Title: Fund Allocation
In this RFC, we propose an allocation of the funds secured by the BCT-NCT mass-balance exercise. We propose that a portion of funds be allocated towards nature-based TCO2 depositors, another part as long-term NCT-USDC liquidity that uses LP rewards to burn floor carbon in the NCT and BCT pools, as well as a bounty to Toucan for coordinating the rescue operation. We hope the funds will be distributed as LP tokens, and held long-term as liquidity by the recipients so that the value continues to serve the broader ecosystem. Ultimately, this RFC invites the community to explore these and other ideas for the allocation of the funds, with the objective to serve as a foundation upon which community led RFCs are developed.
Mass balance and secured funds
When the Base Carbon Tonne (BCT) was launched, there were a large number of nature-based carbon credits deposited into the pool. Toucan is launching its new pool, Nature Carbon Tonne (NCT), exclusively for nature-based credits, and this pool will trade at a significant premium to BCT. As such, an opportunity emerged for actors to redeem these nature-based TCO2 tokens, deposit them in NCT and sell them on the market, thus actualizing a significant profit.
Prompted by actors in the market acting on this opportunity, Toucan coordinated a rescue of the remaining nature-based TCO2s from the BCT pool. These TCO2s will be deposited in the NCT pool, and the resulting NCT is planned to be used to supply liquidity on the NCT automated market maker. The LP tokens and any excess NCT received will be moved to a multisig controlled by five stakeholders.
The number of nature-based TCO2s secured amounts to 1,294,581, which results in between 2.3-2.7m$ of excess value, based on 5.86-6.20$ average cost basis and the current NCT price of 8$ (the cost basis is being finalized and we intend to calculate excess value based on the market price of NCT). Toucan has committed to let the community decide how to allocate all of the excess value.
Origin of nature-based credits
The 2012+ nature-based TCO2s that were secured were primarily deposited by Klima DAO, Moss, Regen Network and its community, with the following division based on available data:
Klima DAO: 463,825 (24.2%)
Regen Network: 271,794 (14.2%)
Moss: 600,595 (31.3%)
Others: 583,520 (30.4%)
Though Toucan would like to leave this process to the community to develop proposals for the use of funds, we have over the last weeks received a lot of feedback from the affected stakeholders and can as such provide some color on where in our view the capital should be allocated. The purpose here is to help seed ideas for other RFCs to build out more detailed proposals.
Nature-based TCO2 depositors
We agree with Klima’s statement that the actors who deposited the original nature-based TCO2s, and especially those that held onto their BCT, deserve a portion of the fund allocation. There is an open question as to how we should weigh those participants that deposited nature-based TCO2s and sold on the market/bonded to Klima, potentially for a profit, as opposed to the actors that held on to their BCT and are sitting on a loss. We believe the latter group has a better claim to rescued funds, but includes a much smaller group of participants.
We invite the community to develop an RFC, exploring these tradeoffs, digging into the on-chain data of how many participants would qualify, and proposing what portion of the funds should be allocated to this purpose.
NCT Liquidity and BCT quality improvement
This RFC also proposes that a portion of the funds be held as LP tokens in the ecosystem multisig, to act as a public good. We propose that all LP fees be used to burn the lowest quality BCT or NCT tokens. This would serve a three purposes:
- Ensuring liquidity and market function
- Raising the BCT and NCT floor and pool quality
- Burning a lot of carbon credits for the planet
We believe this proposal is highly aligned with all stakeholders in the ecosystem, especially the planet, and invite the community to develop this idea into an independent RFC, proposing how such an operation would be executed and what portion of the funds should be allocated to this purpose.
As was suggested by the Klima statement, Toucan acted as the coordinator of the rescue of these funds, and as such we suggest a portion of it be allocated to Toucan. The opportunity for us to decide what to do with these funds would not exist if Toucan did not act swiftly, spending significant efforts to coordinate and align with liquidity partners to perform the rescue, as well as set up this governance process. We invite the community to include such an allocation in future RFCs.
Suggested division of funds
We invite the community to explore and determine what a fair allocation of these funds looks like. This RFC includes a rough starting point for consideration, including a 45% allocation to nature-based TCO2 depositors, 45% to NCT liquidity that burns carbon with fees and a 10% rescue bounty to Toucan.
Hodl the LP tokens
Because the majority of secured funds are held as LP positions for the NCT AMM pools, we propose that the allocated funds be primarily distributed in the form of LP tokens, and encourage the recipients of such funds, especially major actors in the ReFi ecosystem, to commit to holding the LP tokens, as to not dump on the pool.
Together we have the opportunity to design a fair, impactful use of the value secured from the BCT pool. We would love community input on these ideas, and would love for other creative suggestions to be surfaced. By building in the open, we can find the best path forward together.