Carbon as DeFi Asset | BlockCarbon

Detailed Problem Statement

To fight climate change, government taxation and consumer awareness are not enough. We need a paradigm shift in financial markets and industry to rapidly incentivize emission-reducing innovation, the use of low emission fuels and carbon sinks such as reforestation on a huge scale. Cryptocurrencies have brought about tremendous change in finance – the way we think about money, invest and borrow. This was made possible by the market. Over the last decade, the price of Bitcoin has gone from $1 to $50,000, making cryptographic money arguably the hottest topic on earth and forcing reluctant governmental and corporate players to pay attention. Now those of us fortunate enough to have benefited from this revolution can help the planet by applying the same market mechanism to climate change, by making carbon emissions an investable and tradeable instrument on DeFi and push up the price. According to the Intergovernmental Panel on Climate Change, a price level of $135–5500 in 2030 and $245–13000 per ton CO2 in 2050 would be needed to drive carbon emissions to stay below the 1.5°C limit (1)(2) – right now it is between $10 and $100. This unnecessarily incentivizes a "dirty status quo" and on the other hand presents the next enormous financial opportunity for investment return. (3) By introducing yield farming to carbon markets, short-term trading of mitigation outcomes will be replaced by long-term staking and HODLing, incentivizing the origination of new offset projects.(4)

Outline of Project Goals

By making Carbon (5) offsets and emission allowances part of the growing Decentralized Finance investment universe, both sides benefit. DeFi will get access to an exciting new asset class that is likely to appreciate in value as regulation and demand from individuals and industry will result in rising prices (6)****. Climate goals will be easier to achieve if problems of current offset schemes – namely greenwashing, double counting, non-additionality, non-permanence, corruption, lack of transparency, lack of standards, low project quality in terms of realized mitigation outcome – are addressed taking advantage of smart contracts (trustless, auditable, super-fast, low-cost and automated). (7) (8)

To avoid climate catastrophe, unfortunately altruism won't be able to get the job done (9). That's where DeFi comes in, which is the ideal platform to move the needle on carbon prices - currently $5/t for voluntary aviation offsets as an example, versus the $500-$3000/t social, environmental and economic cost of carbon cited by academic research (10) . Staking yield through tokenized projects and the (badly needed) appreciation of carbon prices will prove an extremely powerful combination in our option.

**Please also read our -> FAQ (attached)**

https://cardano.ideascale.com/a/idea/381939/46187/download

User Profile / Target Demographic

There are four distinct groups that benefit from Carbon market integration into DeFi. The first group consists of energy and financial market companies eager to invest in carbon offsets or trade carbon prices. Currently, they are held back by regulation, high costs and low transparency.(11)(12) They are aware that blockchain technology could significantly improve versus the status quo and have experience with using it (13) but mostly prefer private blockchain solutions at the moment (14) . With the reputation of Cardano as thorough, secure and green, many of the companies we spoke to are ready for pilot projects if they receive guidance.

The second group is smaller carbon emission buyers and sellers, for example medium sized companies and smaller reforestation projects. These players are excluded from participating in carbon markets due to high overheads and adminstrative costs (14)(15) By pooling these buyers and sellers and matching them via Decentralized Finance, significant untapped emissions mitigation potential can be unlocked.

The third group is current DeFi "buy-side" actors, i.e. price takers (HODLers) and borrowers. Many current DeFi projects offer unsustainably high yield as their main draw, with some relying solely on a precipitously growing user base and cryptocurrency prices (15) . As the urgency for climate action manifests itself through extreme weather events and positive feedback loops, replacing free pollution with rising emission prices will create real yield and real asset appreciation, providing a much needed use case for DeFi outside the cryptocurrency ecosystem.

The fourth group is existing Cardano projects that include carbon pricing components, like carbon offsets and Project Catalyst funded projects that reduce greenhouse gas emissions. (16)(17)

Action Plan

We will identify suitable pilot projects such as industrial carbon reduction projects, reforestation and solar energy from our existing network of industry contacts to create "industry firsts" for Plutus smart contract deployment. All project code and educational content used by these pilot projects will be published in a central open source repository. We will further create a stackexchange that brings together energy market practitioners, blockchain developers and climate activists. To bring the projects together and make it attractive for new projects to join, we will provide a sandbox marketplace to integrate existing and new offset trading initiatives. At the end of the project period of six months, educational content how to tokenize carbon emissions, buy and stake carbon tokens will exist, with a code sample repository, million-dollar staked crypto and academically documented use cases (see -> Performance metrics). The end goal is to create a unified standard and toolkit that allows packaging carbon offsets into investable products available on exchanges to everyone on the planet, scaling to millions and tens of millions of people.

Marketing Plan

It will not be enough to move a few emission mitigation projects onto the Cardano blockchain. To take off as a DeFi asset, we need an active and growing marketplace. Therefore, recruiting new projects and multipliers is a core success factor. We plan to reach as many "eyeballs" as possible in relevant industries, government ministries and DeFi communities by

• volunteering articles for energy market and renewables media

• volunteering articles for decentralized and legacy finance media

• securing interviews with DeFi / crypto video channel influencers

• tweeting daily about carbon markets, climate change and DeFi

• contributing to open source communities that intersect with our projects

• network on the intersection of climate policy and blockchain

• use charitable climate Foundation to raise awareness of the project

-> See performance metrics / KPIs for more detail

Roadmap and Milestones

Enable structured tokenization, securitization of carbon; listing of fungible and non-fungible offsets and projects on Cardano within six months. See detailed roadmap, milestones and performance metrics below.

February 2022: Stackexchange, Telegram, Discord and Youtube channel live for developers in energy and DeFi. Short video intro series in quality suitable for corporate and government users. Foundation set up.

March 2022: publicity in blockchain and green finance, climate activist social media presence growing (see KPIs), onboarding new users to pilot projects. "BlockCarbon Ambassador Program" launch: active users on github, stackexchange and social media channels to be invited to share community admin and onboarding tasks.

April 2022: real world pilot projects live to use cardano smart contracts for carbon, at least one each in three of these areas: energy trading, trade finance, green finance, consumer carbon footprint tracking, voluntary carbon offset scheme, national ETS, university or NGO carbon platform, reforestation and habitat NFTs. Code samples in all these fields.

May 2022: Oracle integration of selected carbon indices and national ETS auction prices. Github code cookbook style repository for carbon market Plutus applications plus python and js bridges to deploy. Launch of prize-awarding contests boosted by ambassadors and social media channels.

June 2022: Self-learning video course how to get smart contracts in the area of carbon pricing, tracking and trading deployed on the Cardano blockchain in quality suitable for corporate and government users.

Milestone 1 : Set up Foundation, repository and gitbook and link suitable projects. Create link to DeFi via Oracle linking of carbon prices within existing universe of ETS and voluntary carbon offsets. Make it easier to use the Cardano blockchain and Plutus smart contracts for such projects and grow market share in DeFi by creating "easy wins" showcase project(s). Create rapport with IOHK / Plutus Pioneers and Cardano & Catalyst ecosystem to create united front, targeting to become the standard to bridge myriad initiatives we need to be united internally first.

Milestone 2: formalize and grow process in terms of Github repository, Gitbook best practise guide and growing KnowledgeBase, create financial and moral incentives for all stakeholders to get involved and incubate organic, collaborative open source growth from a single standard (like a microcosm of Catalyst). Launch of a Cardano Carbon Academy where developers and energy market practitioners can share and educate themselves about carbon commoditization / tokenization. Publish code cookbook.

Additional funding / scaling and building on successful project

Long term growth, future funding rounds: upon completion of successful 6 months timeline - provide foundation for dedicated frontend platform to enable trade, exchange together with donors and investors. Gain market share from Ethereum DeFi ecosystem, Tezos climate projects, "legacy" Hyperledger applications in this space and generate access to additional users from Cardano governance contacts / developing countries, Glasgow initiatives. BlockCarbon will need to create its own carbon marketplace, operate an Oracle, or create a Dapp to move from the "pioneering" stage of a few million dollars worth of carbon being tokenized to a liquid asset class. For this purpose, we plan further funding, both through IdeaScale and other venues like climate grants or ICO.

Intellectual Property

All work done by this project will be made open source and made available for free through the code library, video series and publications.

Performance Metrics

KEY PERFORMANCE INDICATORS (KPI)

• Number of real projects (multiples of metric tons carbon) onboarded: one after 2 months, three after 3 months, six after 4 months, 15 after 6 months.

• $-amount locked in carbon-linked crypto assets through our project on Cardano: non-zero (i.e. $1k) after 3 months, $100k after 4 months, $500k after 5 months, $2M after 6 months

• Partnership or collaboration with Cardano ecosystem DEXes and Oracles: at least 1 each after 3 months, 2 each after 6 months.

• Integration of carbon-blockchain DApps into BlockCarbon: 2 after 3 months, 5 after 4 months. No target for months 5 and 6 as growing amount-locked will replace need for DApp integration.

• Social media followers of BlockCarbon project across social media channels: 1000 after 2 months, 2000 after 3 months, 5000 after 6 months.

• Smart contract library, number of code examples: 3 after 3 months, 10 after 4 months, 20 after 5 months, 30 after 6 months

• Academic papers and citations: 1 after 3 months, 6 after 6 months

• Collaboration with IdeaScale community of like-minded projects: 2 after 1 months, 3 after 2 months, 4 after 3 months, 5 after 4 months, 6 after 5 months, 7 after 6 months

• Number of published articles for energy market and renewables media, decentralized and legacy finance media: 2 after 1 month, 7 after 2 months, 20 after 3 months.

• Number of interviews with DeFi / crypto video channel influencers: 2 after 4 months, 4 after 5 months, 6 after 6 months.

• Donations to our charitable climate Foundation to support deserving reforestation projects globally: $5k after 3 months, $15k after 6 months

Skills Required

The key skills to make the proposal a success will be:

• Networking skills reaching existing carbon market users (government ETS, electricity generation, industry, aviation, voluntary carbon offset providers and exchanges, carbon footprint startups and projects)

• Deep understanding of and ability to build on the blockchain: smart contracts, tokenization

• Deep understanding of DeFi ecosystem and value-chain, integrating oracles, protocols and DEXes with new carbon price indices, derivatives and tokens.

• Plutus, Haskell and Python Programming with understanding of Ethereum (Solidity, JavaScript), Hyperledger (Go, Java, JavaScript, Python) and Tezos (Michelson, Python) a plus to integrate existing carbon-blockchain DApps.

• Video content creation and edutainment skills to educate carbon market users about DeFi and vice versa

• Treasury and finance skills to stretch budget, raise funding and donations and increase credibility among industry and legacy finance users skeptical of DeFi

We are confident that the team of proposers is uniquely qualified to liaise between carbon (energy) market users and blockchain / DeFi. Our work experience covers most potential sources and sinks of carbon offsets and provides a rich network of contacts relevant to making initial onboarding of users a success. As Plutus smart contracts and Cardano DeFi are quite new, we are also in a position to contribute meaningfully to the growing body of knowledge and hopefully benefit from fruitful open source collaboration in return. Starting this project within Catalyst will hopefully showcase how teams from around the world who never worked together and would never have met otherwise can create something extremely meaningful from the ideation stage without traditional means of funding and therefore unincumbered by the conflicts of interest and politics holding back climate action in the old economy.

Detailed Proposer Profiles

Thomas Wedler

Experienced energy derivatives trader and entrepreneur. Ex Shell, Vattenfall, Masefield senior trader. Tom has been building and deploying programs for automated market making and energy derivatives since 2014. 15 years Derivatives experience at multi-national organizations working closely with industry bodies and speaker at energy market conferences and workshops. Involved in crypto trading since 2014 and DeFi/oracles since 2018.

https://www.linkedin.com/in/thomas-wedler-18960/

June Akra

Financial market expert and academic with vast experience in risk management, derivatives and commodities. Experience for various risk functions in 2 billion dollar AUM fund. Holder of Master degree in Investment with distinction and awarded Draper Prize. Certified Quantitative Finance (CQF) alumni London. Experienced video editor, content creator with combined 50,000 followers on social media, NFT collector and creator and certified python AI practitioner.

https://www.linkedin.com/in/june-a-a3a0b4174

Stefan Herde

Experienced energy market CEO, consultant, renewables and energy efficiency expert and former president of a billion dollar US Inc. Total of over 30 years of energy industry experience.

https://www.linkedin.com/in/stefan-herde-33058539/

Lloyd Duhon

Lloyd is owner/operator of Living Greens Urban Farm and a 25 Year IT veteran, CTO level experience. Cardano Plutus Pioneer 2nd Cohort. Experienced in leading development teams and working closely with Florida Gulf Coast University. Tom, June and Stefan met Lloyd through the Ideation and Refinement stages of ProjectCatalyst and plan to collaborate with his urban farming project sharing development resources.

https://www.linkedin.com/in/lloyd-duhon/

Budget Breakdown

$30,000 –> 

$10k for 3 months for development and administration, lobbying and industry meetings, adhering to charitable foundation standards and equivalent to minimum wage rates. (Months 1-2: volunteer, prep work only. Months 3-5: full-time. Months 6-12: volunteer, part-time and generation of income streams and donations to carry the project)

$15k freelance and contract developer budget

$4k cloud and media assets to support educational content and online presence, online marketing budget, to bring carbon investment to DeFi users.

$1k registration, notarisation, insurance and online presence of foundation

$0 all training, consulting, open source and project work to be done pro bono, through donations, kindness of strangers and green volunteerism

Risks Assessment

Major risk of the proposal and mitigation measures:

• Inertia / Inefficient use of time-dependent resources like human resources and IT costs: a lot of startups and projects fail due to the founders keeping themselves to themselves. We have combined forces with a proposer team we only met on Project Catalyst and chosen to present on IdeaFest and launch social media channels to create constant feedback and auditing channels and peer pressure. We will also set up a 7 member charitable foundation and use LinkedIN for networking to put this project on the "dashboard of our public lives" during and beyond the duration of the project.

• Negative Crypto Publicity and Declining ADA price: convincing carbon market users to move their precious offsets onto the Cardano blockchain will require a lot of trust, and many users have negative perception due to the 2017/2018 market volatility, early scams and unsustainable DeFi yield promises on the internet. We plan to focus early on the stability, energy-efficiency and long-term vision of Cardano Foundation, IOHK and the certification coming to Cardano DApps.

• Regulation and missing Crypto-Legacy Finance Bridges: the 2017 ICO boom and following bust has made financial market regulators aware of tokens traded on the blockchain as potential securities and a risk for retail investors under their jurisdiction. To allow for easy and universal access, cooperation with existing DeFi marketplaces on Cardano will be necessary initially. This space is evolving very quickly and we foresee a much broader universe of existing DEXes and increasing ease of listing for ADA-linked tokens. However, to mitigate the risk of adverse development, we will develop in parallel the ability to initially mint NFTs from individual carbon offset projects and build functionality to trade or surrender these against (divisible) fractional ownership of the same project and/or ADA.

• High Costs of building Exchange-, Oracle- and Staking Infrastructure: this risk does not immediately concern the project but the future prospects of growth into a dedicated trading marketplace, which is an important upside potential of the proposal. We plan to raise additional funds and donations early into the fulfilment period to this end, and will participate in open source DeFi communities to gain early access and build ahead of time to mitigate rising costs for talent, and infrastructure. The recently announced certification of Cardano DApps will further help draw funds into the project and gain critical mass for market making, dedicated developer support and cooperation with stake pool operators.

Impact Assessment

This proposal tries to bring carbon offsets and carbon trading onto Cardano Blockchain. In early stage, we will create Open Source Library to make carbon pricing more accessible and cost effective for the existing and potential users. In medium term, BlockCarbon foundation and carbon academy will not only educate public on carbon pricing standard but also serve as a community hub to exchange ideas and knowledge. With increasing user base and succesful pilot projects with blockchain industry partners (DEX) & legislators, we would securitize carbon offsets (Tokenization) and allow public to invest in carbon credits as an investable asset. We believe that providing a potential tipping point to securitisation and blockchain adoption could be a hugh addition to the advantages of the Cardano blockchain, which already prides itself being one of the greenest PoS blockchains.

Feasibility Assessment

By bringing existing industry contacts willing to try pilot projects with us, and liaising with co-proposers in the Sustainability space, the chance of project success is high. Our team are seasoned industry professionals and can sense what is still lack in the current industry practice. The real world concrete carbon market applications using blockchain-technology is still limited, despite the huge potential of this technology cited by the World Bank, the UN, and many others(Reference)

Auditability Assessment

Our roadmap and KPIs allow auditability of project success fromt start to finish. Please also see Performance Metrics section.

UN Sustainable Development Goals Impacted

https://sdgs.un.org/goals/goal13

Take urgent action to combat climate change and its impacts. By actively supporting carbon trading and pricing at the core of our proposal, we will meaningfully impact the reduction of greenhouse gases – forests will be planted and coal-fired power plants turned off if the price of carbon rises due to financialization.

See rest of the proposal for much more detail on this.

https://unfccc.int/topics/what-are-market-and-non-market-mechanisms

References

(1) https://en.wikipedia.org/wiki/Carbon_price

(2) https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Full_Report_High_Res.pdf

(3) https://www.ucl.ac.uk/news/2021/jun/ten-fold-increase-carbon-offset-cost-predicted

(4) https://unfccc.int/topics/mitigation/the-big-picture/introduction-to-mitigation

(5) https://en.wikipedia.org/wiki/Global_warming_potential

(6) https://blogs.imf.org/2021/06/18/a-proposal-to-scale-up-global-carbon-pricing/

(7) https://www.bmu.de/fileadmin/Daten_BMU/Pools/Broschueren/treibhausgasemissionen_en_bf.pdf

(8) https://theconversation.com/three-ways-blockchain-could-get-the-world-to-act-against-the-climate-crisis-139503

(9) https://hbr.org/2018/10/why-people-arent-motivated-to-address-climate-change

(10) https://iopscience.iop.org/article/10.1088/1748-9326/ac1d0b

(11) https://www.resourceworks.com/carbon-trading-obstacles

(12) https://www.unepfi.org/fileadmin/events/2007/bali/Leitmann.pdf

(13) https://consensys.net/blockchain-use-cases/energy-and-sustainability/

(14) https://www.vakt.com/

(15) https://www.reuters.com/markets/europe/decentralised-finance-cryptoassets-built-an-illusion-says-bis-2021-12-06/

(16) https://www.cardano.co.uk/cardano-and-sustainability/

(17) https://iohk.us20.list-manage.com/track/click?u=26d3b656ecc43aa6f3063eaed&id=ecc152ddf2&e=cd584020a7

https://icapcarbonaction.com/en/ets-map?etsid=43