KIP-3 Introduce Policy Framework

Summary: Introduce the initial policy state of KlimaDAO and a reward rate framework to guide Policy decisions and align expectations for the community. Reduce the reward rate from 0.5% to 0.46% (22k APY%).

Motivation: When KlimaDAO first launched, we had a reward rate of 0.5%, which equates to a WPY (Weekly Percentage Yield) of 8.54%, and an APY of 37-38k%. To incentivize people to join the KLIMA ecosystem, a high APY was necessary in order to attract people to invest in the protocol in its infancy.

Since then, we’ve obtained 11.3m BCT in the treasury, with a risk free value of 2.3m. We’ve also increased our liquidity pools from 13m to 137m. We’ve opened up the DAO, so that anyone can start contributing. Policy itself is made up largely of regular contributors that aren’t part of the core team, making many of the bonding parameter decisions seen to date.

To become a carbon-backed reserve currency, two goals must be met: (1) a large supply to facilitate transactions, and (2) a large treasury in order to back each token, ensuring stability and confidence in the protocol. Our goal is to increase KLIMA’s supply over the long run and, through integrations and mass adoption, become a decentralized reserve currency backed by carbon offsets.

While expansion of the supply is one of the long term goals of KlimaDAO, doing so too quickly would be detrimental to our ability to generate revenue through bonding. In addition, as the supply increases exponentially, so does the revenue needed to maintain metrics such as the RFV/KLIMA. The Policy team must balance two types of supply emissions to ensure the long-term success of the protocol: the emissions from staking rewards and the emissions from bonding. Staking reward emissions form the majority of our supply growth, while the bonding emissions depend on many factors such as total supply, demand, and bond capacity variables set by the Policy team. While the Policy team has been actively managing the supply growth through bonding, we believe it’s time to (1) make the first adjustment to manage the supply growth occurring through staking rewards and (2) establish a framework for future adjustments to the same.

Proposal:

We propose a framework below, which gives the total supply of KLIMA, paired with the range of APY percentage we expect. Since staking reward emissions scale directly with total supply, it makes sense to base the reward rate itself off of total supply thresholds. We’ve also indicated what phase we think that the Klima protocol is in when we’re within these ranges:

Discovery (Seed) 1 - 1,000,000 KLIMA -> 50,000% - 20,000% APY

Integrations (Sprout) 1,000,000 - 10,000,000 KLIMA -> 30,000% - 2,000% APY

Adoption (Sapling) 10,000,000 - 100,000,000 KLIMA -> 3,000% - 200% APY

Stabilization (Adult) 100,000,000 - 1,000,000,000 KLIMA -> 300% - 20% APY

Maturity (Elder) 1B-100B KLIMA -> 30% - 5% APY

Brief Explanation of each phase:

Discovery: Protocol is very much in its infancy, with a single goal in mind: survive and prove itself. At this phase, we’re very isolated, with no integrations, and focused on growth.

Integrations: Protocol has reached steady state, metrics are in a healthy range, and we’ve grown enough for other projects to start integrating with us. Growth is still a focus.

Adoption: At this point, the protocol has grown significantly, with many integrations, partnerships, and protocols building on top of us. At this point, people will start to use KLIMA as the go-to carbon currency, for companies to utilize to prove their commitment to sustainability.

Stabilization: Most of the growth has been realized at this point. Mass adoption and stability have been achieved. At this point, most of the efforts are focused on stabilization, to ensure that KLIMA remains in widespread use and becomes a unit-of-account.

Maturity: The protocol has reached a state where stability is no longer a concern. At this stage, KLIMA becomes the symbol of fighting climate change and is synonymous with Carbon Credits, Sustainability, and Zero Emissions for countries.

It’s critical to note that this is a FRAMEWORK AND GUIDELINE, and should be treated as such. All reward rate changes will still go through standard governance and will require a vote. This is simply to align the expectations of the Klimates with those of the Policy team.