Maintaining Prices

How easily can the Klima Foundation maintaining carbon prices after launch?

Context

• Net asset value: USD

• Maximum allocated treasury-owned kVCM:

Results

Proposition 1: Large Market Cap

• “Treasury kVCM allocations must be sufficient to price carbon classes”

• Token price: 3 USD/kVCM

• kVCM market cap: 45,184,704 USD

• Treasury allocations:

  Carbon Class	tCO2eq	USD/tCO2eq	kVCM	K2
  OAE	14	700.00 $	0.022%	0 %
  BCHAR	1050	150.00 $	0.349%	0 %
  Mangrove Restoration	1063	35.00 $	0.082%	0 %
  REDD+	1107984	1.50 $	3.748%	0 %
  IFM	298455	1.20 $	0.796%	0 %
  Landfill Gas	96234	0.90 $	0.192%	0 %
  Renewables	13556768	0.15 $	4.607%	0 %
  TOTAL	15061568	0.29 $	9.796%	0 %

Proposition 2: Trust Users

• “Market cap must stay close to net asset value”

• Token price: 0.7 USD/kVCM

• Market cap: 10,543,098 USD

• Treasury allocations:

  Carbon Class	tCO2eq	USD/tCO2eq	kVCM	K2
  OAE	14	165.66 $	0.022%	0 %
  BCHAR	1050	34.98 $	0.349%	0 %
  Mangrove Restoration	1063	8.13 $	0.082%	0 %
  REDD+	1107984	0.35 $	3.748%	0 %
  IFM	298455	0.28 $	0.796%	0 %
  Landfill Gas	96234	0.21 $	0.192%	0 %
  Renewables	13556768	0.04 $	4.607%	0 %
  TOTAL	15061568		9.796%	0 %

• Treasury allocations + user allocations:

  Carbon Class	tCO2eq	USD/tCO2eq	kVCM	K2
  OAE	14	700.00 $	0.093%	0 %
  BCHAR	1050	150.00 $	1.505%	0 %
  Mangrove Restoration	1063	35.00 $	0.354%	0 %
  REDD+	1107984	1.50 $	17.252%	0 %
  IFM	298455	1.20 $	3.457%	0 %
  Landfill Gas	96234	0.90 $	0.825%	0 %
  Renewables	13556768	0.15 $	21.626%	0 %
  TOTAL	15061568	0.29 $	45.111%	0 %

Interactive Simulation

Result

1. /tCO2eq (/tCO2eq)

2. kVCM allocation needed to reach the desired price:

3. Mean carbon price: USD/tCO2eq

4. Total carbon value: USD

5. kVCM market cap: USD

6. Total kVCM allocated:

7. Treasury-owned kVCM:

Analysis

The protocol prices a carbon class based on how many tonnes of this class are held in the portfolio. Looking at three carbon classes, we observe the following:

1. To reach a desired price, each carbon class requires a different amount of kVCM allocated. The REDD+ class requires roughly 10 times more kVCM allocations than the large scale renewable class, which requires roughly 10 times more than the BCHAR class.

2. Overpriced carbon scenario: If the kVCM token price increases, the price of all carbon classes will increase. This is expected to lead to higher volumes of carbon sold to the protocol, and therefore to an increase in the total kVCM supply.

   • In an ideal scenario where the foundation would control all kVCM tokens, it would always be able to reduce the price of carbon classes by lowering its kVCM allocations.

   • If too many kVCM tokens remain allocated to an overpriced carbon class, arbitrages will cause carbon prices to slowly come back to an equilibrium as the number of tonnes in the portfolio increases.

3. Underpriced carbon scenario: If the kVCM token price decreases, the price of all carbon classes will decrease, which is expected to reduce the volume of cabon sold to the protocol, and therefore reduce the creation of new kVCM tokens.

   • Increasing kVCM allocations to underpriced carbon classes is not always possible; there is even a theoretical maximum price reached when 100% of kVCM tokens are allocated to a carbon class.

   • If not enough kVCM tokens are allocated to an underpriced carbon class, its price is only able to come back to an equilibrium if the number of tonnes in the portfolio decreases. This can happen with carbon retirements or very slowly with liquid carbon yield.

4. kVCM mint & burn cycle: If the kVCM token price oscillates, the price of all carbon classes will increase and decrease regularly.

   • If kVCM token holders are able to modify their allocations fast enough to maintain accurate carbon prices, arbitrages will be avoided.

   • If carbon is regularly overpriced, there will be a regularly creation of new kVCM tokens. This may dilute the share of kVCM tokens owned by the Klima Foundation.

Questions

1. How are carbon prices affected by the fact that the supply of kVCM tokens changes after a carbon sale and retirements?

2. How many carbon sales have to take place to significantly dilute the share of kVCM tokens owned by the Klima Foundation?