• Proposals
  • KIP-23: New Framework for Supply Expansion

As I understand it, the rationale of this KIP is to maintain the Klima share of the on-chain market, with Klima supply/treasury growing pari passu with on-chain credits. The problem is that it is just an objective, right? For it to suceed we need the treasury to grow at the same speed. Take the situation rn: we set the AKR to 1000% but the treasury is far away of growing 10x annualized, so we are basically paying the AKR with treasury reserves and decreasing Carbon Custodied per Klima. So my questions are:

i) Shouldn't the AKR also considers the treasury growth and not just the on-chain growth? ii) Or are we going to set bond capacity in line with AKR to make sure those tonnes enter to treasury, even if a high discount/dillution is required?

    HI

    absolutely support anything that will extend the projects runway. We should lower as much as need to be to give the project time to suceed

    peace 🙂

    MarcusAurelius Another solution would be to burn a few tokens maybe as soon as possible in order to slow down the expansion and at the same time reduce AKR at 800% not 300%
    Just saying

      Some questions/comments on the proposal. Sorry if it is a bit long-winded.

      First, some clarification - is point 2 supposed to be "The 90-day moving average growth rate of the eligible on-chain carbon supply over the 90-day moving average growth rate of KLIMA supply"?

      Second, how exactly is AKR dependent on the two quantities being calculated? Or, stated differently, what are you optimizing AKR for? The idea that "optimal KLIMA supply expansion should be in line with the growth of the on-chain carbon offset market" is too vague. Perhaps a simplified (ignoring time effect) explanation could offer some insight and motivation - e.g. if the carbon supply available is at a fixed amount X, how much supply of KLIMA should there be and why?

      Third, the explanation in the last paragraph "Call the reward rate..." is contradictory as now it appears only the 90-day MA are used. But more importantly, since the KLIMA supply is fixed at any given point in time, the adjustment made to the protocol to target G is effectively aiming for the "target runway". But "target runway" has nothing to do with the goals of the project. Rather, I would expect it to be treated as a sort of lower bound of the available optimization space to avoid "bank run" type scenarios.

      The animations are slick, but they cycle too fast. I would suggest adding 15-20 seconds at the end before they repeat.

      My major concern is that the proposed KIP is focused on matching the rate of emissions with the rate of supply. First of all, this does not make any sense because not all carbon credits are created equal. Second, do we know if the current supply of tokens that have been minted (ie. not rate) is in any sense "good"? Third, what is the definition of "good"?

      Have some MC or other types of simulations been done to project what these changes are likely to do under reasonable assumed conditions (informed by past data or otherwise logical assumptions)? It would be great to see this level of detail to have a clearer understanding.

      KLIMA is a great idea, it has the potential to be a weapon of mass de...carbonization 🙂 But I worry that there is more guesswork than careful analysis going on at this stage of the project. For instance, the "MCAP is everything" storyline seems a bit simplistic. Supply is important because that is the vacuum, but it also has to be balanced somehow. Price is also important because without good price behavior the project will not continue to attract new investors, which can give the project both momentum on the investor side and confidence of its long-term viability on the "use-case" side. MCAP hides these details as it obfuscates the effect of these two properties and how they might be related to inputs.

      Perhaps the growth of supply should be related to the price of credits coming on-chain rather than the quantity of them? And then mint to target a (linearly?) increasing price of tokens or some such that gamifies the benefit of offsetting now versus waiting and rolling the dice. Completely agree that we need to drop AKR by a lot and increase runway, but that is survival instinct, not long-term strategy. Drop the AKR with a simple vote if we must, but don't introduce a long-term complex strategy until it has been beat on, discussed and refined over and over again by the best brains in the project.

      Car54 To the first part of your reply, 0 expansion would only be ideal if we were already in the stability phase. But we're not and some expansion is still true to our goal of building KLIMA into a carbon-backed currency. Stopping expansion now would be pre-maturely foregoing that goal as the on-chain carbon market is still growing albeit slower than ideal.

      To your point in the last paragraph, I'm afraid if we don't significantly lower AKR as proposed (and keep it at 1000% or lower to 800%), we might not even see your rewards being worth much in 3-5 years. The reason is if the on-chain carbon market continues to stagnate and only picks up 1 year from now for example, we would reach 1 KLIMA : 1 tonne backing way faster. This wouldn't be ideal as at this point we wouldn't have the defense of runway and might need to resort to buying back KLIMA if volatility in the market kicks in such that the token trades below IV. It's a very dangerous position to be in for all KLIMA holders

      Creating a system where the more people buy the higher the AKR gets, is a pretty good idea from a marketing standpoint and a holding standpoint @MarcusAurelius . It would give the balancing inverse effect of the supply increasing. If this is a side effect of this proposal then I may support it.

      gui_m_p Yes that's right. Right now, our bond capacity is low but AKR still remains high. Adjusting bond capacities up right now is not ideal given thin premiums and there are only about 7.2M tonnes on-chain to capture into the treasury before we run out of on-chain tonnage. So the idea is that when on-chain supply growth picks up, we would be able to adjust AKR and bond capacities to capture that growth into the treasury

      omilidio In order to net slow down in expansion, we would have to burn more than a few tokens if we were to adopt this strategy while having an AKR of 800%. Also, we have to consider where the burn supply is coming from - there are two possible sources - DAO Treasury or KLIMA/Carbon LP.

      DAO Treasury - We use this source to pay builders/contributors of the project, there are only about 100K KLIMA in there. If we burn this source, we'd be burning the lifeline that sustains project builders. And builders are who we need in this bear climate.

      KLIMA/Carbon LP - Burning this source is not ideal as it goes in direct contradiction to our goal of horizontal development of the KLIMA liquidity rail which we want as a public good.

      For the above reasons, this is why we have an alternative and that is inverse bonds with USDC (currently sitting in the DAO wallet). You achieve the same effect but over a period of time and dependant on market demand. However for it to have net positive effect on the token supply, we still need to reduce the AKR drastically. Otherwise, inverse bonds would not be effective and we would be wasting precious resources from the treasury.

        @zynec made a very good point about dropping akr now, needed, versus designing a long term strategy and making sure that we have the time and the people with the best knowledge in this area to kick the wheels on the strategy until it is sound. So I support the need to drop the akr but I would like to see a strategy team really delve into the weeds and come up with the best way to implement an auto adjusting akr

          Rene exaxtly. how is klima attractive to anyone to buy atm? low apy, disaster looking chart.

          khyezr Thanks for your detailed response. I totally agree that we do not want to spend Treasure, but I'd like to emphasize that the sooner you take this kind of action the less you would need to spend. For example if we don't do it now probably we will have to do it when total supply is around 10mm. Then it will be even more expensive and less effective than using it right now or better yesterday.
          Just trying to help here, not totally against this KIP.

          And yes ok let's take AKR to 500% 🙂

          CryptoKnight absolutely, and honestly in an ideal world we would have had the time to do extensive modeling and analyze the data in more depth before proposing this new framework, but as I've explained above, market conditions forced our hand to do a major reduction sooner rather than later. Given the community's concerns raised around KIP-14 about reducing AKR outside the bounds of the KIP-3 framework, we felt we had to put forward a new reward rate framework to replace the overly-simplistic KIP-3 framework at the same time as this significant reduction.

          As a reminder, if you want to be a carbon backed CURRENCY, you need 2 things... a large supply and high liquidity. So far, we're missing on both ends. We're currently at less than 6M supply. With current rate reductions it'll take 20-30 years to reach a reasonable supply to be considered a currency. We don't have that much time. A new tech will be out in 3-5 years and this DAO will be obsolete.

          The answer can't always be, let's reduce the AKR and increase our runway. Runway won't matter if we become obsolete. We've got to do something to attract new interest and new buyers. We've got about 6 more months to become relevant, otherwise we will have missed our window of opportunity.

          I know it's hard to attract new interest in this market, I get it, but a higher interest rate certainly helps. I'll be honest, once this gets below 100% APY then I'll probably leave. Why? Because I like my chances with other cryptos. And I think there are others that feel the same way. I think many will jump ship for XRP, FLR, or others, in hopes for a 4x as opposed to this constantly falling APY.

          In short, figure out better ways to stay relevant. Constantly dropping the APY doesn't provide relevancy.

          (I'm not trying to beat down this project, I'm a holder and supporter. Just providing honest feedback).

            I think it's more or less the adopted framework model of OIP-93 where the APR is adjusted with lower and upper bound ranges. I fully support this approach for protocols long-term sustainability

            With such a drastic reduction you are likely alienating a large part of the Klima community who are genuinely here to support the project but are also trying to break even on their initial investment. The policy team needs to balance the health of the project with the impact that this will have on the existing Klima holders and attracting new ones. As many of stated above there is likely going to be an exodus if AKR reduces too much as many of us here also see it as an investment of our capital and savings. The planet is important but if Klima keeps sucking our investment down the drain I don't see how it can be relevant. There needs to be balance here to keep people invested giving them a 1-3 year timeline of where their investment is going. Yes Klima is looking at a 10+ year horizon for building a carbon currency but IMHO you need to focus on yh 1-3 year horizon to keep Klima holders bought in.

              Car54 A large supply is certainly needed but what we are saying is that the supply expansion would need to be commensurate with the tons coming on chain. So long as the on chain market grows so does klima. The current supply is 5-6 m and the number of carbons tonnes with verra are hundreds of millions so the potential to grow supply to a large amount still remains. The case for relevancy is whether or not klima can become the main market facilitator for the on chain market not how high its APY is.

              spidershad0w

              spidershad0w Yes Klima is looking at a 10+ year horizon for building a carbon currency but IMHO you need to focus on yh 1-3 year horizon to keep Klima holders bought in.

              As a team, we are aligned on that to be completely honest with you. We won't be able to see the 10th year if we don't get ourselves to the 3rd / 5th / 7 year. And this is why we have this dynamic AKR framework to chart a new path in supply expansion as opposed to our initial framework (KIP-3) that monotonically decreases AKR. The challenge right now really is the number of on-chain credits available to justify us increasing/maintaining AKR. This is why we're proposing a reduction for now to give time for the on-chain carbon market to pick up (not saying that we wait passively by the way as our partnerships/marketing/core are working ceaselessly to create opportunities for greater adoption) And when the carbon market picks up (e.g. we see growth in bridging on-chain) we could then increase AKR and bond capacity to capture that growth.

              spidershad0w The policy team needs to balance the health of the project with the impact that this will have on the existing Klima holders and attracting new ones.

              IMO all that you stated in the above are important rather than balancing one with the other. Rather than maintaining a high AKR in a bearish market, attracting new believers in a project is about working towards solid fundamentals and letting those fundamentals speak for themselves.

                Car54 The issue here is that there'll be no carbon credits to bond with at the current AKR. In other words, the # of carbon credits coming on-chain is lower than the # of $KLIMA that is being minted everyday (by bonding). AKR dictates the minting rate of $KLIMA.

                At the current AKR, considering the same rate of carbon credits coming on-chain, we'll probably run out of carbon credits to bond in 6 months or so. What do we do if there are no more carbon credits to bond?

                This is situation is unlike OHMs, as there is a massive supply of DAI, LUSD, ETH and several other "blockchain native" assets to bond as Olympus pleases. So OHM's changes to its APY is a strategy. But KLIMAs reduction is a necessity, at present. If this is not done, then in a few months, there's a risk of nothing left on-chain to bond with.

                Once we run out of carbon credits to bond with, then a treasury supporting a long runway is of no use. We'll just deplete the treasury paying rewards and treasury won't go up due to zero bonding and it all collapses.

                This proposal gives sufficient time for the #ReFi ecosystem to grow... We lower the AKR, reduce bonding capacity, take fewer carbon credits into treasury, allow for more carbon bridges to develop, allow time for more adoption & partnerships, see more investment flow into facilitating the flow of offchain to on-chain carbon credits, see the on-chain volume increase..... and then bring up the AKR