• Proposals
  • KIP-24: Utilize USDC to Extend Development Runway

Summary

Reserve $1.5M of the treasury’s USDC to fund payroll and extend development runway.

Motivation

01. The DAO is significantly leaner since implementing KIP-19

The largest ongoing expense for the DAO (wallet address: 0x65a5076c0ba74e5f3e069995dc3dab9d197d995c) is the funding of payroll. This includes paying regular contributors, bounty hunters and other contractors across product, engineering, design, marketing, creative, partnerships, community, policy, operations and legal.

Figure 1

Figure 1 shows the USD-denominated payroll outflows and number of paid contributors (excluding Core Team) since inception of the DAO in October 2021. Following KIP-19, payroll in the month of April was ~$230K, which is a 38% decrease from February. Additionally, there were 54 paid contributors in April, which is 16% reduction in the same timeframe.

02. The timing of inflows and outflows presents two key sources of financial risk

Following the adoption of KIP-10, 30% of the value of assets bonded to the DAO treasury are minted as KLIMA and deposited into the DAO wallet. In the month of April, the DAO generated an average of $17.6K worth of KLIMA each day (for a total of $530K). But since contributors are paid KLIMA in values denominated in USD (which is a fixed amount), the price of KLIMA at time of payment is critical to understand.

To illustrate this point, we can consider the April pay run, which occurred on May 02, 2022 (hash: 0xdc35744270aebe5584ebe8364ad3ccbb00381a82462c06318072f15c4cb864f7). Throughout the month of April, the DAO wallet received 27,365 KLIMA from bonding inflows. At time of payment, the price/KLIMA was ~$11.32/KLIMA, despite an average price throughout April of ~$19.30. This means bonding inflows in April were only $310K, off a cost base of $230K (or 20.3K KLIMA), rather than $530K had the price remained constant throughout the month.

This example highlights the fact that we are still exposed to two key sources of financial risk. First is the risk that the KLIMA price drops just before a pay run (making payroll more expensive), and second is the risk that the amount of bonding inflows into the DAO wallet declines. While the DAO has influence over these factors, the bonding inflows and price are largely driven by the market we operate in.

03. A protracted bear market will continue putting pressure on our ability to fund payroll

Despite projected growth in the voluntary carbon market, the broader finance, cryptocurrency and technology sectors are all expected to decline in the short-medium term. In other words, it is looking more and more likely we will be entering a protracted bear market. Many will argue we are already in a bear market, and this can certainly be seen when considering the bonding inflows and price impact over time.

Figure 2

Figure 2 shows the value of the total KLIMA generated through bonding over a rolling-30 day period. The total amount of KLIMA is then multiplied by the price on each specific day to present the true USD-denominated value (thus accounting for price changes over time).

Figure 3

Figure 3 shows the compound weekly growth rate in KLIMA inflows generated through bonding. This says that for the past 6 weeks, the USD-denominated value of bonding inflows decreased by 13% week-on-week. If we are in fact already in a bear market, we should reasonably expect and prepare for continued periods of declining bonding inflows with respect to funding the DAO.

04. Our current state runway is approximately 4 months

Based on the assumption that bonding inflows continue to decline at the same rate as has been experienced over the past 42 days (i.e. - 13% week-on-week), the price of KLIMA stays constant at ~$5.50, and the current payroll bill remains constant at $230K, then we estimate the DAO (excluding Core Team) has approximately a 4-month runway.

Figure 4

Figure 4 shows the monthly balance of KLIMA in the DAO wallet (denominated in USD), net of monthly payroll expenses and bonding inflows, with the orange line showing the bonding inflows of $KLIMA (also denominated in USD).

Note, this runway calculation excludes members of the Core Team. Unlike other KlimaDAO contributors, Core members are not remunerated with KLIMA from the DAO wallet. The Core team has independent funding and a multiyear runway. If all contributors left or the DAO wallet ran dry, the Core team would carry on through even the most prolonged bear market.

05. We can make our DAO more resilient to market conditions through using USDC

As of 22 May 2022, the DAO wallet (address: 0x65A5076C0BA74e5f3e069995dc3DAB9D197d995c) holds 108K in KLIMA (~$628K) and ~$4.4M in USDC. The USDC component is owned by the treasury and comes from disbanding portions of the BCT/USDC liquidity pool from KIP-13 and KIP-18. The USDC does not contribute to the backing for KLIMA, so it is simply being held in the DAO wallet for the “cleanliness” of the DAO treasury. While the first preference is that the DAO pays its contributors solely in KLIMA, we are in a position where the runway can be extended substantially through paying in USDC.

Proposal

The DAO should be resilient in the face of prolonged periods of suppressed bonding volume and negative price impact. It is important that during these periods, the DAO continues to build new products and develop the market for ReFi. As such, we propose adjusting our compensation structure to allow for the use of USDC, in addition to KLIMA.

The adjustment would be as follows:
(1) Reserve $1.5M of USDC from the treasury for the purposes of contributor allocations;
(2) Pay contributors their monthly allocations with a combination of USDC and KLIMA; and
(3) Enable the Core Team to decide the ratio between USDC and KLIMA (initially this would be a 50:50 split)

Under the assumptions that price remains constant at $5.50 and bonding inflows continue declining by 13% week-on-week (i.e. bear market scenario), an allocation plan comprising 50:50 split between KLIMA and USDC (up to $1.5M) would extend the runway to February 2023.

Figure 5

Under this option, we extend our runway while retaining optionality with the remainder of our USDC reserves. We will be actively monitoring market conditions and our financial position over the coming months, and may re-evaluate how we fund payroll at a future date. Options for future considerations may include drawing additional USDC reserves from the Treasury or using debt-based payroll financing (amongst other options).

With the additional runway provided by the USDC reserves, and a significantly leaner and more focused team, we believe we are in an extremely strong position to execute on our product and market development roadmap while weathering any storms that might be ahead of us.

Polling Period

The polling process begins now and will end at 12:00 UTC on 27/05/2022. After this, a Snapshot vote will be put up at 14:00 UTC on 27/05/2022.

Vote

This poll has ended.

    KlimaDAO is an early-stage business building an entirely new-to-market product. Like many other early stage businesses, we operate in a highly ambiguous and continuously changing environment. As the market evolves, we learn new things that inform our priorities, which makes it difficult to plan too far into the future. For the purpose of sharing a roadmap with our community, it is important that we preface it by saying things farther than 6 months out are very likely to change between now and then. Additionally, we need to present the right level that balances detail with ease of communication.

    At the highest level, we have our vision, which describes the overall direction for the business, and which we communicate continuously across all of our channels. At the most tactical level, we have our internal backlogs (for product) and CRM (for partnerships), where we write detailed spec and coordinate the delivery across design, business and engineering. In the middle, we have the key initiatives that we last presented in KIP-19 (see: https://docs.google.com/document/d/1HQZJPfi2g7xaHqiLolHOXqVtLDzwMobWHyzZRH6H0bg/edit). We believe showcasing our roadmap at the initiative-level allows us to communicate progress and direction without going into too much detail.

    To follow the progress against our roadmap, please join our office hours, read our blog, follow our socials, and of course, use the product itself!

    Cheers
    Hugh

    For it! This gives more confidence to contributors and builders of the DAO as we stay resilient through the market downturn while continuously shipping out products and services.

    I support this proposal. KlimaDAO needs to be able to survive the bear while continuing to build out new products/services.

    Definitely in support of this... the proposal is well-reasoned and supported by evidence. Any moves that make the protocol more sustainable and resilient are welcome. We're in this for the long-haul.

    Yes, without people maintaining the ship and building, we won't survive the bear market and reach the shores again.
    Happy contributors means the protocol will be looked after and carried through to the other side, until we get to a more bullish market again.
    All for it. 👍

    I think your proposal makes sense. However is the strong focus on product development correct one? What kind of products are there in the pipeline that would make a difference? Any product roadmap available for community members? I think the focus of contributor work should be to get more Klima infinity partners and preferably some real world ones who need a lot of offsetting. That would boost the business and validate the use case for onchain carbon market.

      I am strongly against this KIP. I appreciate all the effort that KLIMA contributors have put in, but until we have visibility into comp breakdown, a clear roadmap for future work, or market validation that previous work was valuable, I do not think we should be donating extra funds to the DAO contributors.

      This KIP fails to address the fact that the 16 core members could continue working on klima for 2-3 years without any of the DAO contributor funds. As such, it makes the uninformed believe that this KIP is necessary for protocol survival, which it is not.

        Overall, in favour of this proposal.

        The one change I would like to see however is a heavier weight on the split for USDC. For example something like 30:70 KLIMA to USDC instead of the current 50:50 being proposed.

        Main reason being that paying out less KLIMA per month to contributors can aid in reducing any sell pressure from those "forced" to sell KLIMA if it is a large/primary source of income and they need to money for other things. In addition, those who want more KLIMA can simply buy it with the heavier USDC portion of their allocation thus introducing more buy pressure into the market.

        Ty

          In principle in favor but I would like to see a clearly defined roadmap of the development over the next months.

            Alanos86 Yes, product development should be the primary focus. On a protocol basis Klima deliver two key DeFi-based benefits, liquidity and demand. The focus for the DAO moving forward through creating demand for the token and tokenized carbon. The way that the DAO can create demand is through further productization of tooling such as offsetting for specific use-cases and this requires product development. To the real world partners, this is being worked on and is a focus for the DAO.

            Operatingcan We will be posting a DAO budget approval which includes regular contributors and bounties following this proposal however we won't be doing a compensation break down per contributor or department. Let us know if you have questions as to why.

            Valid point on the roadmap, we can definitely help here.

            Market validation-could you please expand here?

            Unsure of where you're getting 16 core members but as you have been informed multiple times the Core team was funded by the early investors of the protocol. This scenario is not unique, it has been utilized for protocols such as Vesta, Redacted, Olympus and so on.

            This KIP is to provide funding to contributors to support continued development of products and services. Also it is important to note that the protocol health is very hands-on at this point and time. If all contributors up and left the protocol would spiral itself toward an unsustainable and inevitably bad predicament.

              Joel_ Ultimately it's better for utilization of KLIMA than USDC, one counter point is the use of the USDC for inverse bonding.

                I'm in favour of extending runaway for devs, but as I posted on discord the KIP projections appeared to be way off. In May, even with zero premium, we bonded 200+ base tonnes of carbon. For revenue to be only 22k USD in September, the bonding should be just 20k tonnes per month according to my calculations, a 90% decrease. Seems very unlikely.

                Also, as I suggested, inverse bonds should have the 30% for DAO wallet too, to not cut devs revenue.

                  json Market validation as in investors want to buy the token. I thought 16 was the # of core members, sorry if it was wrong. Happy to edit my comment with the correct #.

                  We should have visibility BEFORE budget changes, not after.

                    Really would like to see a public facing comprehensive roadmap, a retrospective of efforts thus far, and dashboard of payments made to contributors/core.

                    Good luck.

                      Operatingcan budget hasn't changed! We only reduced the budget due to the cuts and then moving forward we want to establish a ceiling essentially. Compensation per contributor can change month to month, depends on their schedule and

                      Investor validation-I would highly suggest everyone follow our twitter account, it posts almost daily about the value of that the DAO is building day after day for the token and it's growing ecosystem.

                        SlaptainShwirv as mentioned above, roadmap is doable however we will want to avoid extraneous exposure of alfa or deliverables that the DAO can't necessarily promise by a specific time.

                        The DAO will not be posting compensation per contributor and there will not be a dashboard at that level of granularity. It is important to note that there is a dashboard currently being built to look at the DAO treasury as a whole and how the organization navigates its runway.