KIP-45: Separate Carbonmark from KlimaDAO and fund expansion strategy

Summary

• KlimaDAO has become a cornerstone in the Digital Carbon Market since its launch in October 2021, successfully supporting the tokenization of over 25 million carbon credits and pioneering innovations in the field. However, an operational focus divergence has surfaced, with the majority of internal efforts now devoted to Carbonmark.
• The proposal aims to resolve this challenge by spinning off Carbonmark into an independent entity. This separation is intended to streamline operations and governance, allowing both KlimaDAO and Carbonmark to pursue their missions with greater focus and efficiency.
• For the initial capitalization of Carbonmark, an allocation of 3 million USDC is proposed. This budget will cover legal and administrative expenses and sustain operations for the first 18 months. Following community approval, the process of formalizing Carbonmark as an independent entity will commence.
• Through this strategic realignment, KlimaDAO seeks to concentrate on its original mandate while enabling Carbonmark to delve deeper into the Voluntary Carbon Market and bring more adoption to the DCM.
• The ultimate goal is to amplify our collective impact on global carbon reduction and mitigation initiatives by leveraging the public blockchain tech stack.

Current Challenges

KlimaDAO's central mission is facing a divergence as more than 80% of our operational focus is now on Carbonmark. Despite this focus, our engagements with the Voluntary Carbon Market (VCM) are limited due to constraints inherent in our current organizational model. Our on-chain set-up and activities, while innovative, make interacting with traditional off-chain markets cumbersome. This results in a dependency on third-party facilitators that complicates operations and dilutes our focus.

Strengths of KlimaDAO

The KlimaDAO Protocol has a clear flow through bonds and fees from liquidity pools. These flows are subject to volatility and the wider market, but have facilitated the DCM, sustained the treasury and given the DAO the financial muscle needed to continue our mission and develop technology in-house.

Future Opportunities

• The empowerment of Carbonmark through this conferment can lead to synergistic developments beneficial for the carbon markets through the continued co-development of the DCM. Furthermore, it can enable the progressing of the KlimaDAO Protocol in line with its original vision by achieving:

• Credible Neutrality: Unbundling Carbonmark will help reposition KlimaDAO as a neutral, tech-centric platform, thus potentially attracting more adoption of its governance, products and resources.

• A Further Step Toward Decentralization: Executing this proposal is aligned with KlimaDAO's ultimate objective of becoming a fully decentralized organization, which will likely make governance more efficient and responsive to the mandate given to the project from the community.

The overarching goal is to allow both KlimaDAO and Carbonmark to focus on their respective core missions without resource conflicts or governance struggles. By enacting this proposal, we can streamline our operations, facilitate focused growth, and ultimately, maximize our impact on the global carbon markets.

Carbonmark business model

Carbonmark’s core revenue stems from brokerage fees tied to trading volumes. In order to build market share and maximize transaction volume, we are currently pricing our services competitively. These brokerage fees would be distinct from the existing fee system that exists in the KlimaDAO Protocol (e.g. those that come from the Retirement Bonds). In addition to this, as we continue to build value-added features and services on the core product, we anticipate new revenue streams to open up, which may include subscription and advertising fees.

We believe that by having a commercially-incentivized ecosystem built on top of KlimaDAO's infrastructure, we can maximize the chance of success for all stakeholders involved.

Carbonmark currently aims to serve three key users within the Voluntary Carbon Market:

• Companies looking to offset their carbon footprint programmatically. Developers of carbon projects seeking direct access to buyers. Intermediary traders.
• Critical to addressing the needs of (2) and (3) are the changes we propose making as part of KIP-45, including establishing a fit-for-purpose legal entity and delivering a set of key features to enable greater accessibility to the underlying technology.
• Beyond these user groups however, we believe our addressable market extends far beyond the VCM. Extending into other environmental asset classes is high on our priority list.

Proposed Steps

1. Allocate an *additional 3 million $USDC of funding from the DAO for Carbonmark's initial capitalization. This will include $300,000 for legal and administrative costs and 2.7 million $USDC for operational expenses for the first 18 months.
2. Transfer Carbonmark’s intellectual property rights, assets, and talent to the newly created entity with a more appropriate legal structure to achieve its market aims.
3. Garner community consensus for the separation via the DAO's formal voting process

Upon receiving the community's approval, the DAO will initiate the legal processes necessary to formalize Carbonmark as an independent entity. Once complete, the Community will be informed on the steps that will be taken for Carbonmark to become fully operational.

For clarity: the proposal for 3 million $USDC requested in this KIP is for additional funding for the initial capitalization of Carbonmark. This KIP(-45) does not intend to utilize any of the pre-allocated funding per KIP-38. The remaining funds allocated in KIP-38 would therefore remain within the DAO wallet for OPEX of all remaining DAO activities (e.g. the Protocol Team operations) post the separation of Carbonmark from DAO activities.