another wallet, then swapped).
Alternative Allocation Methodology: Eligible Holders
Many in the community have expressed that rather than allocating the rescued value to the original bridgers of NCT-eligible tonnage, it should instead be distributed to the holders of BCT at the time of the rebalancing action. As such, we did a very simple analysis to determine how this option would play out.
At the time the rebalancing actions began (assuming January 25th, 2022) KlimaDAO’s treasury held about 82.5% of the total BCT supply per this Dune query - most as raw reserves and some as BCT liquidity pool tokens. The remainder of the supply was held by thousands of community wallets (at the time of this writing, over 3000 wallets hold BCT per PolygonScan).
Thus, while this approach may secure a larger distribution of rescued value to KlimaDAO, the broader ReFi community would receive only a small sliver of the rescued value. On one hand, KlimaDAO would benefit even more from this approach than the allocation by bridging; on the other, this could create animosity from the ReFi community toward KlimaDAO for being “greedy” and taking the vast majority of the rescued value for our own treasury.
The other consideration is that actually analyzing the thousands of individual BCT holder wallets to determine whether they should be considered eligible for value distribution or governance rights is much more involved than reviewing the 20 bridger wallets. While we could use simple hard-coded heuristics to identify holders who should be eligible, we will not be able to give the same level of diligence to each of the thousands of holders that we could give to the limited number of bridgers to ensure recipients of the rescued value are aligned with the long-term success of ReFi.
Additional Option for Distributing Some Rescued Value to the Community via Retirements
In addition to directly distributing the rescued value to individual wallets, another option was recently proposed by Rez to set aside some of the rescued value to more directly benefit BCT holders . The idea is to establish a special “discounted” retirement contract that holds some proportion of the rescued NCT.
When a user retires BCT using this contract, it both burns the lowest quality TCO2 from the BCT pool, as well as an equivalent amount of the lowest quality TCO2 from the NCT pool - using a portion of the rescued value as the source of this “bonus” NCT retirement. This constitutes a “flash sale” on BCT retirements, encouraging adoption of on-chain offset consumption and distributing the “use-value” of the rescued value to anyone who retires BCT until the contract runs out of NCT.
We are curious to see if the community views this as a viable substitute for distributing the rescued value to holders that avoids the need for complicated, time-consuming analysis that will delay distribution of the rescued value.
Distribution to KlimaDAO
As stated in section Origin of nature-based credits converted to NCT, KlimaDAO proposed that rescued NCT value be returned, as NCT tokens, to the original bridging addresses.
Despite the bridging analysis potentially returning a smaller share of the rescued value to KlimaDAO than other allocation strategies, we still support it because of the shorter timescale for analysis and expediency in moving this process forward.
Conclusion
In order to move forward productively and mend the relationship between two of the largest players in the ReFi space, we feel it is important for value extracted from the BCT pool to be returned to the actors who originally bridged NCT-compatible carbon offsets into the DeFI space. KlimaDAO has offered a simple and elegant solution for executing this and appreciates the feedback from our - and Toucan’s - communities in leading us to this solution.
NOTE: prior to publication, KlimaDAO reviewed both of these methodologies with @Rez, a Klimate and Toucan community member who has been publishing regular analysis of on-chain carbon data since launch. While by no means perfect nor complete, he agreed they are a reasonable starting point for further discussion and more detailed follow-up analysis.