1 - KlimaDAO: An "Ohm Clone on Expert Difficulty"
We’ve been watching KlimaDAO extensively since day 1. In the discord, observing the day to day activity of klima, striving to learn the goals of KlimaDAO, how they plan on doing so, and the extent in which they want to impact the market. To say that their goals are lofty and almost impossible is an understatement.
Key word: Almost.
We’ve also researched the game theory, economics, and internal mechanisms of Olympus. Bootstrapping a currency is a very hard concept to visualize. Currency and assets sit on the opposite spectrum of money. A currency is the worst investment, and the best investment is the worst currency. What OHM shows is that it's possible to bootstrap a new unit of account, by having it shift from an asset to a currency. This allows for the ecosystem to grow in tandem with the demand of the asset, while developing a floor guaranteeing an intrinsic value for the user.
With such a new idea, it's inevitable that clones will come and mimic what Olympus wants to do. Often, these clones come without any innovation or novelty. KlimaDAO uses these mechanisms in order to develop a free floating asset that the carbon market can utilize. What we’ve noticed is that people are heavily underestimating the handicap that KlimaDAO is working on in this market. They are quite literally, fighting with their hands behind their backs.
Put more simply: Each Klima is backed by 1 BCT. Today, this value is around $5-6. Already, that makes it significantly harder for klima to mint and gain runway. Compared to OHM and Ohm clones, KlimaDAO requires 5-6 times more capital in order to back each KLIMA. A currency itself should be cheap to mint, as it promotes scalability and flexibility. At this stage, Klima does not have this luxury. To make matters worse, anything that klimaDAO does, increases the demand of BCT and carbon assets in general.
Increase bond capacity? Adds more demand onto BCT
Reduce reward rate? Klima is more scarce, reducing the rate in which BCT is being used to mint for Klima.
Add more carbon assets? Increases demand for all assets in the treasury, including BCT.
For assets backed by a stable asset, the supply expands in tandem with demand. For BCT, because of what is needed to mint it (have a carbon project, get verra certified, mint through toucan), the supply doesn’t expand as fast as demand requests. This inevitably causes a price increase, making it harder to mint KLIMA, and limits the potential it has.
When Olympus and other forks launched, they had the benefit of an robust and thriving defi ecosystem, with existing liquidity rails and demand.
When Klima launched, there was nothing built. Most if not all ReFi demand is dependent on KlimaDAO. And today, the only infrastructure in place is Toucan’s BCT. As time goes on, and more carbon assets come on-chain, such as GoddessDAO and MOSS, the dependency of BCT decreases. The demand, however, is still majorly on Klima, and we can see this with the recent price action. As a thought experiment, imagine if OlympusDAO launched in 2016, when makerDAO and other prevalent Dapps haven’t been made yet, and only ETH was the major asset on the ethereum network. It would be very hard for Olympus to grow to where it is today. KlimaDAO is in this situation today.
For KlimaDAO, we see two major changes. KlimaDAO started with a 4x larger supply than Olympus, and has a 10% DAO fee rather than a 100% DAO fee. A larger initial supply means that KlimaDAO needs more growth in order to sustain itself initially, which, like we showed before, simply doesn’t exist. The demand on day 1 was insurmountable, and the protocol in the infant stages couldn’t sustain that demand.
As for the 10% DAO fee, you may ask, “why does it matter?”. It matters because olympus and other ohm clones have a massive DAO treasury of the native asset that isn’t staked, meaning more rewards are given to the users. For olympus, almost 10% of total supply is in the DAO. Another popular fork, Wonderland, has 20% in its DAO. Klima has 2%. While APY is a vanity metric to some degree, you can’t deny the marketing value it has for the Defi community. Users are gaining greater rewards, but it can’t be felt.
Does this mean that KlimaDAO can’t succeed? We don’t think so. While klima has many barriers ahead of it, they are well positioned to achieve their goals, as the ReFi space grows. They also have advantages that even Olympus does not help, which heavily positions them in the winning position (maybe we’ll write an article about that too).
What would help them the most, is an ally that complements their goal, and assists in the creation of the Refi ecosystem.