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

Car54 sadly the reality is that in current market conditions our reward runway of approximately 150 days is worrisomely low at the current 1000% AKR target

Given the very low growth rate of the on-chain carbon market and the very low premium of KLIMA above intrinsic value, the only real option to substantially extend the reward runway is to significantly lower the target AKR.

The sooner we make this adjustment, the longer we can extend the runway. And since rebase rewards are exponential it really does get much more severe every day. We must rip the band aid off as soon as possible to ensure long term success of the protocol.

And remember: under this new framework, if the on-chain carbon market really takes off, we can always raise the AKR back up to capture that growth

    MarcusAurelius These general directions all make sense. I guess as I understand it, the short answer is that some of these parameters are not formally defined because the framework is new and may require adjustments. I'm also gathering from this that the inverse bond capacity, when/if introduced, might be large enough to justify a 66% AKR drop.

    This all sounds great, and I'm happy to err on the conservative side during these market conditions to ensure Klima's long term success.

    One last point. I think it would be good to explicitly add the following portion of your comment to @CryptoLife to the KIP: "each specific change to the target AKR made within this framework will still be put to a KIP vote". This way, we can ensure that the community will analyze and stamp the seal of approval on every proposed Policy move within this new framework.

    Totally on board. I'd even like to see the Baseline akr lower. There isn't an incredible need to expand supply rn. The protocol has plenty of carbon in its treasury. Value creation will come from organic demand for klima and underlying assets. Chop that akr!

    It is just sad that you guys are always making those huge steps, why not 800% or even 500%, but it's always huge steps, then huge price decline always after every kip where apy goes down. When is there a kip coming that will be in favour for all day 1 early investors. Do some buybacks or find some other thing to pump up the price at least. I only hear and see people being happy apy goes down, and everybody voting in favour, you probaly like losing money and never get breakeven or something. And the team always saying, price does not matter, well it does. Hey, come and invest in klima, yes our price did go down 99,8% but we are a solid project ( not saying that i don't like klima, but your are not their for your investors at all).

      I would like to know what effect equalising the runways for the DAO wallet and the rewards wallet would have on both runways. Archi mentioned in office hours that there is a healthy few years of runway on the core wallet.

        Euclid I am not familiar with the Core wallet specifics but policy largely tries to operate independent of such external factors to focus on near term/long term health. We will obviously manage reward rate for the reward distribution to last for years but reducing it too much too soon will hamper our ability to intake bonds without too much dilution.

        Rene I appreciate that the lowering of the APY is concerning, the hope with this new framework is that reductions are not necessarily permanent but change with supply and market conditions. APY could reach those heights again if the growth of tons on chain justifies it.

        Heck, why don’t we just set the interest rate to 0%… then we should be able to balance new buyers (nobody) with new carbon brought on chain.

        We’re rapidly losing interest with new investors when the rate drops every other week. (Yes, I know it doesn’t drop that often, but it feels like it).

        We haven’t even reached the 10M circulating supply yet.

        Yes, I know higher AKR just dilutes the supply and potentially lowers the price of Klima. I’m ok with that. I’m not selling anytime soon, so the current price is not important to me right now. However, collecting rewards is very important to me right now. The price will be important to me in 3-5 years. Until then, I’ll always vote for more rewards.

          Wagmi Labs ink retweeted Zeus's tweet that compares PoW and PoR (proof of reserve s); https://twitter.com/WagmiLabsInk/status/1526211787456098305?t=BnE4p_fYg895NCcXt1kH0w&s=19.
          I think this highlights brilliantly how Klimadao should work when there is not that much carbon flowing to treasure. No new carbon -> no more rewards. Who would ever bond more carbons if the protocol has already saturated it's tokenomics with rebase rewards and thous it's not that profitable for new comers to join in.. unless the APR is rised back to crazy high. I'm in favor for reducing rebase rewards. Once the in flow of carbon returns the rise the rewards back up.

          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