Protocol overview

The Klima Protocol is open, rules-based infrastructure designed to support carbon credit intake and retirement through transparent execution terms and onchain settlement.

For the mathematical specification of the Klima Protocol, see the white paper. For the technical specification, see the code on GitHub.

Participation in the Klima Protocol does not confer ownership, profit rights, redemption rights, or claims on protocol-held carbon. Carbon credits handled by the protocol may only be accessed through irreversible retirement.

Introduction

It prioritises liquidity, transparency, and coordinated participation in a market often characterised by fragmentation and bilateral negotiation.

• Provide liquidity: supporting efficient execution for carbon suppliers and retirement users; or

• Submit coordination signals: indicating preferences regarding carbon classes.

Coordination signals inform execution parameters governing intake and retirement conditions for supported carbon classes.

Carbon suppliers may supply eligible credits to the protocol when the quoted execution rate meets their preferences.

Carbon credits handled by the protocol are made available exclusively for irreversible retirement. The protocol does not facilitate secondary trading of unretired credits.

Supply and retirement activity shape the protocol’s carbon inventory: a live, onchain record of available carbon for retirement.

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Carbon Inventory

Carbon credits differ by geography, registry, methodology, technology, and vintage. The protocol groups eligible credits into defined carbon classes.

When supplied, an eligible credit is assigned to a carbon class based on its characteristics. Carbon classes may evolve over time according to protocol rules.

Within a class, credits share identical execution terms. When a retirement is requested, the quoted execution rate reflects the class parameters at that moment.

Execution parameters adjust according to observable supply, retirement activity, and coordination signals.

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Coordination layer

The protocol combines observable activity with participant signalling to update execution parameters in real time.

This is achieved through three mechanisms:

1. Standardised Unit of Account

The protocol uses kVCM as the unit of account for protocol-facilitated carbon activity:

• Execution terms are expressed in kVCM units

• kVCM is minted when eligible carbon is supplied

• kVCM is burned when carbon is retired

This mint-and-burn mechanism functions as internal accounting. It does not confer ownership rights or claims over carbon assets.

2. Supply & Retirement Dynamics

Execution rates reflect carbon inventory depth relative to observed retirement activity.

Carbon classes with lower available inventory relative to demand require more kVCM per tonne for execution. Classes with deeper inventory require less.

This ties execution terms to system state rather than discretionary input.

3. Participant signalling

kVCM holders may time-lock tokens and allocate them to specific carbon classes.

Allocations influence the relative execution terms of a class. Signal weight scales with the quantity and duration of locked tokens.

This mechanism enables parameters to be influenced without granting ownership rights, profit claims, or asset control.

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Liquidity Layer

Participants must be able to acquire or dispose of kVCM to interact with the system.

This is facilitated through decentralised liquidity pools, primarily:

• kVCM ↔ USDC

• kVCM ↔ K2

Liquidity providers deposit token pairs into decentralised pools and receive a share of conversion fees.

Liquidity positions may optionally be deposited into the protocol and become eligible for protocol-defined incentives.

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Incentive System

To encourage sustained participation, the protocol distributes native token incentives according to predefined rules.

When tokens are locked for governance signalling or liquidity participation, they become temporarily unavailable for transfer.

Incentive distribution reflects:

1. Amount and Duration

Incentive allocation increases with greater token commitment and longer lock durations, according to protocol formulas.¹

_{¹ The quantity of incentives as a function of commitment time is given in Section 3.1.1 of the Klima Protocol white paper.}

2. Relative Participation

Incentive distribution between signalling and liquidity adjusts automatically based on the proportion of tokens committed to each function.

These adjustments are rule-based and non-discretionary.

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K2 Token

While kVCM influences execution terms, K2 provides a mechanism to signal system capacity tolerance.

Participants may allocate K2 to carbon classes under short-duration locks.

Higher K2 allocations reduce the sensitivity of execution terms to new intake or retirement activity. This allows a class to accommodate greater transaction volume before execution parameters adjust materially.

K2 does not represent ownership or claims on carbon assets.

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Aerodrome Liquidity Infrastructure

Liquidity pools are implemented using Aerodrome infrastructure on Base.

Participants deposit token pairs and receive LP tokens representing pool positions.

Liquidity providers receive a share of conversion fees generated by pool activity.

LP positions may optionally be locked within the protocol and become eligible for protocol incentives according to predefined rules.