No problem,Thank you.
Thereās a lot to process and discuss in this thread. But wanted to say here: yes, the shards are meant to interact by being bundled in the same bonded surface (N-dimensional LP token) thatās ultimately used as collateral for a reserve. Here is a system design weāre working on for the Posidonia reefs/meadows of the Mediterranean sea:
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Could you explain that design a little more? Iām curious, but not quite sure how to read it.
Assessing ecological state is key to making NFTs meaningful, but not easy, especially at a sub-national level and in a trustless manner. The United Nations periodically consolidates research and reports on global ecology as do organizations like IUCN, so they are currently the āoraclesā for the non-digital system. However, that type of data is probably too broad and infrequent to support a real-time block chain system. National and local governments also publish data, but it can be of very mixed quality and also often has inconsistent coverage.
You could set up a system whereby an entity that stewards a geographic space and mints a NFT token must bring a third-party verifier to do a site visit and perhaps a system could be set up to allow the verifier to mint a token to trigger a smart contract. We would need some way to keep the verifierās objective and honest, which is typically done through accreditation structures at the moment. Global Forest Watch is quite a powerful tool for using satellite images, but I know that it took them a few years working with academics to figure out how to convert images into reliable and automated maps of forest changes.
GFW is excellent i have used it . You can get alerts of forest destruction and fires,direct to your phone on specific parcels of land you select, I was monitoring patches of land in south america and it seemed pretty accurate.
You could also look at planet.com who do a subscription service they have the most advanced system. Most if not all charities report annually and periodically on what they do throughout the year. They also have their annual reports on line for any one to view so you could incorporate that. So you could also do that. With oceans and reefs not sure if satellite images would work.
Celo buying the land and having it independently audited once a year, is the best idea(which they are doing).But obviously you need a lot of capital.
I think it would work better as a coin instrically linked to parcels of land then an NFT unless those NFT can be used as currency. Ultimately you want people like Amazon (pardon the pun) and tesla to take them as currency as well as other business globally.Driving the value of the coin up in value for investors and also have the coin divisible(you cant do that with NFT can you?.)
You really need to get to a place were if forms part of the world economy and like banks it would not be allowed to fail. You do this by having as many stakeholders(in the business sense not crypto sense) as possible. Even people who do not invest would be stake holders in the wider sense of the word because it protects the environment.
It is ambitious and sounds crazy but most of the best ideas start out sounding crazy.
Jose are you a block chain programmer your self? as that would save you a small fortune.
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Sorry ,Jose just read your earlier post and visited your website. So, ignore the bit about asking you if you can programme block chain.
Hi all. Very interesting initiative from Celo and one I would love to be involved in. Also a great conversation thread so far. The differing view points demonstrates the fragmented and inconsistent nature of the voluntary carbon credit landscape at the moment. Differing regions also have different lenses on the topic. For example, you cannot generate credits from renewable energy projects in Australia. Only renewable energy credits. These are two different instruments.
The TSVCM, as was mentioned earlier in the thread, has a report on how to scale voluntary carbon markets and it includes spot and futures markets with very much a financial instrument lens. My understanding is that this report will be considered at Cop26.
The tokenisation of the carbon credit is a means to improve the liquidity and value of the asset by reducing market friction and incentivising creation, trading and consumption of the credits. My view is that the ecological benefit is realised at the creation of the credit rather than the retirement of the credit (which is just an accounting method determining who can claim the offset). Having said that though, the danger lies in the accumulation and subsequent release of credits with a flow on effect of reducing demand for newly created credits.
I can see a system where by an NFT is created representing a farm or parcel of land (for example) that has carbon sequestration potential. The owner of the NFT is afforded the rights to purchase the ensuing carbon credits generated from the land parcel at a discount to the market rate eg 20%. The actual carbon credits are also tokenised, traded and expired as a commodity (with an expiration date if you like). This ensures the continual consumption of the carbon credit commodity to stimulate generation of new carbon credits. An analogy might be agricultural commodities that spoil after some time and so need to be consumed before that date. As they get older they reduce in value. The holder of the NFT can trade that NFT on markets as a financial instrument akin to an equity (but without the voting rights).
On the Celo reserve (caveat, I am not well enough versed on the workings of the Celo reserve), the NFT (which have been fractionalised to promote liquidity) have tangible value based on the carbon credit generating potential of the land parcel (for example) and the market price for carbon credits. As demand for carbon credits is set to accelerate over the next 3 decades and may considerable outstrip supply (especially as the additionality factor disqualifies some projects from being classified as carbon credits over time), we can expect significant price increases in carbon credits.
Risks and challenges are the long lead times of nature based solutions to generate credits, the accounting considerations regarding permanence (ie what happens when the forest burns), the perceived impact to the Celo reserve by introducing a commodity backed asset alongside the currency backing, and a whole lot moreā¦
Love the philosophy of linking the utility of money to the protection and promotion of natural capital.
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Great discussion!. Hereās my two cents on some of the issues raised.
@papa_raw: Good points on governance and tech reqs. I think those could be added under quality and/or transparency. I also like the idea of formalising an asset on-boarding process. In a sense, this is partly covered by the reserveās RFP but would need to be extended to reflect the entire process. A risk dashboard a la MakerDAO could also be useful, need to have a closer look. One issue that I see is that with new assets you donāt really have data to put together meaningful risk metrics, i.e. you primarily end up with a āqualitativeā assessment.
@nirvaan, @Terblig, @Tsanga (and probably others): Fully agree that we shouldnāt focus exclusively on CO2. I guess we can stick to the simple āCO2ā terminology for the sake of this discussion but of course we should consider all GHG.
I also understand your concerns with voluntary carbon credits, as they are rather indirect measures to reduce carbon emissions but as @sep and others have pointed out, it is the only tradable (tokenized) NatCap that currently exists. I also agree with the view that they will likely continue to play a role as a ābuilding blockā in more complex NatCap structures.
There were some great suggestions on how to maximize effectiveness when considering voluntary carbon credits for the reserve that I think are worth summarizing:
- Standardization: Frameworks (e.g. CCP) and standards (Verra, etc.) can help to make (rather non-fungible) credits fungible. This would allow the creation of index pools (e.e. Toucan) and other aggregates, increasing overall liquidity and transparency in the market.
- No vintage: Vintage credits reflect carbon that has been removed/avoided in the past. To remove additional CO2, the focus should be on āvintage futuresā.
- Focus on removal: Avoidance credits do not necessarily decrease absolute emissions. @Terblig gave the example with solar vs coal, which could yield avoidance credits but would arguably still increase total emissions.
- Retirement of credits: a credit in year t should be retired to not āfloodā the market in year t+1 with old credits. Supply needs to remain low to encourage future removal efforts.
Some thoughts I had in this context:
- Retiring credits would probably not be an option for the reserve. While credits held by the reserve are effectively removed from the market, the reserve would need to have the possibility to sell credits if necessary. I.e. as long as the reserve is growing, it is removing credits from the market. These credits can no longer be used to offset emissions, i.e. emitters would either have to decrease emissions or find alternative offsets.
- Credits in the reserve will become āvintage creditsā eventually. I think this relates to @jose_uās point. While I understand that vintage is traded at a discount at any given time (which would suggest decaying reserve holdings), I am not sure if that necessarily implies that the reserve value decays over time. If demand for credits increases, also the price for vintage credits may increase. If demand for carbon offsets flattens out (or if supply catches up), this is of course not necessarily true.
In any case, this just reaffirms that eventually the reserve should hold other, yield-generating assets (e.g. a piece of forest that generates credits on an on-going basis) and the question is of course how to get there. I agree with Terbligās point that this is neither necessarily a new problem to solve, nor a problem that is somehow specific to web3. It is about changing market incentives so that it e.g. becomes more profitable to protect a forest than cutting it down.
Tokenizing land and other rights can help from my perspective as it may increase overall market efficiency. E.g. a forest owner would not need to engage in bilateral OTC negotiations but could sell its projects directly to a liquid carbon market. Initiatives like the Climate Collectiveās proposal for the Celo reserve can also help as they signal to the market that there is a use case for NatCaps that goes beyond carbon offsets, possibly at a large scale.
A big challenging part from my perspective is how to bridge the āreal worldā with its tokenized representation. Part of it is probably solvable through sensors and oracles (I believe this has been referred to as biomimetic market above) but there is also the question of how to involve and incentivize local communities (to put it bluntly: how to stop the bulldozer). I think itās great that the community is discussing first ideas and I think it is amazing that there are resources available (see @Markusā post above) to actually turn these ideas into reality (@Dan, @jose_u this could be interesting for you?)
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@jose_u you mentioned you are interested in tokenization (referring to Brynlyās post). Is this regarding tokenizing the NCP portfolio or regarding the tokenomics behind Loam or Regen? Happy to connect you and/or give some more context
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Look up Conservation International. They have a program running for several years that was built around trying to direct payments to local communities on the basis of their commitment to a land management program. Itās a good case study in the mechanics of how these work and also where they encounter limitations.
I thought it is becoming a reality? Hopefully this year.:
āSo how do the numbers look? The Celo reserve is currently around $850M in size. 40% of that would allow the protocol to buy and own $340M worth of newly planted rainforest to back the Celo Dollar and Celo Euro stablecoins. A plot of rainforest the size of Lebanon costs 25M dollars in the Amazon, which means that at todayās reserve size, 40% of the Celo reserve could be backed by roughly 135M large rainforest trees.ā
The xprize this year is all about carbon removal.
donāt know if you have seen this but you may find it helpful, actually it may be of interest to a few of you in this discussion.
āIf you have expertise in traditional voluntary carbon credit markets, or are otherwise engaged in climate protective work and greenhouse gas reduction and you are exploring how to tokenize assets or otherwise engage in emerging technologies, we have resources to help. Please reach out!ā
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Hey Terblig,
Youāre spot on in that monitoring of the GeoNFT is quite context-dependent and varies. For the Posidonia use-case we actually have a 50 page blog or so describing the monitoring and formulation of the sharded datatokens.
In general the above chart should be read from a cryptoeconomic perspective and not a monitoring perspective however (given the embedded complexity there).
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Could you post a link to your blog? I would be curious to take a look.
Iāll link the first part in the next two weeks. Itās not yet published! I might open a new thread for it too. Iāll be sure to tag you.
thanks @Dan. I know that some project developers keep a reserve for just such instances of loss of carbon credit through fire. The reserve is used to compensate for the losses.
Thought you mind find this interesting as celo is entering the competition.
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Thanks everyone for your feedback and answers! Iāve been giving this topic some more thought. Here are some comments on things you guys have been discussing.
@Terblig, based on your comment āThere is no value to the environment or the project owner if that credit from 2021 continues to trade back and forth from you to me to someone else. [ā¦]ā Iāve been thinking about possible changes to a tokenized land, either by action of men or climate change.
How could it be possible to penalize those who intervene in ecological areas in detriment of its regeneration? Or those who in their activities could cause an ecological benefit in one way, but harm it in another (i.e. Water consumption in agricultural land)?
As a reference, the state of California has been in the discussion about agricultural vs real estate expansion, considering this last is a powerful force. In the same line, to what extent can you make a profit or to what extent land staking is going to be more valuable than logging? Moreover, how could it be possible to control the marketās natural pressure?
@Slobodan, on your statement about the operational objective of Celo reserve, How could it be possible to maintain a decentralized and regulated system of this kind? I imagine opening these tokens to the public or regulating them just for a certain group or number of institutions.
@brynly, I agree with your comment over the need for strict certification processes to confirm all of the quantification of carbon reductions. Thus, it would be necessary to consider costs, time and accuracy to validate the tokenized land state, rather than through autonomous systems or physical visits.
How could it be possible to keep this metadata updated in blockchain, reducing the fees this would normally imply?
@slobodan and @papa_raw, as you both commented on trading and the market or currency state, whatās your perspective on tokens or credits that prove carbon, TĀŗ or CO2 reduction, among others? These can only be commercialized once in a period of time, considering the time lapse its function? Would it mean for a company who commercializes these tokens to have a certain status and eventually lose it?
Also, how could you fix the initial price of a token? How could you manipulate or regulate that price? To renovate tokens circulation, would you simply remove their liquidity, considering they could be in a DEXs? Whatās up with the general public who bought these tokens to keep in long term hold or simply speculate?
Launching a v2, v3 or v4 of a particular token every term, reflecting its ecological contribution in a period, would reduce their commercial capacity? If we aspire to commercialize this token in a CEXs, How could we keep it circulating, considering its renovation?
@nirvaan, on your comment over the potential misleading of staking, I would suggest allowing ecological tokens exchange, but to allow staking only to NFT owners, or to reduce token emission to non owners (Yield farming model with harvest lock and reduced APR).
In a way to summarize and conclude my post, I would like to reflect on @terbligās dilemma. To what extent will an intact forest be more valuable than cutting it down for different operational uses?
I think this is definitely an economic question worth asking. By now, I can think of:
- Daily, weekly or monthly lock harvesting, to get their benefits as tokens.
- A strict tracking system would be crucial to: 1) identify affected areas and update the metadata, allowing penalization. 2) Keep track of strategic land changes (i.e. Conservation land to agriculture, living places, tourism, etc).
- Calculate the possible natural resources use due to exploited registered land.
Of course, thereās still a long race to run on this matter. Nevertheless, I can definitely see VCU in reforestation.
@Dan, my team is currently working on this topic, and we have blockchain developers totally available.
@slobodan, Iād be happy to connect with you over the NCP portfolio and regarding the tokenomics behind Loam or Regen.
Best,
Jose
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