Carbon Marketplace and Exchange

Trading and staking of carbon tokens backed by a trusted custodian allows liquidity to develop before full decentralization can be achieved.

Team of highly experienced carbon and energy traders. Continuation of funded proposal Block Carbon “Carbon as DeFi asset” Foundation and Standard. We bring decades of experience with on- and off-exchange trading, CEX, DEX, automated trading systems and platforms.

[IMPACT]

Long description of the Problem

Many projects on the ERC-20 standard and on other chains have failed/not performed due to one or many of the following reasons

• rushing coins to market
• lack of integration between legacy registries and blockchain tokens
• unrealistically high yield, creating an inflationary asset
• lack of investor access, onboarding problems, no KYC/AML
• lack of price discovery mechanisms, purely speculative intrinsic value and high correlation to crypto prices
• no adequate market making to suit carbon, which behaves like an energy commodity and not like a currency or bond
• inadequate use of NFT for simplicity of the sake of using NFTs
• inadequate marketing, promising a get-rich-quick scheme that is “also green”

A “regenerative” carbon economy is not just an optimistic possibility, it is a necessity. As the Wikipedia article on Carbon Prices points out, an order-of-magnitude increase of carbon prices is necessary to achieve UN climate targets. However, the gold rush mentality of the day is not matched by significant breakthroughs. Here, we sense an enormous opportunity for Cardano – it is not our style to “fail fast” but instead hit home runs with rigorous research and doing things correctly, not necessary first.

Reference: Regenerative economy and existing blockchain solutions exists on ERC-20 standard

https://klimadao.medium.com/klimadao-a-building-block-of-the-refi-economy-2124a443b043

https://coinmarketcap.com/currencies/klimadao/

Across a growing universe of tokens, NFTs and DAOs, climate-related crypto assets are already a reality. Put into a simple, utopian formula, the concept sounds like magic: invest in carbon, the price goes up, pollution stops. The Kyoto Protocol which attempted the concept between 2005-2020 under a top-down, inter-governmental UN framework, did not have the many merits of distributed ledger technology. Public awareness of climate catastrophe was much lower 20 years ago. Implementation is hard though, and some projects that built in overambitious yield promises or other inflationary features or design flaws have fared badly. Doing things the Cardano way sets our project apart through rigorous research and inclusion of a wider group of stakeholders. So this is the right time, and Cardano is the right blockchain to do this right.

Long description of the Solution

Building a vibrant, liquid carbon market the Cardano Way

• hybrid model of centralized/decentralized exchange offering both stability by proper collateralization, customer onboarding and governance while maintaining a design that allows for later transition to a fully decentralized, autonomous organization/exchange similar to “IOG Voltaire process”
• launch of a basic carbon building block asset and later a single carbon derivative to encourage trading, market making and draw liquidity
• allowing other carbon pools to list once they have sufficient size and can be modeled sufficiently to provide liquidity algorithmically 

The Challenge setting explicitly mentions how Cardano sets itself apart through its rigorous research and strives to do things correctly. It is hopefully clear from our proposed solution and the approach taken with the BlockCarbon foundation and standard that we thrive to take an inclusive, rigorous approach and create a carbon market that is distinct from yield-seeking, speculative DeFi and instead focused on fundamental price discovery and long-term appreciation of emission costs. We are targeting the highest possible levels of certification. This would allow a completely new and uncorrelated asset class with enormous growth potential over decades to emerge and critically to get built on Cardano - attracting new users and diversifying the user-base and helping grow adoptions among many corporate and individual users currently not on the blockchain.

Proof-of-Work blockchains have created much controversy among climate activists using blockchain technology and it is important to build momentum on Cardano with all its benefits over Ethereum to address the challenge.

https://www.ecowatch.com/wwf-nft-controversy-climate-impact.html

Major risk of the proposal and mitigation measures:

• Lack of progress, falling behind competing protocols: many projects fail as funds are depleted or others get to the users first. As the timeline for fighting climate change is measured in decades, and equally blockchain adoption is completely transforming financial services, we are relatively early to address the need for carbon as the building block for a new form of regenerative economy. As the Kyoto Protocol of the UN has shown, even successful and large schemes can underwhelm the expectations the world has of a lasting, fair and transparent solution to this most pressing issue of our lifetime.

• Geopolitical events and adverse business environment: compared to the previous Catalyst funds, the war in Ukraine, the disappointing economic recovery after Covid and mounting inflationary pressures present a much gloomier business outlook. The prices of many crypto currencies and NFT projects have fallen over half in value. National carbon markets have seen large volatility since the beginning of the year after rising for over a year.

• 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 an Exchange and supporting 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. https://iohk.io/en/blog/posts/2021/10/25/new-certification-levels-for-smart-contracts-on- cardano/

[FEASIBILITY]

Roadmap

Using synergies with the implementation of the BlockCarbon Standard (https://cardano.ideascale.com/c/idea/381939), we plan a 12 months roll-out from testnet token trading on day 1 to a full-fledged, albeit not yet fully decentralized marketplace with trading volume in the millions of USD equivalent on day 365.

There are 2 really important versions of the market place to manage at the same time: providing a “trading venue” for carbon offset tokens to allow a community of early adopters to develop, while launching the proper “exchange” with as many features and all the bells and whistles. Developments on the trading venue should inform and improve the development process of the exchange, while feature innovation of the pre-launch exchange will gradually be ported into the trading venue. The launch date of the exchange will then still represent a “quantum leap” in liquidity, user experience and functionality, but cause much less disruption and surprise than either version on its own.

Note that Roadmap is slightly different from KPI listed below under Auditability - here we present the strategic goals along a timeline, whereas below similar timestamps are presented with quantifiable goals for the Challenge Team reviews.

• After 2 months: Project management finalized with additional skills acquired and partnership with oracles and Cardano DeFi partners announced. Integration into BlockCarbon DeFi Standard projects.

• After 4 months: Existing and newly created carbon liquidity pools can be priced on a daily settlement basis and transactions happen on a regular basis on the "trading venue". Exchange alpha launches on testnet. Developments in this quickly emerging business landscape can be responded to and adjustments made using collaborators or own projects in future Catalyst fund.

• After 6 months: Research into decentralized features finalized and starting to be implemented into hybrid exchange.

• After 8 months: Trading venue starts to look a lot like a real market place, with integration of TradFi players and custodial solutions. Legal incorporation and onboarding process of exchange up and running.

• After 1 year: "trading venue" and "centralized exchange" give way to officially launched, hybrid exchange with central custodian supplying benchmark asset custody along decentralized market makers and hybrid order book. Frictionless, round-the-clock trading.

Budget breakdown

For Fund-7 we received a Community Advisor comment that "cost is also grossly underestimated". We know that creating an exchange from idea to millions of dollars worth of assets securely traded, with full-time operations and customer services would require funding to the tune of 10-20x the requested. However, Project Catalyst works differently. With successive funding rounds, the community engagement that comes with the different stages of the process and the connected Cardano ecosystem with its grants and partnerships, more cost-effective projects are possible. Including our own network of volunteers and partners, we think that around 2000 hours of highly skilled contributors are realistic with the budget requested (leveraging volunteerism and collabs 1-for-1), and that it will be sufficient to support the roadmap throughout.

Funds requested breakdown:

• 200 hours admin, marketing and project management throughout life cycle of project

@30 dollars per hour on average = $6000

• 240 hours research, testing, trading simulation and product beta

@45 dollars per hour on average = $10800

• 400 engineering hours implementation and deployment

@55 dollars per hour on average = $22000

• 60 engineering hours UI front-end design and tester engagement

@55 dollars per hour on average = $3300

• $12000 estimate for compute, network fees etc. prior to soft launch, chargeable services
• $10000 estimate for costs related to incorporation, legal and administration

TOTAL BUDGET: $64100

The BlockCarbon Team

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

Lloyd Duhon

Lloyd is owner/operator of Living Greens Urban Farm and a 25 Year IT veteran, CTO level experience. He is a graduate of the Cardano Plutus Pioneer 2nd Cohort. Experienced in leading development teams and working closely with Florida Gulf Coast University. He is contributing to the Cardano Community as Community Manager at DripDropz (https://dripdropz.io)

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

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/

Other members of BlockCarbon the foundation working on the project: 3 blockchain developers (2 for Cardano, 1 specializing in Polygon and Ethereum) based in Europe and Asia, 2 former exchange architects, TradFi inter-dealer broker, SecOps expert and finance lawyer. See more under budget how we plan to grow the team.

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 Polygon and 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.

[AUDITABILITY]

Roadmap

Using synergies with the implementation of the BlockCarbon Standard (https://cardano.ideascale.com/c/idea/381939), we plan a 12 months roll-out from testnet token trading on day 1 to a full-fledged, albeit not yet fully decentralized market places with trading volume in the millions of USD equivalent on day 365. The project can easily be audited on its own metrics - and carbon tokens can be created prior to any marketplace launch while the marketplace can list any carbon token on Cardano. See for these metrics below.

Milestones and KPIs

The existing BlockCarbon Standard is targeting 2 million dollars of TVL in carbon assets / carbon liquidity pools originated after 6 months / by September 2022. This is only one of many applications for green finance using carbon as a building block, but will be central to the exchange and gradually form the backbone of a regenerative economy. With the vote in May, we expect the trading venue to come online alongside the BlockCarbon locked projects in the third quarter.

• After 2 months: additional TVL grows to $2 million, exchange has a dedicated website and identity separate from BlockCarbon foundation and work.
• After 4 months: At least 3 carbon pools / different price indices exist and have daily price series.
• After 6 months: TVL grows to $10 million, tokens come to life officially, for example by being included on coinmarketcap etc.
• After 8 months: TVL of $20 million, 100 registered users of trading venue, integration with 2 oracles and 2 DEX from BlockCarbon partners.
• After 1 year: See above, binary outcome of successful launch and the publicity that comes with it. Carbon Exchange officially launched, hybrid CEX/DEX model with central custodian supplying benchmark asset custody along decentralized market makers and hybrid order book. Frictionless, round-the-clock trading.

Our Goals

BlockCarbon are creating a standard for creating and trading carbon tokens on Cardano. Other blockchains also had some success and a fast-growing universe of funded pools with different quality is emerging. Using a design that can stand the test of time, we plan to allow trading of carbon assets similar to trading of crypto assets. It is paramount to address the idiosyncrasies of this unique instrument. Most importantly, we need to focus on the bigger mission – be part of a technology and movement that is not disruptive, but foundational.

More on this subject by the Harvard Business Review: https://hbr.org/2017/01/the-truth-about-blockchain

Step by step, a system should emerge that does not rely on the governance, funding channels and incentive structures of the legacy financial economy. We thrive for a financial system that is inclusive, regenerative, resilient and decentralized.

There is even a chance for the community of builders creating decentralized climate solutions to entirely remake the carbon accreditation process, with new technologies like gps tracking, satellite data analysis and artificial intelligence all coming to market alongside our scalable, robust Proof-of-Stake blockchain. This marks a new era where the shortcomings of the Kyoto Protocol era are no longer necessary.

4C Data gathering

https://4c.cst.cam.ac.uk/about/observations

Guardian criticism of VCS/Verra

https://www.theguardian.com/environment/2021/may/04/carbon-offsets-used-by-major-airlines-based-on-flawed-system-warn-experts

Verra responds – Guardian dispute

https://verra.org/verra-response-to-guardian-article-on-carbon-offsets-used-by-major-airlines/

BlockCarbon was funded in Fund 7 for the “Carbon as a DeFi asset” Foundation and Open Source library. Along with its many partners and volunteers, the project is now underway to include a “carbon bridge” to mint tokens and generate best-in-class use cases for on-chain greenhouse gas mitigation projects. This proposal is a continuation of a previously funded project. https://cardano.ideascale.com/c/idea/381939

BlockCarbon is also co-proposing with DripDropz engineers to establish a ERC-20 conversion functionality that could greatly boost liquidity on the exchange by moving over existing carbon offset tokens from Ethereum and Polygon projects that fulfil the BlockCarbon standard and Cardano requirements.

https://cardano.ideascale.com/c/idea/398046

As we are competing with protocols being built on other chains backed by “years of development and millions of dollars in funding” (references), being more secure and thorough is unfortunately not going to be enough. That’s why we are asking to start a carbon market place in parallel to built the team necessary and gain the traction to propel Cardano to the forefront of a regenerative economy powered by DeFi.

SDG Rating

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.