Market Dynamics
Purchasers of BCT tokens are responsible for "pricing in" carbon to the system. Holders of KLIMA have exposure to a new type of money, backed by carbon.
The cost of BCTs over time will be based on the price of carbon in the market; as demand for carbon reduction at the macro-level increases, and the quality of carbon offset projects increases, BCT price will also increase.
The market price of the BCT tokens measures the price of carbon. All extrinsic value (i.e. $KLIMA - $BCT) is new wealth created.

Player Goals

Stakers care primarily about their KLIMA balance. While price is important in valuing their KLIMA and indicating the market's perception of Klima DAO's utility and impact, it is not the main goal in the shorter-term. KLIMA is a long-term play, and maximizing holdings is the objective of stakers.
A higher price of carbon will be achieved by increasing the quality of carbon removal projects, and creating a system for producing carbon offsets at scale. A robust system will see a higher BCT price and a higher KLIMA price.
A smart staker cares about the long-term price exploration of BCT tokens and the quality of the TCO2s flowing into the ecosystem.
Bonders care primarily about the On-chain Carbon Tonne supply and their KLIMA balance. Bonders have their KLIMA and carbon assets locked in for a period of time, but can redeem KLIMA at a better rate than a staker by relinquishing their BCTs to the treasury to lock it away indefinitely. Their carbon impact and KLIMA returns from bonding are proportional to the amount bonded.
In the case where demand is greater than supply, purchasing BCTs and bonding them for new KLIMA will be cheaper than purchasing KLIMA on the free market.

Underlying Dynamics

The initial state of BCT token is at intrinsic value, determined by the cost of the carbon in the pool.
The default state of the network and KLIMA is also at intrinsic value. After some long period of inactivity, price will always return to the intrinsic level. Contractions are conceivably only triggered by short-term liquidity crises. KLIMA holders have a guarantee that price will come back above intrinsic value eventually, so the only sellers below should be those who need a short term exit and are willing to take the extra loss.
Expansions can be triggered by an increase in staking or bonding.
An increase in staking will generally be preceded by purchases of KLIMA from the market. That increases the price of KLIMA, which allows the protocol to sell at a higher price and increases yield (in KLIMA) for stakers. That should serve to bring in more stakers and continue the cycle.
Meanwhile, the rising price of KLIMA increases the bond discount and creates capacity for new bonds (and new KLIMA to be minted). This will create new liquidity, which improves the protocol's ability to carry out sales and increases available exit liquidity.
This positive price-liquidity feedback loop should serve to create sustainable expansionary periods. However, it works both ways. Falling demand decreases staking rewards and bond capacity, causing demand to fall further. This is an unavoidable fact of systems like this; even the most established (i.e. Bitcoin) are no stranger to significant declines after periods of expansion.
But we can work to mitigate busts. Firstly, the anticipated growth in demand for carbon offsets is expected to ensure that there is demand for KLIMA and the intrinsic value will trend upwards.
KLIMA holders have a guarantee that price will come back above intrinsic value.
In the case that demand stagnates, the protocol's reserves can step in to catch the market when velocity turns too far to the downside. It does so through forward guidance (the fact that the protocol will buy lowers risk the lower we go, which can mean we don't have to buy) and by buying perpetually below intrinsic value. The treasury ensures that, although bear markets and contractions can and will occur, the protocol can never die.
See the OlympusDAO Docs (equations) for a deeper dive into the technical aspects of the underlying dynamics.
Last modified 1mo ago