Fungible Carbon Credits

The Foundation of Carbon Markets

Klima's approach to carbon markets involves the use of carbon pools, which are essential in creating a liquid, accessible, and efficient market for carbon credits. These pools are formed by tokenizing individual carbon projects as ERC-721 tokens, which are non-fungible tokens (NFTs), which are then aggregated into liquid ERC-20 tokens (if they satisfy the gating criteria), facilitating ease of trade and integration into the broader DeFi ecosystem. This section outlines the structure, gating criteria, and strategic importance of these carbon pools within Klima's ecosystem.

Gating Criteria for Carbon Pools

Gating criteria are designed to homogenize a heterogeneous market, bundling illiquid instruments into a deeply liquid pool of similar assets to allow for price discovery.

  • BCT (Base Carbon Tonne): Designed as the lowest common denominator of the carbon market, BCT encompasses the widest gating criteria. This broad selection is intended to make BCT a foundational building block for the carbon market, reflecting a wide array of carbon offset projects with varying methodologies and impacts.

  • NCT (Nature Carbon Tonne) and NBO (Nature-Based Offsets): These pools are more specialized, focusing on nature-based solutions and only accepting projects that adhere to certain forestry project methodologies. This focus ensures that the credits within these pools meet specific environmental standards and contribute to targeted ecological goals.

Carbon Pools and Market Dynamics

Each carbon pool incorporates a pricing mechanism to account for the age and relative value of the tonnes within it. For instance, BCT currently employs a static selective redemption fee, which is admittedly inefficient. Recognizing this, Klima plans to introduce a dynamic redemption fee structure.

This new model will adjust the fee based on the difference between the selected vintage and the oldest vintage in the pool, potentially incorporating other metrics such as off-chain market prices. This adjustment aims to more accurately capture the delta between the least desirable credit in the pool and the specific credit a user wishes to retire, enhancing market efficiency and intra-pool price discovery.

Klima has taken a significant step by purchasing ownership of the BCT contract. This move allows Klima to maintain the broad selection criteria of BCT, reinforcing its role as a cornerstone of the carbon market, while optimizing other inefficiencies. Furthermore, it opens up opportunities to create and manage additional carbon pools tailored to different project types and environmental objectives.

Strategic Importance of Carbon Pools

Carbon pools serve as the critical mechanism enabling carbon projects to access liquid markets, with AMMs acting as the pivotal market makers that address distribution challenges at scale. Through POL of these carbon pools and distribution via AMMs, Klima effectively possesses the most efficient back-office operation in environmental markets. This streamlined approach not only enhances market liquidity but also ensures that environmental assets are managed with unparalleled efficiency, driving broader adoption and impact.

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