#3 Evolving thesis for #Refi to fix carbon markets

Mixing a ginormous problem like climate change, unseen demand for offsets and theoretically uncapped supply with a revolutionary infrastructure technology and potentially drastic political tailwinds is a pretty bad recipe for making predictions. It results in a wide range of possible outcomes. When we usually predict what going to happen next we look at the present and try to extrapolate. In the past, technologies like the automobile, computer, the internet and renewables therefore were systematically underestimated oftentimes by ignorance and even malintent to protect the status quo. But even enthusiastic inventors and insiders oftentimes did not foresee how much potential their technology could develop. This is a long way of saying: Most of my predictions below will be wrong . Nevertheless, it’s possible that some of them might be too conservative although they might sound unimaginable to some readers.

As I’m looking at the #Refi space, I am trying to understand how a new system might evolve and how some players might fit into the new landscape. I invite you to challenge my assumptions and conclusion and tell me where you think I am wrong so that I can improve my thinking.

I think the #Refi space will bring about a major shift in how we design our whole economy in our natural regenerative assets are financialized and extraction is no longer baked into our monetary system. Web3 will allow us to design fundamentally new ways of coordination and collaboration.

My thesis below will focus on how #Refi will fix the broken carbon markets over the next few years since this is where most of the #Refi projects in this space are focusing on right now. I categorize stakeholders and solution into different buckets knowing that there can be an overlap between these categories.


  • Buyers of carbon credits to offset their emissions will split into two types:
    • Type 1 buyers will focus on a portfolio of “good enough” credits to offset their emissions. Type 1 buyers will rely on brokers or marketplaces to curate the credits.
    • Type 2 buyers will buy a portfolio that consists in part of high quality credits and create stories tying the projects to their company. A bakery might buy credits from a regenerative agriculture project in their area wheres a tech startup might buy credits from new CDR technology startups that might have a significant positive impact in the future. Type 2 buyers might buy directly from projects.
    • Both types will have relatively high loyalty to their procurement channel and partner. Type 1 buyers because of their lack of sophistication and focus on the topic. Type 2 buyers because of their emotional connection to the carbon credits they buy. The friction in changing where and what to buy stems mainly from building trust in the new channel / partner
  • Apart from offsetting we will see more use cases of carbon credits that will expand the market. Global decentralized autonomous organisations (DAOs) like MakerDAO or Celo will continuously expand their exposure to natural assets and carbon credits and take credits out of the market without matching them with negative externalities.
  • All buyers will build portfolios of credits from different projects and also buy a premium in form of an insurance or buffer of credits to be able to compensate for projects that turn out to be less effective.
  • The increase of transparency, the scrutiny of rating agencies and players like carbonplan and the resulting public discourse will increase the accountability of the market and most notable the buyers. This will lead to a price collapse of low quality credits. It will further lead to more standardization about what it means to claim carbon neutrality. Sophisticated buyers are likely to lead the pack and shape these standards.
  • Furthermore these sophisticated buyers will start to bring their net zero plan on-chain by publicly tracking their current emissions, their yearly reductions and their offset portfolios. More and more carbon accounting software startups will facilitate the data bridging.

Standard bodies:

  • Goodhart's law states that “when a measure becomes a target, it ceases to be a good measure”. Therefore the goalpost has to keep moving and the bar for a “good enough” credit will continuously rise just like energy effiency standards for white goods in the EU regularly rescale. This will also in part counteract the adverse selection.
  • Legacy standard bodies like Verra and Gold standard have proven to be ineffective in designing good standards. Their counter statements to criticism shows their inability to reflect and adapt sufficiently and quickly enough. Their cumbersome analog processes are being recognized as a key roadblock in scaling carbon credits. That’s why their relevance will quickly fade as better standards emerge.
  • Better standards will be created by new digital first entities that focus on specific project types e.g. the reduction of nitrogen in regenerative agriculture. Standards will also be co-created by highly sophisticated buyers. Stripe climate is a prime example. They allow their customers to offset through their curated carbon removal portfolio. Due to their positioning as payment infrastructure provider they’ve got a big lever to establish their standard rapidly.
  • Nature based solutions will continue to be the biggest part of the supply side. Their co-benefits can create vastly higher value than their CO2 credits even at prices of 100$/tCO2e. Standards need to be highly specific to account for these and enable project to monetize their co benefits e.g. through public co-funding, collateral for green money.
  • The best standards will be updated every two to five years in consideration of Goodhart’s law.
  • A decentralized meta-registry will consolidate legacy and new registries and become the defacto standard.


  • The supply side of higher quality carbon credits will not be able to meet the rapidly increasing demand. Therefore market forces are on the supply side and there are high incentives to develop more projects.
  • Carbon projects will chose the channel that is economically most attractive. This goes beyond a high price for their carbon credits into the timing of the payment. Carbon purchase agreements (CPA) will become the norm since it reduces price risks and locks in partnerships over a longer time frame. Upfront financing will be another tool to attract suppliers and create projects that would not have been possible without it.
  • The barriers to enter the market must be as low as possible while recognizing the quality of the project. This favours new, specialized, digital first marketplaces and MRV solutions.
  • The friction of changing the sales channel stems mainly from these barriers and the CPAs that lock-in projects over several years.
  • The majority of nature based projects will be onboarded by project developers rather than by the land stewards themselves, so platforms will try to focus on developers to increase their scaling capability
  • Some hot suppliers might be able to continue to sell directly and own the whole value chain to the customer. Still, project by project validation will mostly be done by a third party to ensure trust.

Measurement, Reporting and Validating (MRV):

  • The party doing the measurement and reporting on a project by project basis will be separate from the validating party to avoid perverse incentives
  • Measurement and Reporting will be mostly done decentralized by the project owner (I do not yet have a strong conviction on this point).
  • Validators will be tech companies focusing on a specific niche e.g. validating how much extra carbon has been stored due to advanced regenerative agriculture practices.
  • Only a few highly specialized validators per niche will dominate the respective global market due to their tech edge.
  • These tech validators will be paying local work force on the ground to do the remaining manual work e.g. taking probes, operating & maintaining drones.

Brokers and Marketplaces

  • Middlemen will try to lock-in as much supply as quickly as possible since this will be their bottleneck to grow.
  • Since validation will move to third parties and standards become more specialized middlemen have to move up- or downstream
  • Dynamic carbon pools will allow for higher liquidity. With thousands of different methodologies third party validated comparisons can allow liquid trading of carbon credits. E.g. a carbon credit from an energy efficiency project might be valued with one token and a direct air captured (DAC), permanently stored carbon credit might be valued 100 token. With a 100 token one could then either redeem 100 carbon credits from an energy efficiency project or one DAC carbon credit.
  • The winning marketplace will
    • improve MRV through separation and decentralization,
    • allow for price discovery and deep liquidity through dynamic pooling
    • increase funding opportunities for projects in terms of volume, risk, trust, duration and upfront payments
    • be linked to the leading meta registry and allow for transparency
    • have the lowest entrance barriers while ensuring quality
    • allows for a plurality of methodologies
    • allows for paying for practices instead of purely outcome based projects
    • allow for composability
    • consider additionality, permanence, risk of reversal, costs, scalability, immediacy and co-benefits for all credits


  • Rating entities, scientists and scientific entities such as carbonplan could be able to monetize with a significant equity-like upside when marketplaces offer rewards for building and reviewing methodologies. These rewards could even be retroactive.


Since I assume that trust will be the core value in carbon markets, web3 will dominate the market because of the inherent transparency and immutability which eliminates the dependency to trust a centralized party.

Furthermore, I think that web2 and web3 players need to be open to collaboration to deliver most value to their customers. Again, this favours web3 due to composability of programmable automatic contracts and the resulting speed of innovation. So the least a web2 company should do today is to understand their role in a web3 dominated future e.g. as an on- or offramp of data as well as customer specific interfaces and solutions. A MRV web2 company for example could participate in the open forest protocol or regen network or any superior protocol for their vertical by validating the projects on chain.

I think the highest most value can be captures by protocols, which are able to bring the different parties together (e.g. Regen) as well as in companies developing carbon removal technologies and vertically integrate as much as the market allows.

How fast we will see a shift of legacy institutions to web3 will depend on how much tangible impact the web3 native projects like Celo and MakerDAO can achieve in the short-term. But even more important is the validation by thought-leaders like Stripe and Microsoft that will bring legitimacy to this young experimental space. A country move like El Salvador for Bitcoin might further accelerate the adoption.

If you are still skeptical how fast things can go, remember how the world came to a complete halt two years ago because of a virus that ended up killing less than one per mille of the world population. We have the capability to adapt drastically and rapidly.

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