Liquidity Markets
Learn how Klima’s kVCM liquidity pools internalise carbon inventory, route all economic activity through a single fungible token, and let users provide the liquidity that powers the system.
Overview
Klima does not develop liquidity for carbon on external infrastructure (OTC venues, AMMs, Order Book Exchanges): the Protocol itself holds all carbon liquidity internally.
Instead, all economic activity in Klima is facilitated via the kVCM and K2 tokens, users may want to acquire tokens to interact with the Protocol, or find themselves holding tokens and wanting to exit, after interacting with it.
The Protocol therefore incentivises Liquidity Providers to contribute tokens to its trading pairs across two pools to facilitate activity:
kVCM <> USDC Liquidity Pool:
entry and exit point to the ecosystem
facilitates carbon exchange with Protocol (i.e. USDC <-> kVCM <-> Carbon)
kVCM <> K2 Liquidity Pool):
entry and exit point to K2 token
Allows LPs & voters rebalance positions
Liquidity Utilisation - Examples
Liquidity providers (and the token Liquidity Pools they contribute to) enable all core flows to be executed, as follows:
Carbon Suppliers (Sellers)
They want to: Sell carbon credits to the Protocol at the real-time bid price and leave the ecosystem with USD
How it works: They receive kVCM directly from the Protocol, in exchange for carbon
The role of liquidity: Swap the kVCM the receive in return for carbon, for USDC to exit the ecosystem*
Pool: kVCM <> USDC
2. Carbon Buyers (Retirements)
They want to: Purchase carbon retirements at the real-time purchase price
How they do it: Pay kVCM in return for a retirement certificate
When they use liquidity: Acquire kVCM for USDC to pay for the retirement*
Pool: kVCM <> USDC
*Note: USDC <> kVCM liquidity pool routing may be handled automatically by third-parties to reduce friction for users who are unfamiliar with Web3 wallet management and custody. Carbonmark will provide this service shortly after Klima's launch.
3. Carbon Governance Participants (Depositors)
They want to: Influence Protocol carbon parameters
How it works: Deposit kVCM or K2 into the Protocol to steer carbon pricing and capacity
The role of liquidity: Acquire kVCM or K2 with USDC
Pool: kVCM <> USDC & kVCM <> K2
4. Governance Participants Exiting
They want to: Exit their principal position, or earned incentives.
How it works: Tokens are de-allocated and withdrawn from the Protocol and held liquid
The role of liquidity: Swap kVCM or K2 for USDC to leave the ecosystem
Pool: kVCM <> USDC & kVCM <> K2
5. Liquidity Providers
They want to: Earn incentives for providing liquidity to the Klima Protocol.
How it works: Tokens are deposited into the Protocol's Liquidity Pools.
The role of liquidity: Allow new Liquidity Providers to enter / exit.
Pool: kVCM <> USDC & kVCM <> K2
The below diagram shows how different user groups would typically interact with the Protocol's Liquidity Pools.
Deep Dive: Liquidity Design
Klima separates liquidity into two distinct layers.
Carbon liquidity: is fully internalised: the Protocol itself holds all carbon inventory. It sets reference prices using transparent user inputs and supply-and-demand parameters, and evaluates carbon classes on a like-for-like basis.
Economic liquidity: kVCM is the Protocol’s standardised unit of account — all value exchange (i.e. carbon sales, retirements, and governance allocations) is routed through the token. This creates a unified quoting convention for carbon, and an execution layer for Protocol interactions.
Standardised, Capital-Efficient Market Structure
Standardising all economic flows through a single Protocol token simplifies routing, improves execution consistency, and creates a liquid reference price for carbon classes.
Prioritising deep liquidity in one fungible asset enables the Protocol to maintain an always-on, liquid market in service of carbon credit transactions.
Driving value exchange through kVCM, whilst maintaining carbon liquidity internally means that carbon trading itself does not need to be outsourced to external infrastructure. Avoiding the associated risks and costs across of maintaining carbon liquidity for carbon across order book infrastructure, OTC markets, and AMMs.
User-Focused Liquidity Design
Liquidity provision is one of the three core functions in Klima 2.0’s incentive distribution system (alongside kVCM and K2 time-locking). The Protocol favours user-contributed liquidity rather than external rent-seeking intermediaries, supporting a decentralised and incentive-aligned liquidity base for the ecosystem.
Intended Outcomes
Scalability: The Protocol can lean on its issuance and incentive mechanisms to scale-up liquidity and meet carbon demand without needing to raise or borrow significant external capital (i.e. carbon, dollars). This supports a more competitive ecosystem with lower structural costs.
Value distribution: Lower structural costs, with no need to payback loans or prioritise Venture Capital returns, in-turn allows value to be distributed to participants rather than internalised by the Protocol. This upholds the Protocol’s core design principle of impact over extraction.
Market Prices and USDC
USD is the dominant reference currency in carbon markets. Therefore, the only external asset that the Protocol maintains alignment with is USDC via the kVCM <> USDC pool, ensuring:
Users can interpret Protocol-level carbon pricing (quoted in kVCM) in familiar USD terms.
Correlation between Protocol tokens and high-beta crypto assets is minimised.
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