KlimaDAO KIP-3 Reward Rate Rationale

The Big Picture

KlimaDAO has launched the world’s first decentralized carbon-backed currency. By using carbon assets as its backing, the protocol will increase the demand and utility of the underlying BCT and any future tokens that are accepted into its treasury. This development will incentivise the development of more carbon projects, incentivise organisations to invest in carbon reduction and mitigation, and will grow this new, regenerative economy on Web3.

  1. In periods of growth, if the protocol sells 1 KLIMA for 100 BCT, since 1 BCT is needed to mint, it makes a profit of 99 BCT.
  2. In periods of contraction (when KLIMA trades below BCT), if the protocol buys back 1 KLIMA for 0.5 BCT. As it costs 1 BCT to back 1 KLIMA, and it has spent 0.5 BCT to get 1 KLIMA, it saves (or makes a profit) of 0.5 BCT.

Staking Rewards Explained

With the profits that the DAO makes from the arbitrage in the examples above, the protocol is free to reinvest through as it sees fit. During the expansionary phase, where the protocol is focused on revenue generation and treasury growth, the profits are used to mint more KLIMA to be distributed to stakers as sKLIMA. This redistribution of profits is key, as it gives the DAO the ability to expand and function as a useful, inflationary currency.

Maintaining stability

The stable or increasing backing of KLIMA by BCT that we have seen to-date (pictured below) adds stability and confidence to the protocol. This is ideal at this time given the protocol is still early stage.

KIP — 3: Good Policy Design

By marginally decreasing the reward rate through KIP-3 (pictured below), KlimaDAO can adjust its risk and moderate the daily revenue required to both retain the healthy growth that has been seen since launch and still issue attractive rewards.

  1. Reducing the reward rate decreases the overall emissions of the protocol (and the rate of inflation), ensuring each KLIMA retains its value for much longer. This makes it more attractive for other protocols to integrate with KlimaDAO as a long-term partner and lay the foundations for the on-chain carbon economy.
  2. Reducing the reward rate decreases the selling pressure from stakers, as high reward rates can make holders feel more inclined to sell their staked rewards into the market.

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KlimaDAO enables mass participation in the carbon markets and governs the development of KLIMA, an algorithmic, carbon-backed currency.

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KlimaDAO

KlimaDAO

KlimaDAO enables mass participation in the carbon markets and governs the development of KLIMA, an algorithmic, carbon-backed currency.