# Overview for Stakeholders

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Participation in the Klima Protocol does not confer ownership, profit rights, redemption rights, or claims on protocol-held carbon. Governance signals influence protocol parameters but do not create obligations, guarantees, or entitlements for participants.
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### Introduction

The Klima Protocol is open infrastructure for the carbon markets, designed to improve market outcomes through transparent, rules-based mechanics. The protocol acts as a central hub for carbon, bringing together liquidity, vote-lock governance, a user-aligned incentive model, and an accessible architecture.

The Klima Protocol is user-owned and user-governed. It charges no fees and does not retain surplus; protocol incentives are distributed according to predefined, transparent rules. All who interact with the protocol operate on the same terms.

The protocol is deployed on the Base blockchain, where all activity, pricing, settlement, and inventory state occur in real time. Carbon market participants can interact directly with the protocol, integrate with its liquidity layer, or build new applications on top of it.

### Protocol mechanics

The Klima Protocol prioritises liquidity, transparency, and coordinated participation across the carbon markets, addressing the fragmentation and opacity common in today’s OTC-dominated environment.

To achieve this, the Protocol distributes protocol incentives according to predefined, transparent rules, without retaining surplus, to participants who:

* Provide liquidity: ensuring low-slippage entry and exit for carbon users; or
* Participate in carbon pricing: determining how the protocol values different carbon classes.

User votes generate pricing signals that inform protocol parameters governing eligibility, pricing bounds, and intake limits for carbon projects as per their alignment with different classes of carbon. Carbon acquired by the protocol becomes available to buyers of retirement certificates only.

Incoming supply and retirement demand shape the inventory that is made available for retirement demand: a live, onchain reflection of market activity.

The inventory is visible at all times, allowing voters to refine future pricing parameters based on what the market supplies, retires, and how valuations evolve.

### Tokens

The Klima Protocol uses two governance tokens and interacts with a variety of tokenised carbon credits.

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Tokenomics refers to the economic model and structure surrounding a digital token within a blockchain project, encompassing aspects like total supply, distribution methods, and incentives for holders or users. It outlines how tokens are created and used to drive value, such as through staking rewards, governance voting, or transaction fees.
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#### kVCM – Portfolio & pricing

* Floating supply (starting at 20 million), expanding and contracting as carbon is acquired or retired.
* Functions as a unit of account and pricing reference for protocol-facilitated carbon retirement.
* Can be locked to signal pricing preferences and eligibility constraints.

#### K2 – Risk & capacity

* Fixed supply of 100 million, distributed programmatically as incentives.
* Can be locked to vote on system capacity & stability.

#### Carbon tokens – Underlying assets

* Tokenised representations of specific carbon credits.
* Grouped into carbon classes for efficient pricing and allocation.
* Handled by the protocol for the sole purpose of facilitating retirement when users request certificates.

#### Shared mechanics

* All carbon is priced in kVCM terms only.
* All trades settle in kVCM.
* Participants may acquire or dispose of kVCM via the kVCM<>USDC liquidity pool.
* Vote-locked kVCM and K2 and liquidity providers receive incentives.
* Incentives are the sole value distribution mechanism; there is no extraction layer.

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### Incentives

Klima distributes protocol incentives to participants who provide defined services to the ecosystem, such as liquidity provision or governance signalling, according to transparent, rules-based mechanisms.

<table><thead><tr><th width="159.571533203125">Function</th><th>Commitment</th><th>Incentives</th></tr></thead><tbody><tr><td>Time-lock kVCM</td><td>Until duration (maturity. 90- day increments.).</td><td>Variable incentive accrual, calculated daily according to protocol rules.</td></tr><tr><td>User-lock K2</td><td>48 hours.</td><td>Variable incentive distribution, calculated daily.</td></tr><tr><td>Stake liquidity</td><td>Until maturity. 90 day increments.</td><td>Variable incentive distribution, calculated daily.</td></tr></tbody></table>