Discussion for CGP 30: Add voluntary carbon credits to the reserve

Here’s the latest on the voting for adding MCO2 to the reserve.

I have voted NO to this proposal because MCO2 moves much more like an arbitrary alt-coin than like the price of carbon credits. I think Celo should insist on including only high quality assets in the reserve.

I am surprised to see the level of support so far for this proposal given the discussion on this thread. I welcome remarks in this forum from those voting large blocks in favour.

Just catching up here after a busy week at EthCC.

I think this is a really great discussion and one that I hope we continue having. I see two general topics that are being debated:

  1. Placing an asset whose sole purpose is to be bought and burned makes little sense in a reserve.
  2. The price of MCO2 is highly correlated to the price of bitcoin and thus this change does not increase the resilience of the stability mechanism.

The first topic is interesting, because in a way, this applies even to natural capital backed tokens in a reserve. If, for example, the reserve were to one day include tokenized virgin rainforest, that rainforest would have to be sold off in the event of a contraction which would undermine the benefit of including it in the first place. I think this argument is strongest if we believe that the combined marketcap of Celo stablecoins will fluctuate immensely (or that it will go to zero one day). However, if assume relatively stable expansion as we’ve seen to-date (and as we’ve seen with other stablecoins in the market), there will always be a high water mark of stablecoin issuance that will effectively result in portions of the reserve that will never be touched again. This is particularly exciting because it effectively allows us to protect natural capital or retire carbon credit up to that high water mark without having to explicitly go out and find a source of capital for doing so.

Now this of course is only valuable if we don’t increase the risk of under collateralizing the reserve which brings me to the second point. I think the historical price of MCO2 is extremely worrying and needs to be examined. I would have expected that one would be able to redeem MCO2 directly at Moss to enable arbitragers to arbitrage away any price differences that might come about from people incorrectly speculating on the asset. I’d love to dig in to see why this is not happening.


Hi all, great discussion here, and a few thoughts.

Re: the specific concern about the volatility of cMCO2 as compared to the underlying carbon credits backing them, my instinct is that this is a consequence of two factors: (a) the difference between retail and wholesale prices of carbon, and (b) the size of the current arbitrage opportunities as compared to their overhead.

The difference between retail and wholesale prices of carbon

In many markets (including carbon markets) there is a spread between retail and wholesale prices. This spread is often volatile initially, but will typically go down and stabilize as liquidity in the retail market increases. In other words, in the early stages of tokenized carbon retail markets we should see a high spread (where retail prices are substantially higher than wholesale), and a high volatility on that spread.

This helps explain why the spot price of cMCO2 was high early on (and why the retail price of carbon through Wren, Atmosfair, etc. are similarly high). It would be natural for that price to come closer to the wholesale price over time, with some volatility in between.

The size of current arbitrage opportunities compared to their overhead

The above explains volatility above the wholesale price. What it doesn’t answer is Marek’s question: why has the price of cMCO2 now dipped slightly below the average wholesale price of carbon credits on the non-crypto voluntary carbon markets? Assuming that a cMCO2 token holder has legal ownership over the underlying carbon certificates, this should present an arbitrage opportunity, wherein buyers buy cMCO2 tokens and then sell the underlying carbon credits on the OTC (non-crypto) carbon markets at wholesale prices.

My instinct here is that this hasn’t happened because the opportunity is too small just yet; my understanding is that the total circulating supply is 200k cMCO2 tokens. Even if somebody was able to buy all the cMCO2 tokens in existence at current price in order to sell the underlying credits on the OTC markets, the profit will likely not be meaningful enough to justify the effort to do so.

All in all, I’m not too concerned about this. Provided that the reserve is buying at wholesale prices, Slobodan’s suggestion that the reserve could sell the underlying carbon credits in the worst case scenario seems like a reasonable backstop to me. And I don’t think that would be needed. As the circulating supply grows and the rewards to arbitrage opportunities increase, it’s hard for me to imagine that nobody will take them.

In other words, despite near-term dislocations, it seems to me very reasonable to believe that over time, the price of a commodity-backed token will tack to the price of the commodity that’s backing it.

One implication

It feels to me that this conversation can help to inform how the reserve purchases carbon tokens. For example, it likely makes sense for the reserve to buy new carbon issues wholesale, unless there is a price inversion (where the retail price on Ubeswap is lower than reasonable OTC comps of the basket of backing credits). It’s worth considering something like this as part of the proposal.


I think what this overall conversation is missing is some depth around the higher-level context around natural-capital backed currencies.

One can make the argument that, from a stability perspective, there are good reasons to increase the number and variety of commodity-backed tokens in the reserve, and that a 0.5% allocation to carbon feels suitably small at this stage to mitigate risk. And one can also certainly raise questions as to what are the dynamics that could impact price fluctuations in a token backed by carbon, or about what is the best form of governance for reserve allocation, etc. And these are very important conversations to have.

But these are very much helped by a framing conversation: why, broadly, would we be interested in carbon in the reserve in the first place? What is the long-term goal that we want to achieve?

I have some thoughts here; I’ll bring them up in a separate post on this thread later this weekend.


Hi @Pinotio.com , voluntary carbon credits are assets that do not expire.

Thus, they can function as a reserve of value. In fact, some may argue, carbon credits are the best existing reserve of value.

The characteristics of an asset that could function as a reserve of value are:

(a) the asset is internationally recognized (art, real estate, fiat currency, metal commodities, bitcoin/stable coins)
(b) it does not expire (art, real estate, fiat currency, metal commodities, bitcoin/stable coins)
(c) it is dollarized (transacts in dollars) (art, real estate, fiat currency, metal commodities, bitcoin/stable coins)
(d) it is liquid (fiat currency, metal commodities, bitcoin/stable coins)
(e) it is easily transactable / digital (fiat currency, bitcoin/stable coins)

Digital/crypto assets have all the characteristics above.

But so do carbon credits - and they are liquid, when one considers the global OTC market of US$ 400 million (as per Ecosystem market place survey, the most respected data source). Tokenized carbon credits, by the way, are one and the same as carbon credits - they are just digital assets / contracts (carbon credits) put on blockchain.

Carbon credits have one rare, valuable characteristic, that none of the reserves of value mentioned above have: they remunerate the work of those who avoid emissions, thus they are the only ones that are carbon negative.

And are decentralized (no single institution rules over them - the sector is self regulated, in a decentralized way). Bitcoin and any other crypto asset, although decentralized, consume energy, and thus emit carbon - the more they rise in price and consume energy, the more carbon the transactions emit, and the more pollution we have on the planet.

Tokenized carbon credits are already born (minted) having the energy and carbon emitted for their creation offset. Thus one may argue they are the ultimate reserve of value - and they attribute a pecuniary (monetary) value to the most important asset (that is unfortunately becoming more scarce daily): clean air, trees, a balanced environment.

:deciduous_tree: :evergreen_tree: :seedling: :palm_tree:

One more point: yes, they can be sold to end users (companies and individuals) that want to offset their emissions, just like any other carbon credit. cMCO2 and voluntary market carbon credits are one and the same.

They don’t expire, so one can sit on them, and eventually, if needed and under pressure, sell in bulk to demanding companies. The current price for wholesale (over 500,000 credits, vs. current supply of 200,000 cMCO2) is US$ 7.5 on average globally, according to IHS Markit survey.

cMCO2 is currently at US$ 6.00 on Ubeswap.

Dear @papa_raw and @Pinotio.com - great points and questions you raise. It is key to highlight that a carbon credit is only “burned” (retired) if so desired by the owner. It does not necessarily expire at a given date. Thus, one may hold them forever if desired - giving it a unique reserve of value characteristic. Much like wine or oil: one can hold on to them forever, and forever they will hold an internationally recognized value.

Hi @aaronmgdr , voluntary carbon credits are assets that do not expire.

Thus, they can function as a reserve of value. In fact, some may argue, carbon credits are the best existing reserve of value.

Carbon credits remunerate the work of those who avoid emissions, thus they are the only ones that are carbon negative - and they attribute a pecuniary (monetary) value to the most important asset (that is unfortunately becoming more scarce daily): clean air, trees, a balanced environment.

:deciduous_tree: :evergreen_tree: :seedling: :palm_tree:

Dear @Pinotio.com : the underlying carbon credit, the non tokenized asset, trades globally on average at US$ 7.5 according to IHS Markit Opis survey (wholesale transactions of over 500,000 credits), and according to the Gold Standard Market place, at US$ 10 to US$ 30, depending on the project, for retail quantities (between 1 and 1000).

Thus, one can now buy cMCO2 on Ubeswap at US$ 6.00, accumulate a fair quantity, and sell to any company in the world at a price that will probably be above US$ 7.00 (or maybe place for sale the credits at one of the various carbon credit market places for US$ 10-30).

The point is that there is currently a large, global, liquid corporate/wholesale market (US$ 400 million annually, and posed, according to McKinsey, to rise to US$ 50 billion by 2030) for voluntary carbon credits, and thus for cMCO2, because they are one and the same:

cMCO2 is just one carbon credit put on blockchain. :wink:

Anyone, or Celo, can buy cMCO2, and then approach a large corporate like Apple or Microsoft, or any company really, and sell them - and will probably get a higher price than cMCO2’s current price.

Hi Marek! One would not need to “redeem” credits at Moss, since cMCO2 and MCO2 are one and the same as carbon credits. And they do not expire. So arbitrageurs of the world, have a look at cMCO2 :wink:

(There are also open contracts on Ethereum and Celo for the burning to be “bankruptcy” remote from Moss).

There are DAOs on Ethereum, like Harvest FInance, that have already announced publicly they are buying MCO2 on Uniswap and burning to offset their emissions (thus, the natural buyers/end users of MCO2 or carbon credits are already beginning to arbitrage in the market, by buying MCO2 at US$ 6 instead of more expensive offsets on retail sites like Wren or Offsetra).

Hi @marek , @sep and @Luis , thank you for your thoughtful contributions.

Broadly, @marek summarises my position with his two points. I could support and see the value of having CO2 credits at a small level in the reserve in the long run. In the short term, I see a higher priority for ensuring a systematic and rigorous approach to introducing new tokens to the reserve.

@sep , I think you make good points around why we might be seeing the price behaviour we are with the MCO2 token. Indeed, the MCO2 market is small and high spreads versus other carbon credit prices are to be expected. It seems to me low liquidity and high spreads are something to be concerned about when considering new reserve assets. Perhaps we should include liquidity and spreads in a parameter list for any tokens to be included in the reserve?

Including MCO2 in the reserve is bold - and I think it’s good to be bold - but I wonder if it would be better in this case to be bold by allocating a (further) percentage of Celo token emissions to buy and burn carbon credits - rather than doing it via the reserve.

The reserve has not yet been able to achieve its target rebalancing towards BTC, ETH and DAI. So, to me, adding another asset - especially of low liquidity and high spread vs other markets - is due careful consideration.

There is a parallel discussion on this forum started by @martinvol (here) about allowing the reserve to accept airdrops of tokens from new protocols. What the MCO2 discussion, and the airdrop discussion, bring up for me is a need for us to have some clear parameters around what to include and what not to include the reserve with respect to quality (liquidity, spreads, etc.).

Let me finish by noting that I understand the MCO2 team are doing careful work, and I recognise there has been extensive diligence of MCO2. Perhaps, with better clarity on reserve asset criteria, we can have a process that is better aligned for everyone and less idiosyncratic.

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Hi @Slobodan your point 2 on your response to @papa_raw is true - and also addresses @marek’ s concern on liquidity for cMCO2:

The market is much wider than MCO2 trading on blockchain: there is a US$ 400 million annual market (according to Ecosystem Marketplace) and end consumers of credits, such as One River Asset Management, Brazil’s largest airline Gol, Brazil’s largest clothing retailer Hering, Latin America’s largest delivery company Ifood, have acquired MCO2 OTC for large quantities, to burn/offset: these acquisitions show that there is liquidity for millions of MCO2 off chain.

Thus, the CELO reserve would hold a position that could immediately be liquidated, even if that MCO2 position is of US$ 1 or 2 million - CELO could sell OTC to a company wishing to offset and burn, if need be.

One River Asset Management’s use of MCO2 for Bitcoin ETF and funds offsetting:

Gol Airlines (20 million annual passengers) and Moss joint announcement for offsetting using MCO2

Delivery giant Ifood announcement of using MCO2 for offsetting is also on Techcrunch

Thanks Pinotio for the thoughtful reply. I agree that more clarity on reserve asset criteria will help make the process around decisions like this more straightforward in the future. I’d love to see a separate thread on the more general question; aligning on criteria for reserve assets.

In this particular case, to summarize my thoughts on liquidity and spreads:

(1) As I mentioned, I don’t think the spread between wholesale and retail is particularly concerning (and in general I don’t see wholesale/retail spreads to be concerning) so long as the reserve always has the option to buy direct from the issuer at wholesale prices.

(2) And I agree that liquidity should always be high enough so that the reserve could sell a reasonable fraction of its holdings when needed. The nuance that I’d add here is that for commodity-backed tokens, that liquidity can include the liquidity of that commodity in broader commodity markets where the asset can be sold. Provided that broader market is liquid enough, we would expect to see a commodity token that has a range of spot prices between typical wholesale and typical retail prices, with volatility within that range (correlated with the broader crypto markets), and a floor that hovers around wholesale prices. By and large, this is what I’m seeing so far with cMCO2.

I think this is worth continuing to track closely. To the extent that the reserve can buy at wholesale prices (point 1 above), and to the extent that there is a floor to the retail spot price that hovers around wholesale prices (point 2 above), this can be quite a positive thing for stability – since while the retail price of any carbon token will likely have some correlation with BTC, the wholesale price of carbon certainly doesn’t.

All in all, from the data posted on this thread above, I come away pretty convinced that there is enough liquidity in the broader market to support an initial position of $500k to carbon credits as per the proposal. It would be interesting if the Moss team could share how much carbon their customers expect to offset for the remainder of this year, and what the current inventory of carbon credits that they hold but have not yet tokenized. Knowing these two numbers would help to give a sense of demand through the Moss OTC desk. If the (expected dollar value of carbon offsets - dollar value of Moss’s current off-chain inventory) is substantially greater than $500k, that would strengthen my conviction here.

I also come away convinced that growth in the position from the initial purchase to 0.5% should happen in a measured way, taking into account several metrics, including: continued tracking of the cMCO2/MCO2 price floor as compared to the carbon prices in the wholesale market, the liquidity of the cMCO2/MCO2 markets, and the burns in the cMCO2/MCO2 markets. (The Moss team can correct me if I’m wrong, but I’m assuming a burn signifies an offset, and that the majority of these offsets are from Moss’s OTC customers like the ones above using fiat at wholesale prices. If I’m correct on this, the burns will give a sense of the demand for cMCO2/MCO2 at wholesale prices at one OTC desk – the Moss OTC desk.)

My hope is that, by doing this now, and growing in a thoughtful and measured way, we both increase the stability characteristics of the protocol, and help to incentivize an ecosystem of natural capital tokens built on Celo, including carbon credits from many different issuers as well as other types of natural capital tokens (for example, forest tokens).

Popping up a level, I realize that one challenge is that the idea of natural capital backed currencies, as a central part of the founding mission of Celo, is a conversation that’s been being had over the last few years in the community – in individual conversations, in talks, in group conversations, at places like DevCon and Prosper and cLabs and Celo Camp, but not really on this forum. This is not ideal. Let me take the next post to bring that broader conversation here; I think a higher-level conversation about natural capital backed currencies here will help to develop a broader shared context for decisions like this going forward.


As I mentioned, I’d like to start a broader conversation about the idea of natural capital backed currencies, and why I see natural capital backed currencies as so important for Celo. Here goes:

The narrow problem

Much of the current discourse around the environmental impact of cryptocurrencies centers around the carbon footprint of bitcoin. From this narrow perspective, Celo addresses the carbon issue in three ways:

First, the Celo consensus protocol uses an energy efficient proof-of-stake mechanism.

Second, the protocol offsets the carbon emissions associated with consensus at the protocol level.

Third, there exist tokenized carbon credits on Celo, that then enable composable ecological assets (for example, eBTC, that wraps cBTC with cMCO2 to create carbon-neutral BTC).

These three mechanisms address the carbon footprint considerations. But this narrow analysis misses the larger, much more important point.

The bigger problem

The broader point is that the traditional financial-economic solution is responsible, in large part, for our current ecological crisis. In our current economic system, economic health is defined in terms of production and consumption, dismissing as externalities the costs of pollution and natural resource consumption, depleting our finite natural resources as a consequence, with disastrous effect.

In this context, the real questions to ask are not the narrow ones around the carbon footprint of Bitcoin. Our current economic system running on a carbon-neutral bitcoin would still ravage the environment.

The real questions to ask are the deeper ones: how can we devise a money system that internalizes the costs of natural capital destruction (and the benefits of natural capital preservation and restoration)? How can we devise a money system wherein economic growth leads naturally to ecological regeneration? How can we devise cryptocurrencies such that their widespread adoption would reverse our current ecological crisis?

Natural Capital Backed Currencies

The original idea for natural capital backed currencies comes from Charles Eisenstein in his beautiful book Sacred Economics. Here, he observes that whatever backs money, people tend to make more of. When gold backed money, there was an intense incentive to mine gold, because it was, effectively, printing money. In older cultures where cattle backed money, there was a similar overproduction of cattle.

So why not, he proposed, back money with things that we want to see more of – pristine forests, clean rivers, etc.

This is a powerful idea. If, as a society, we were to denominate our economic activity in natural capital backed currencies, any economic growth – any increase in money in circulation, would lead to a growth in preserved natural resources.


While the idea is a powerful one, its implementation in the context of fiat currencies (Charles wrote Sacred Economics before crypto) would be extremely difficult, involving interlocking agreements between local governments, regional governments, national governments, and international treaties.

We designed Celo Dollars to enable natural capital backed currencies in a different way.

The Celo Reserve

The stability protocol for Celo Dollars (cUSD) could be understood roughly as follows. If the price of cUSD on the open market is greater than $1, it suggests that the demand is greater than the supply, and the protocol increases supply to meet demand by printing cUSD, selling it on the open market for $1 in CELO, and depositing that CELO in a decentralized reserve. If, on the other hand, the price of cUSD is less than $1, then it suggests that the supply is greater than the demand, and so the protocol reduces supply to meet demand by buying cUSD on the open market for $1 in CELO, and retiring the cUSD. The reserve assets (and their target allocations) are decided through governance, and the reserve is periodically rebalanced so that the reserve assets meet their target allocations.

Natural Capital in the Reserve

With NFTs, it’s possible to tokenize real assets, including forests, farmland, and watersheds. Moreover, sensors and satellite imagery can be used in conjunction with smart contracts to ascertain (and create incentives for) preservation and reforestation of forests, increasing the carbon sequestration properties of farmland through regenerative agriculture, and remediation of pollutants in watersheds.

As natural capital tokens come into existence, a community is empowered, through governance, to choose to allocate a certain target allocation of natural capital tokens to the reserve – for example, the community may choose to allocate 40% of the reserve to forest tokens.

This would have a massive impact. The more Celo Dollars go into circulation, the larger the reserve gets. The larger the reserve gets, the larger that 40% allocation gets. The larger the allocation gets, the more the protocol programmatically preserves forests. There are currently ~$50mm cUSD in circulation. At a 40% forest allocation, the reserve could hold and preserve tens of thousands of acres of forest.

Carbon: the first natural capital tokens

Tokenized carbon credits are the only natural capital tokens that exist today, and it’s an important primitive in the ecosystem of natural capital tokens, for a number of reasons.

First, there is an existing use case (carbon offsets) and a liquid off-chain market for carbon credits.

Second, it lends itself to composable ecological assets – for example, carbon-neutral bitcoin (like eBTC).

Third, it is natural to denominate yields for natural capital tokens in carbon credits (for example, a tokenized forest NFT can yield carbon tokens commensurate with the carbon credits earned through its preservation).

Forest tokens and regenerative agriculture tokens

Allocating a portion of the reserve to carbon has the effect of the reserve acting as a carbon sink – as the cUSD-denominated economy grows, the reserve buys and holds more carbon credits, effectively sequestering carbon out of the atmosphere in proportion to economic growth.

While this is powerful, I don’t see carbon credits in the reserve as the long-term solution, because there are two asset classes (that don’t exist yet) that are even more powerful – forest tokens and regenerative agriculture tokens. From a mission perspective, holding these tokens in the reserve has beneficial effects beyond just carbon sequestration – for biodiversity and soil health, as examples. From a practical perspective, these tokens can generate a stream of carbon credits over the lifetime of the token, bolstering the reserve and increasing the stability properties of cUSD.

Design considerations for forest tokens and regenerative agriculture tokens

There are several important considerations in the design of a natural capital token ecosystem, and I would love to see these develop on Celo.

Tokens. These tokens will naturally be NFTs – they represent a specific parcel of a specific forest or farm. From a regulatory point of view, they would likely be seen as commodity tokens.

Staking Services. They should be able to be “staked.” Staking a natural capital token with a project administrator would allow the project administrator to add value to the land (protecting the forest, switching the farming technique to regenerative ag, etc) to generate ecological service credits (like carbon credits) that can be split between the staker and the project manager. In this context, staking would effectively be the equivalent of renting land to somebody who could use it to enhance the biodiversity, soil health, or carbon sequestration properties of the land.

Exchanges. There would need to eventually be an exchange for such assets. Because they are NFTs, they are less natural fits for DEXes like Ubeswap. But because of the specific nature of these assets, they are less natural fits for traditional NFT galleries, that are more focused on art and music.

Reserve. The reserve would need to start thinking of itself as a capital stack. NFTs are less liquid than fungible tokens, and it would not make sense for the reserve to sell them at every dip in cUSD circulation. Rather, the liquid tokens in the reserve should be the first out in dips in cUSD circulation, and natural capital tokens should be at the bottom of the capital stack.

Oracles. Over time, protocols that measure and report the ecological value of tokenized natural capital (such as number of trees, water retention properties of the soil, biodiversity, etc) using sensors and satellite imagery, will be useful for smart contracts that trigger on enhancing the ecological value of the land.


Assuming we are able to get to a meaningful portion of the reserve to forest tokens (say, 40%) in the few year time frame, the reserve would, at current cUSD in circulation, preserve tens of thousands of acres of forest. Assuming cUSD adoption grows to the level of USDC’s current adoption, the reserve would preserve (or reforest) tens of millions of acres of forest. In the long term, this has the potential to have a much larger and systemic impact, aligning economic growth with ecological regeneration. This is extremely powerful, and if we are to truly live into our value of connectedness, every bit as important as financial inclusion.


Moss Team:

Expected dollar value of carbon offsets on OTC: US$ 14 million for 2H21 (US$ 7 milliion in 1H21)

Dollar value of Moss’s current off-chain inventory = US$ 6.6 million

" I’m assuming a burn signifies an offset, and that the majority of these offsets are from Moss’s OTC customers like the ones above using fiat at wholesale prices. If I’m correct on this, the burns will give a sense of the demand for cMCO2/MCO2 at wholesale prices at one OTC desk – the Moss OTC desk."

Moss Team: This is correct Sep.

Thank you @sep for your further remarks on MCO2, and particularly your questions around OTC volumes and burn volumes. I will be interested too in those data points.

Thank you as well for laying out a framework for collateralisation with natural capital. I enjoyed your recent webinar on the topic with Charles Eisenstein. Here are some thoughts on a natural capital reserve - in no particular order.

1. The Importance of Breadth in a Natural Capital Reserve - a specific remark on today’s climate change narrative
I am much more convinced by a holistic and diverse basket of natural capital than I am by a basket weighted towards carbon credits (or related capital).

Today’s prevailing narrative is that carbon dioxide emissions are the challenge of this generation. I am uncertain this will remain the case for long. Specifically, the narrative that extreme weather events are certainly caused by anthropogenic emissions seems wrong on my reading on the data covering extreme weather events. For example, global and regional data on droughts or tornados, shows no significant increase since industrialisation (I’ve written on this here outside of crypto).

This is not to say carbon emissions are not a concern. We know CO2 concentrations have increased significantly, and we have direct measurements of its effect on increased radiative forcing.

This is to say we may presently be overemphasising a drastic reduction in carbon emissions over other issues. Specifically, is not clear to me that carbon reduction stands above extreme poverty, depression, air pollution, cancer, stewardship of our cities/towns and many more issues - the majority of which are predominantly caused by factors other than carbon emissions.

I see a case for a small (single digit) long term allocation to carbon dioxide related natural capital and a much larger allocation to capital unrelated to carbon emissions.

2. Collateralisation with Ideas as well as Resources
As we think about collateralisation with physical (maybe specifically natural) resources, it makes me think abstractly about collateralising with ideas. I don’t believe the planet (or universe) is physical-resource constrained. I believe it is primarily idea constrained. This is David Deutsch’s perspective.

It seems clear to me that the portion of value and meaning accounted for by physical resources is decreasing and the portion accounted for by ideas/technology is increasing.

Thinking about collateralisation in this framework leads me to reduce the weight allocated to what is physical and increase what is related to what is non-physical. Non-physical and non-natural collateralisation can be equities, it can be Bitcoin, it can be Celo and hopefully it can be more things in the future we can’t think of now.

I don’t see these last three paragraphs as misaligned with what you laid out. It just seems to me that - at the broadest level - collateralisation should match the nature of humanity, not just our physical resources.

Side note: I suppose carbon credits are to some degree an idea but also a physical resource (you can physically measure carbon emissions).

3. Is real estate natural capital (or if it’s not, should we still consider it?)
Just as owners can take care of rainforests, I see that real estate owners can take care of buildings and communities. To me, stewardship of our cities and living environments is important. Perhaps the real estate industry today isn’t a paragon of what we want the Celo Reserve to be, but I would offer up that Real Estate holdings (via NFTs) may be a softer transition to natural capital than carbon credits - one that threads the needle between improving collateralisation and moving towards natural capital a bit better.

4. To succeed you must survive (thanks Warren Buffett)

Whatever the alignment on the long term nature of the reserve, we would all like to survive for long enough to get there.

Survival is what drives a lot of my questioning on these topics. To be specific, I think about:

  1. The Celo reserve collateralisation asymptoting towards 1 (and not an overcollateralisation value)
  2. Liquidity and price stability of tokens, particularly at this early stage. (Hopefully some day we’re like MIT endowment and can hold lots of illiquid assets).
  3. Heavy reserve reliance on Celo tokens.

To be clear, I think it’s possible the platform could do fine following these three points. Tether is still going and has been a lot less transparent than Celo on their reserve.

Coda (and I do like a good coda)
I like the grand vision for the natural capital backed reserve, and doing new things like this requires risks to be taken. I am glad there is creative and unique thought here that provides a distinction with other platforms.

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Great points and fascinating discussion @Luis @marek @Pinotio.com @sep!

Would it make sense to move the broader natural capital discussion to a separate forum thread? It seems that the discussion goes beyond CGP30 (now CGP31).

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Great idea Slobodan, I’ll start a new forum thread.

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I am a crypto enthusiast, but my day job is actually working in the environmental field. I think that the proposal is well-intentioned, but not one that I would support nor does it really address the environmental problems of block chain.

The environmental problem of block chain is mainly threefold. First, the system requires having a network of computers running 24/7 in perpetuity. One the balance, this will increase total global energy consumption, which will always lead to a rising footprint. If crypto displaces other economic players, maybe one could hope that this would lead to a net decrease in energy demand. However, I have seen nothing to quantitatively make this analysis and am doubtful myself.

Second, the nodes are distributed, which means that it is almost impossible to ensure that they are run on clean energy. Centralized server farms have the advantage that a centralized entity can move the entire center onto a clean energy source.

Third, all of this requires hardware which generates a substantial environmental footprint in its manufacture and eventually becomes unrecyclable waste with some hazardous components.

I think that foundations governing blockchains have some opportunities to address all of these, but none of them are taking a genuinely proactive, systematic approach to stewardship beyond claims about carbon offsets, some of which are misleading.

So what is the role of carbon offsets? First, important to note that carbon offsets do not guarantee a decrease in total global emissions or atmospheric concentrations and THAT is the only goal that matters. The IPCC tells us that we have less than ten years before the goal of containing warming within 1.5 degrees becomes unachievable.

Second, carbon credits are not meant to be permanent financial assets to be traded, but rather a vehicle for enabling third parties to subsidize climate efforts by others. In the case of voluntary markets, they should be retired rather sold in secondary markets if you really want to help the environment. In the case of regulated emissions trading schemes, they are intended to have some secondary market life, but, again, the ultimate idea is that you are trying to get people to pay to remove carbon and the credits are essentially tokenizing those removed tons. You are not trying to great an asset to be traded indefinitely. That defeats the environmental objective.

If Celo wants to address its environmental footprint, then it really should be looking at how ot incentive node operators to use clean energy. Could we come up with a smart contract system that would reward operators that can demonstrate purchasing clean electricity? Can the foundation conduct environmental education programs for operators? Could it broker clean energy purchasing agreements that operators could tap into? Could it purchase renewable energy credits in the United States and other countries with similar systems?

From a financial perspective, I don’t understand how tokenized credits would be a prudent financial investment from a reserve perspective. Their price is not going to evolve in a predictable manner in the coming years and they represent an artificial market. I hope that the market grows, but I would never use it as a reserve vehicle. Instead, the celo community should look at it as an investment into a better planet and a separate choice from a reserve element.

In terms of helping carbon credit markets, simply holding credits won’t accomplish anything because credit markets do not have attributes comparable to that of other financial assets. Perhaps if blockchains purchased enough credits to shift the demand curve, it would raise the value of credits and theoretically bring more projects to market, but that would not be a genuine market solution on carbon as much as a philanthropic subsidy that could exit the market as easily as it entered if governance priorities change.

I’ve also seen something about purchasing land and tokenizing it. This could have conservation benefits, but ONLY if the land is actually stewarded. Owning the deed to a tract of tropical forest does nothing to protect it. You need the communities living on or near the land to work in collaboration with the deed owner to protect it from illegal logging and other types of exploitative activity. This kind of strategy could work with things like conservation easements in the USA where there is a strong legal infrastructure, but much harder elsewhere. The land on its own also won’t generate a cash flow. One might be able to try to secure voluntary carbon credits in some form, but you need a partner to set up and manage a project to generate the credits and document them. Many of the major NGOs have done and continue to do this, but it is a slow strategy and I am not sure that there is a connection to generating a financial asset that belongs in a reserve fund.

I’m really excited by the motivation to work on environmental issues through Celo, but we should make sure to find instruments and strategies suited to the purpose. I would start from buying renewable energy credits to re-sell or distribute to node operators or incentivize them to acquire such credits. But I also acknowledge that is not a reserve strategy.

Hi @Terblig , you bring up some good points on the reserve and insuring stewardship - as well as the open question of whether that land might yield cash flow.

With respect to energy consumption of the Celo network, the energy consumed by nodes is quite small. This is a proof of stake network, not proof of work like Bitcoin (and Ethereum currently). If you look at the amount of epoch rewards that go to buying carbon credits, that amount is really small, because the emissions of the Celo network are tiny.

I’m aware that PoS uses a lot less energy than PoW, but I would have two thoughts.

First, we have to look at block chain from a systems perspective. An individual transaction might be tiny, but the vision of many is for trillions of transactions and for blockchain to vastly expand the horizons of how people engage with each other. A single drop of water is nothing, but trillions of them makes a flood. So I think that we have to try to build the blockchain as being at minimum climate neutral and ideally minimal environmental impact from the start. Once it becomes fully de-centralized, then it will become even harder to address literally a million paper cuts. An analogy would be that no single building really changes our climate or ecological trajectory. However, we have 100 years worth of built structures around the world that were designed with little attention to those concerns. Retrofitting that building stock is likely something that will require our lifetime if not longer.

Second, whether the money flowing into carbon credits is large or small, it would not change my point of view on the use of credits in connection with the reserve. From an environmental perspective, buying and holding voluntary carbon credits has minimal value as compared to other approaches. Therefore, when combined with their financial characteristics, I see little value in adding them to the reserve. It has symbolic value as a statement, but it is also a statement that can be unintentionally misleading and direct peoples’ attention away from more productive solutions and encourage a false sense of security.

To be honest, I believe that many of the claims being made by block chains are counter-productive and, in some cases, irresponsible. For example, I have seen Algorand claim to be carbon negative. That simply is not the case if one understands how people doing climate modeling use the term “climate negative.” Considering the nobel prizes connected with their team, I would have expected more diligence in this respect.

Celo could really be a leader on this, but it will involve a deeper strategy than buying carbon credits and we can’t be complacent with the fact that individual transactions are small in energy use. Unfortunately, we have allowed our climate emissions trajectory reach a point globally where simply being somewhat better than past years is nowhere near enough. We need to cut total global emissions in half before 2030 and then remove carbon from the atmosphere at a rate such that total emissions are no longer rising from 2050 onwards. Anything that is not actually reducing total global emissions or capturing carbon is unfortunately not moving us closer to the goal and may be moving us away from it.

As I said, I think that it is fantastic that the community cares about this. I just think that we should do something more systematic. I would be happy to contribute to this thinking and brainstorm ideas with others. I’m just not sure how to do so or how to translate ideas into action in a network like this.

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