Economic Governance and Carbon Pricing in Klima 2.0

One of the core offerings of the Klima Protocol is to rationally price carbon credits in real time while also providing the liquidity required to execute trades instantly against those credits. It delivers both real-time pricing and real-time execution.

Achieving this consistently and at scale could fundamentally change the nature of carbon markets by allowing participants to access deep liquidity in real time, rather than defaulting to OTC trading models.

The Autonomous Asset Manager

Klima achieves its ambitions through its Autonomous Asset Manager (AAM) model. The AAM establishes a baseline price for different credits within the Protocol using standard supply-and-demand formulas. But it goes further: it allows users to overlay an additional layer of information through a codified token-voting mechanism.

This mechanism translates market opinions into structured data, enabling the ecosystem to price carbon credits with far more granularity than supply-and-demand dynamics alone.

At the same time, the Protocol acts as a funnel for all market data and activity within its ecosystem. Earlier on-chain experiments in carbon markets—such as Base Carbon Tonne (BCT), Nature Carbon Tonne (NCT), Universal Basic Offset (UBO), Moss Carbon Credit (MCO2), and Natural Based Offset (NBO)—tended to disperse information across multiple venues with their own market dynamics. Furthermore, they often forced the commodification (or assumed fungibility) of broad groups of different types of carbon in an attempt to build sufficient trading liquidity, but in a way that was criticised because it reduced pricing accuracy.

Klima 2.0 takes the opposite approach: it centralises, processes, and refines incoming data. It uses “carbon classes” to create smaller groups of fungible carbon credits, but remains flexible in adjusting these classes. As more credits are internalised and carbon classes are created, its ability to price different groups of credits against each other becomes increasingly granular.

This approach gives the Protocol the ability to draw on both the wisdom of the crowd—by internalising users’ perspectives—while benefitting from the strength of a unified dataset that grows more powerful as it scales.

The outputs of this pricing mechanism inform the curation of the Protocol’s carbon portfolio and guide its operations within the carbon market. Klima allows both supply- and demand-side participants to engage. On the supply side, Klima engages with project developers and traders seeking to exit positions, acquiring carbon credits from them at prices quoted by the AAM. In parallel, demand-side users can acquire carbon retirement certificates from the Protocol at the same AAM-defined rate. The Protocol’s bid and sell prices are unobfuscated, and transactions are permissionless, allowing the market to respond to Klima with the same information as any other user, at any given moment.

Opinions Matter

Carbon markets have repeatedly revealed themselves as complex and dynamic. New research, news stories, policy shifts, or regulatory updates can quickly reshape perceptions of value within certain segments of the market.

At the same time, it remains unlikely that the market will ever agree that “a tonne is a tonne.” Hundreds of millions of carbon credits are in circulation, and their prices diverge based on parameters such as vintage, methodology, registry, and geography.

This creates volatility and semi-fungibility: credits share some attributes but are not perfectly interchangeable. For a nascent commodity market, this is a serious challenge. It fragments liquidity. While exchanges exist, volumes remain small, and most trading still occurs via OTC transactions, where relationship-based margins and inconsistent pricing dominate.

Web3 as a Solution

Web3 has already demonstrated its ability to build highly liquid markets for fungible tokens (i.e. assets that are perfectly interchangeable) worth billions of dollars. It has also enabled markets for non-fungible tokens (NFTs), where uniqueness drives value; though NFT markets have likely been underpinned by liquidity and speculation.

Somewhere in between lies the category of semi-fungible assets: not entirely identical, but sharing enough properties to be priced systematically. Real estate is one example: no two properties are identical, yet markets can establish relatively consistent benchmarks for rents. [1] Web3 platforms are already exploring ways to create liquidity in real estate by recognising and pricing this semi-fungibility.

Carbon credits fall squarely into this category. Klima’s AAM model acknowledges this reality and attempts to innovate in a space that resists simple categorisation, or where existing technologies cannot be applied wholesale.

Codifying Opinions

Prediction markets have been one of Web3’s breakout stories in 2025. Polymarket has shown how probabilities can be converted into real-time market prices. [2] Every new bet is an input; odds evolve on the fly. The blockchain ensures trustless transactions, immutable records, and permissionless access.

The result, in theory, is that prediction markets achieve a level of accuracy that outpaces most other forecasting methods. But this accuracy is hard—perhaps impossible—to disentangle: do markets simply predict outcomes, or do they also help create them? By drawing in liquidity and attention, platforms like Polymarket can amplify certain narratives, influencing decision-making in ways that make their forecasts more likely to materialize. In that sense, they operate as much as engines of reality as mirrors of sentiment.

The analogy is clear. Klima 2.0 aims to do for carbon pricing what Polymarket has done for predictions: codify market insights into liquid reference prices. If even a fraction of that attention and participation can be directed towards carbon markets, it could help solve persistent challenges of imperfect pricing, opacity, and illiquidity.

Pricing Carbon in Practice

The Klima Protocol is expected to launch in December 2025. The system is inherently experimental, but its aspiration is to create meaningful change in carbon market dynamics, producing more equitable outcomes for project developers, corporate buyers, and others who invest time and resources in the space.

Once launched, the Protocol will begin defining carbon prices for the assets it holds, seeking supply-side participants to offer credits, and demand-side users to procure them. Its activities are defined by smart contracts and algorithms outlined in the whitepaper—there will not be any single entity directing exactly what happens. “The market” will effectively decide the outcomes for Klima 2.0.

To better understand these dynamics, you can experiment with our interactive model to see how different supply and voting scenarios shape carbon pricing in Klima 2.0.

Example:

Suppose the protocol’s asset token, kVCM, has a market cap of 2,000,000 USD and the portfolio includes a carbon class with 20,000 tonnes of REDD+ credits. Users collectively vote with 1.60% of the kVCM tokens for this class. This makes the AAM quote REDD+ credits at 1.60 USD per tonne.

If users feel REDD+ is undervalued and the Protocol cannot compete for more credits, they can increase their votes for this class to 2.38%. The AAM then quotes 2.38 USD per tonne.

The market may respond by selling to the Protocol, which can execute instantly. If an institutional player sells an additional 10,000 tonnes of REDD+ credits, the Protocol’s holdings rise from 20,000 to 30,000 tonnes. The AAM interprets this as a supply-demand shift and purchases at 1.92 USD per tonne. After this arbitrage, the increased supply pushes the AAM price back to 1.60 USD per tonne.

In summary, the Protocol is a dynamic mechanism shaped by both user votes and supply-demand forces. By creating a system that is transparent, user-governed, and executable in real time, it seeks to increase liquidity and efficiency within carbon markets without extracting value

Participants who contribute insights are rewarded with the Protocol’s native tokens. This incentive structure encourages long-term engagement, improving Klima’s effectiveness and impact while allowing users to earn from their contributions.

The Protocol does not retain value for itself or its creators, and has no venture capital obligations. The goal is to create a level playing field where all users are transparently rewarded. By avoiding extraction for a single entity, Klima increases resilience, reduces opportunities for manipulation, and builds staying power alongside the carbon markets.

References

[1] Shorish, J. et al. (2021). A Practical Theory of Fungibility. Working Paper Series / Institute for Cryptoeconomics / Interdisciplinary Research. doi:10.57938/aa8858fc-8c01-4f2a-a858-96fd0abfc1b1

[2] Saguillo, O. et al. (2025). Unravelling the Probabilistic Forest: Arbitrage in Prediction Markets. In 7th Conference on Advances in Financial Technologies (AFT 2025). Leibniz International Proceedings in Informatics (LIPIcs), Volume 354, pp. 27:1-27:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik. doi:10.4230/LIPIcs.AFT.2025.27