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Enter the Carbon Market with Klima DAO

We recently wrote an article about Olympus DAO and DAOs in general where we mentioned that Olympus has been the backbone for many forks. One of these forks is Wonderland.Money which you can check out in our Blog. In recent months, a new DeFi project in the Olympus DAO-fork block – Klima DAO – has been generating interest as it has amassed a treasury worth over 110 million USD in under a month since its inception. So what is Klima DAO and how is it different from other Olympus forks? Well, keep on reading and you will find out the answers.

However, before we proceed, if you want to learn more about decentralized finance, DeFi 2.0 or, more about web3 development, then please visit our Blog where we have previously tackled these topics. Also, if you wish to start your DeFi project or to receive blockchain consulting, then definitely contact our team of elite developers.

We have reached a time where our economy rewards us for consuming energy, burning carbon, and polluting our environment. However, we are also in the midst of a transition to a cleaner society. Web3 will be a key catalyst for change by enabling Regenerative Finance (ReFi) to rapidly scale and align incentives between those who want to have a positive impact. As such, ReFi provides a platform for the funding of community and the public good over or in other words - projects that are expected to produce a return for the funder. In the context of KlimaDAO, ReFi refers to the environment and our climate, and how the cost of carbon can be internalized into DeFi.

What is a DAO?

Before we go on to review Klima DAO we need to clarify what is a DAO. In short, a DAO, or decentralized autonomous organization, is a system that allows people to govern themselves. Because its governance is decentralized, it operates more efficiently than traditional systems. At present, most DAOs are based and operate on the Ethereum Blockchain, however, there are other examples as well.

For a full definition of what is a DAO, please check out our recent article on DAOs here.

What is a DAO? DCVX web3 blockchain consulting
What is a DAO? A DCVX article.

What is KLIMA DAO?

Essentially, Klima DAO is a decentralized autonomous organization (DAO) and DeFi protocol that aims to drive climate action via a carbon-backed, algorithmic currency - its $KLIMA token. Its goal is to encourage emissions cuts by pushing up the price of carbon assets.

Klima DAO logo and website.
Klima DAO's logo - https://www.klimadao.finance/

Klima DAO develops infrastructure incentives that fulfill Klima DAO's manifesto, through primitives such as the KLIMA token. In fact, Klima DAO will solve the critical problems of the carbon markets: illiquidity, opacity and inefficiency. In the delivery of its objectives, Klima DAO aims to become the only and biggest disruptor of the carbon markets and to set a precedent for a new monetary system backed by carbon.

Klima DAO's vision

"To create a future where the cost of carbon to the climate is embedded into our economic system, through the creation and governance of a carbon-backed currency that aligns incentives between investors, civil society, and organizations."

Klima DAO's mission

KlimaDAO’s mission is to leverage Web3 technologies that enable coordination and mass participation within the carbon markets, and fully integrate them into the emerging economic system by delivering a few if not all of the following objectives:

  • To reward those who participate in financial activism for the climate.
  • To develop and govern a carbon-backed currency that internalizes the cost of carbon, and that functions as a counter to the existing economic system that supports the production of negative environmental externalities, including greenhouse gas emissions.
  • To provide the building blocks that enable high-impact and composable Web3-based carbon solutions.
  • To increase liquidity and activity in the voluntary carbon market (VCM) to grow demand for existing carbon projects while incentivizing the development of new high-impact projects.
  • To Reduce opacity and intermediaries within the VCM by bringing credits on chain and providing transparency and efficient price discovery.

Carbon Market Explained

We have mentioned the carbon market quite a few times already in this article. So what is the carbon market?

The carbon market is a market for trading carbon emission credits. Its main aim is to provide economic incentives for emissions reduction. Each carbon emission credit represents the reduction or removal of 1mtCO2e (1 metric tonne of CO­­­2 equivalent) from the atmosphere. This also includes carbon sequestered or avoided due to the implementation of the project. At present, two types of carbon markets exist – the mandatory (or compliance) carbon market, and the voluntary carbon market.

How Does Klima DAO Work?

So, Klima DAO is a protocol trying to drive climate action by accelerating the price appreciation of carbon assets with the KLIMA token; today, these assets refer to the carbon credits which are traded in the VCM (Voluntary Carbon Market). As discussed already, Klima DAO is a fork of the popular Olympus DAO protocol. As such, the fundamentals of its monetary and economic policy are similar, with one major difference.

While in Olympus DAO each OHM token is backed by 1 DAI, every KLIMA token is instead backed by 1 $BCT (Base Carbon Tonne) token. The Klima DAO ecosystem creates value for its community via a “virtuous cycle” of economic growth. Moreover, all economic activities that occur within the ecosystem will subsequently increase the KLIMA token supply. Consequently, KLIMA tokens can only enter circulation when BCTs are removed from circulation and locked up in the Klima DAO treasury. Therefore, scaling the projects will result in a supply of KLIMA tokens backed by BCTs that is “inversely proportional to the availability of carbon offsets” on traditional carbon markets. Moreover, by taking the carbon supply off the market to lock it in the Klima DAO treasury, the price of carbon offsets will increase, along with the price of the KLIMA token.

To better understand what is a BCT, we must now dive into another passage explaining the Toucan Protocol.

Toucan Protocol logo
Toucan protocol's logo - https://toucan.earth/

What is Toucan Protocol?

In short, Toucan Protocol is a project that brings carbon as a new building block into Web 3.0, and BCT is one of these carbon "blocks". So, how do Toucan Protocol and Klima DAO interact?

First, carbon credits are purchased on the legacy carbon market through Verra. These carbon credits are then transferred from the legacy market and moved on-chain via the Toucan Carbon Bridge. The process by which legacy carbon credits are transferred on-chain via the Toucan Protocol are as follows.

Initially, a number of carbon credits from a specific project are purchased from the legacy market. Then, these credits are transferred on-chain via the Toucan Carbon Bridge and turned into a ‘BatchNFT’ which is an NFT containing the details of the carbon sequestration or reduction project (e.g. the type, vintage, location, carbon tonnage). NFTs are not very liquid, so BatchNFTs are then fractionalized into fungible TCO2 tokens – the ‘T’ here standing for ‘toucan’, ‘tonne’, or ‘tokenized’. To learn more about this process, please visit Toucan's website.

How to participate in Klima DAO

To participate in Klima DAO, users first need to purchase BCT or KLIMA directly from SushiSwap on the Polygon network. To benefit the most from using Klima DAO, users are encouraged to obtain KLIMA via its ‘bonding’ mechanism by either depositing BCT, or the SushiSwap liquidity pool tokens BCT-USDC LP, or BCT-KLIMA LP into Klima DAO’s treasury in exchange for discounted KLIMA. Each bonding has its own discount rate depending on the treasury's demand for such assets. Similar to Olympus DAO, users benefit when they stake their KLIMA with Klima DAO to generate returns, with ~37,000% APY at time of writing. Currently, Klima DAO has managed to amass close to 10 million BCT in its treasury.

Another way to interact with Klima DAO and to earn rewards is by taking part in KLIMA staking. Participants can receive a distribution of profits as an incentive for long-term KLIMA holdings. This provides users with exposure to the increasing price of carbon. KLIMA staking rewards are proportional to the amount of KLIMA tokens in a stake and the duration of the stake. Therefore, locking up more KLIMA tokens for longer periods will result in higher compounding returns similar to Wonderland TIME.

Staking tokens with Klima DAO to earn passive income.
Staking tokens with Klima DAO to earn passive income.

For each KLIMA token in the Klima staking contract, stakers receive “sKLIMA” tokens at a 1:1 ratio. The sKLIMA token is not officially available on any cryptocurrency exchanges, making the asset largely illiquid. However, sKLIMA can be transferred between wallet addresses. Upon un-staking, users can redeem sKLIMA tokens for an equal amount of KLIMA token

Summary

  • Klima rewards those who participate in financial activism for the climate.
  • Klima DAO leverages the opportunities presented by Web3 to deliver immediate and tangible positive impacts for the climate.
  • This consists of three key mechanisms:
  1. A functioning and organized DAO that rewards high-impact contributions from the community,
  2. An incentive structure that enables the bridging of carbon assets into DeFi; incentives that are ultimately passed down the chain to carbon project developers,
  3. A DeFi 2.0 structure that rewards investors.

Through these mechanisms, Klima DAO has launched a carbon-backed currency, KLIMA. Klima DAO manages the governance of this currency. Over the coming months and years, Klima DAO will build long-lasting partnerships, increase adoption, and continue to innovate in order to position Klima as part of the solution to global warming.

So if you would like to learn more about DeFi and build your own DeFi project or receive blockchain consulting, then please feel free to contact our team of elite developers who can help you achieve great results and become the pioneer of our future. Also, if you would like to learn more about the services our company offers, then definitely check out the Services page.

For more related articles feel free to scroll down this page or visit our designated Blog page which will keep you up-to-date with the latest trends in the web3 world.

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