The ReFi Revolution

The Climate Crisis

2022. Our world is breaking all kinds of unprecedented climate records. CO2, Methane and Nitrous Oxide are all at their all time highs… Just this week, it was 30 °C higher than average in the Arctic, and 40 °C in the Antarctic.

There are enormous specifics to be found in the IPCC reports. But our climate is unequivocally changing towards a more extreme and hostile environment. As an Australian, I just point to the devastating human and economic impact of extreme weather events; from La Nina influenced March 2022 Floods, and exacerbated bushfire and drought seasons.

It is easy to feel hopeless. But we have unprecedented technology and communications today which can empower us to make a difference.

A Quick Crypto Background

Crypto has become mainstream. However, the current value proposition is based on speculation that these systems provide safer stores of wealth, or provide a revolutionary new technology. Not all decentralised apps or crypto tokens can claim to fill this criteria. This is the beginning of a new economic system as global geo-politics reach fever pitch. Crypto has been seen as an easy way out, where “crypto traders want to get rich while doing nothing for civilization”. This place has become a potentially dangerous casino of the latest and greatest ponzi-tokenomics no-one understands run by an anonymous avatar.

However, this technology truly is revolutionary in open access and transparency. ‘Web 3’ technologies are developing into the amazing and beautiful beast which is available to us right now. Yet we haven’t seemed to have quite worked it out yet. Blockchain and smart contracts provide incredible solutions to problems we didn’t even know we had.

Climate Finance

Climate change is a major threat to humanity, and thus our existing economic system. A system built on extraction. Some communities, governments, organisations, individuals are waking up to this stark reality our combined future faces, and educating themselves about their own climate risk. These same groups are racing to Net 0 right now. Investors are going green, and even Greenshorting companies because of their climate credentials. Most investors don’t have an understanding of their portfolio carbon risk. Some Australian superannuation funds are listening, and they are grappling with this impossible concept of accounting corporate emissions. Demand for carbon-credits to offset emissions is orising. I’m unsure if carbon credits are the silver bullet we need, but using carbon as a tokenised resource may give rise to some interesting technologies. Many governments around the world are embracing green energy; Norway, Sweden, New Zealand to name a few green energy icons and powerhouses. Ironic as Norway is a huge oil and gas exporter. But for those countries that are too poor, slow adopters, or heavily funded through fossil fuel lobbyists, disruption through investment provides a robust solution to decarbonising the economy. There is an arms race right now for companies to prove to their investors that they are conscious of their direct or indirect emissions.

Carbon Credits

Carbon credits have been around for decades. They are typically measured as 1 metric tonne of CO2 equivalent. Carbon Credits provide solutions for polluting companies to offset their emissions by purchasing pre-sequestrated carbon from a third party. There are two types of carbon credits. Firstly “Avoided emissions” and secondly “New emissions”. Avoided emissions are where a company such a a forestry company earmarks a section of forest to be logged, changes their mind and then sells the carbon in this forest as ‘Avoided emissions’. The second type is true and real emissions, such as direct air capture, regenerative agriculture, bio-char among many other sequestration methods.

Creating and accrediting these credits is difficult. There are numerous rigorous processes such as the Verra Standard that has classified many recognised of storing and measuring the storage of atmospheric or oceanic carbon. Bridging these traditional credits onto the blockchain has been a leap in transparency and understanding of individual credits, while empowering communities to make money on their own regenerative practices.

Regenerative Finance

The German based startup (a hub for clim-tech) toucan.earth created the Base Carbon Tonne (BCT) which is a liquid reference token (not pegged) representing equivalent), which is bridged from traditional carbon credit providers such as Verra onto Polygon network through the Toucan Protocol. The ability to exchange carbon credits on-chain is the foundation to building an open and vibrant regenerative finance ecosystem, and BCT is one of the largest trading volume tokens on Polygon Network. Over 20 million tonnes of carbon credits were bridged to BCT between November 2021 and February 2022. As individuals and corporations race to Net 0, a suite of decentralised carbon exchanges and tokens have flooded onto the Crypto market in the last 12 months. There appear to be many competitors making plays in this space and only a few will survive. You can buy BCT on Sushi swap on Polygon right now as an investment. You can also borrow on your BCT at 45% Loan-To-Value. Or you can offset your own emissions by burning these credits yourself or business with a service such as Offsetra.

A flowchart of BCT (Source).

Projects such as Likividi Kredits, Creol, Nori, or BCT run by Toucan allow incredible interoperability on top of the base carbon credit. One major concern is the integrity of these credits and also their timeline. I am a bit suspicious about the credibility of the 10 year regenerative agriculture credits that Nori is offering. Many regenerative agricultural practices may only be locking carbon in the order of decades, which is untenable and these credits should be revoked.

Klima Dao, a fork of the notorious OHM, provides a service to lock BCT up, decreasing their supply and potentially creating a supply squeeze on carbon credits required to offset polluters, making companies decide between expensive carbon offsets and innovating towards lower emissions. One of the more interesting applications of blockchain carbon is the carbonized.xyz project which minted 100 ‘Genesis Stones’ for 20 BCT each. This BCT is then locked in KlimaDAO forever. Simple idea but adds interesting possibilities for using carbon backed tokens in a range of uses. To be honest, im not sure what kind of ideas people are going to come up with, besides the current purposes of offsetting emissions, collateralised for loans or investing. It will be interesting to watch this space. The ‘burning’ (destroying) these carbon tokens is going to be a key economic block in the burgeoning ReFi world. The whole purpose of burning these tokens is to to make a supply squeze to force the price of carbon up, encouraging companies to innovate to Net-0 rather than buying their way out of emissions regulations or of perceived investor risk through the use of offset credits.

These Regenerative Finance and carbon backed technologies are going to be game-changers in climate mitigation. The technology is moving quickly. Tokenised carbon is just the start. Microplastic and biodiversity credits are being discussed, among many more. The global carbon markets are only getting started. Are you listening? Whats do you think the play here is?

A Near Term Call to Action

Stablecoins, (USD equivalent tokens on the blockchain) are a key component of the crypto ecosystem, and are becoming progressively used for traditional purposed. There has been recent debate over Centralised compared to decentralised stablecoins (USDT, USDC, etc) compared to DAI (MakerDao), UST (Luna) and MIM (Abracadrabra). However there are key concerns around collatoralisation, decentralisation and the true backing.

Carbon Backed Stablecoins should be a near term priority for the ReFi community. Toucan advertises itself as carbon lego on the blockchain. We need implementations ASAP. Imagine Carbon Backed Money. What a climate revolution! Kumo Dao is trying it, but is a small community and is pretty under the radar while everyone seeks the next 10x degen twitter opportunity. Lets make some noise about carbon (and nature) backed stablecoins.

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This is the first in a series of ReFi, climate change and carbon finance articles. I plan to dox myself soon but am just developing my ideas and hoping to contribute content to this great new community. Connect with me and lets build something together :)

I’ve been bamboozled by this scene. I’m full of ideas. But I dont know anyone. If you relate to this PLEASE message me :) I’m just finishing up my PhD in climate science but am excited to get going in Carbon Finance, Regenerative Finance and Web3.

Here is some resources I found useful during my research.

The ReFi podcast by John and John (this is real confusing btw)