35024% annual yield? Even in crypto, that’s huge. When it sounds too good to be true, it often is. How does a protocol achieve this, and how long can they sustain paying out rewards this big? Before I cover that, let’s look into the basics of this protocol.
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Klima DAO is a fork of Olympus DAO, so if you are unfamiliar with protocol-owned liquidity, I recommend checking out this great intro.
Klima DAO uses a similar concept to Olympus, but the goal is different.
Klima DAO’s goal is to accelerate the price appreciation of carbon assets. A high price for carbon forces companies and economies to adapt more quickly to the realities of climate change, and makes low-carbon technologies and carbon-removal projects more profitable.
This is such an interesting project as it goes beyond just DeFi and connects to something tangible: carbon offsets. If you don’t know much about carbon trading, it can at first be quite challenging to wrap your head around it. Essentially, Klima DAO is engaging in a voluntary market of carbon emission offsets. Businesses who don’t pollute or who capture carbon (by planting trees) can collect offsets and sell them to participants who emit carbon. By buying carbon offsets, and claiming them against their emissions, a company emitting a lot of carbon can reduce their emissions (on paper at least). Klima DAO simply tries to bring these offsets on-chain, by buying as many as they can.
These on-chain carbon offsets, in the form of tokens, have not been claimed i.e., they still have value since the token can be burned to claim it against emissions. The tokens are called BCT (Base Carbon Tonnes) and create the backing for the reserve currency: KLIMA. KLIMA is not pegged to anything; its price is defined by supply and demand.
A critical piece of infrastructure making Klima DAO possible is the Toucan Carbon Bridge:
“The Carbon Bridge allows anybody to bring their carbon offsets on-chain in a tokenized form. Tokens have multiple advantages over legacy offsets, including full transparency, programmability, fractionalization, and composability with the emerging DeFi ecosystem.”
The Carbon Bridge is what connects the real-world and DeFi, and potentially enables a DAO to have an impact on the climate. Klima DAO really is a bet on more people caring about the environment. It’s a bet that more people will buy into the idea of increasing demand (and price) of carbon credits to pressure corporations into reducing carbon emissions instead of just buying and claiming offsets.
The mechanics are complicated.he chart gives the big picture view, with details per section underneath. An interactive version of the diagram can be found here.
