Liquidity Design in Klima

Klima's design encourages users who hold ecosystem tokens to participate in liquidity markets via incentives. The intentio

The Role of Liquidity in Klima

Liquidity providers ensure that other ecosystem users can execute their core flows, as follows:

1. Project Developers (Sellers)

• They want to: Sell carbon credits to the Protocol at the real-time bid price

• How it works: They receive kVCM directly from the Protocol, in return for carbon

• The role of liquidity: Swap kVCM for USDC to exit the ecosystem*

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

• When they use liquidity: acquire kVCM for USDC to pay for the retirement*

_{*Note: USDC <> kVCM routing for retirements may be handled automatically by third-parties, e.g. Carbonmark}

3. Carbon Governance Participants (Depositors)

• They want to: influence Protocol carbon parameters

• How it works: Deposit kVCM or K2 into the Protocol to steer acquisition logic and market parameters

• The role of liquidity: allows them to acquire kVCM or K2 to allocate toward and vote on carbon classes

4. Governance Participants Exiting

• They want to: exit their principal position, or earned incentives.

• How it works: they de-allocate their tokens, and leave the ecosystem

• The role of liquidity: Swap kVCM or K2 for USDC through the liquidity pool

If liquidity is insufficient, users face higher slippage, unstable execution prices, and reduced ability to transact efficiently. Maintaining deep liquidity is therefore critical for the Protocol to perform its duties.

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Liquidity Design in Klima

Klima uses kVCM as the unit of economic exchange across the ecosystem. All carbon transactions with the Protocol are denominated and settled in kVCM, creating a single, standardised pricing and liquidity layer for the market.

Deep liquidity in kVCM pairs is therefore fundamental to enabling the Protocol to maintain an always-on, liquid market for carbon exchange.

The market design, leveraging kVCM as the primary liquidity token, enables the Protocol to operate capital-efficiently, without relying on AMM or order-book infrastructure, or large amounts of rented external TVL.

By reducing the operational overhead typically required to maintain market liquidity, the Protocol achieves two outcomes:

• Increased Scale: It can scale carbon markets without needing to raise or borrow substantial external capital (i.e. dollars), creating a more competitive ecosystem with reduced fees.

• Increased Value Distribution: Reduces protocol overheads, allowing value to be distributed rather than internalised, and in-turn creating a pathway for users to provide the liquidity that underpins the system.