KlimaDAO: Changing the carbon offset paradigm
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KlimaDAO: Changing the carbon offset paradigm

Published Wed Mar 16 2022

KlimaDAO: Changing the carbon offset paradigm

Those wanting to take climate action shouldn’t be penalized by an inefficient and untransparent market. They should be able to have a positive impact easily, at a fair price, and be rewarded for doing so. KlimaDAO is building a system on Polygon that facilitates constructive change in the way carbon liabilities are accrued and exchanged.

Tokenized carbon as a core building block for ReFi

A tokenized carbon credit is a carbon credit that has been given a presence on the blockchain, which enables its integration into the Decentralized Finance (DeFi) markets.

The tokenization of assets – specifically carbon within the context of KlimaDAO – gives users exposure to greater liquidity and more transparency. When tokenized carbon credits are integrated into the Regenerative Finance (ReFi) ecosystem, the carbon can be used to accomplish other useful things, including being used as collateral or bonded through KlimaDAO to acquire KLIMA tokens.

KlimaDAO partners Moss, the Toucan Protocol, and C3 are organizations that enable the creation of tokenized carbon credits.

Those who purchase Moss’s MCO2 credit acquire legal ownership over the carbon credit (via a VERPA), which can then be retired and removed from the system. Double counting is mitigated through the execution of the bilateral VERPA agreements, and interested parties can verify backing via Moss’s real-time reporting dashboard.

The Toucan Protocol and C3 are one-way carbon bridges that require each carbon credit in the legacy system to be specially retired for bridging. Credits that have followed the process can then be bridged onto the blockchain using a unique hash that mitigates double-counting risk.

To date, KlimaDAO has only accepted carbon credits that have been certified by the Verra Carbon Standard into its treasury. Verra provides 70% of verified carbon credits on the global Voluntary Carbon Markets, and is considered by many to be the most robust carbon standard.

Leveraging the robustness of Verra-certified carbon credits, and the technology developed by partners such as Moss, Toucan, and C3, enables the integrity of the underlying carbon credits to be maintained when they are brought onto the blockchain. The tokenized credits themselves carry metadata – important information about the credits such as vintage, project type, and geography. This data ensures that users have the necessary information on the underlying value of the credit, which can in turn enable commoditization and efficiency within what is a heterogeneous market.

KlimaDAO is building a system on top of these tokenized carbon credits that unlocks the benefits that the blockchain and crypto can bring to the market, and which enables carbon to be used for more than just ‘offsetting’.

Cutting through the complexity of carbon offsetting

Carbon offsetting is achieved when a carbon credit is ‘retired’ in the name of an individual or an organization. The retirement process removes the carbon credit from the market, meaning that no one else can claim responsibility for the positive carbon impact associated with the individual credit. It is at the point when the retirement is executed that an ‘offset’ can be claimed.

However, the offsetting process (from acquiring to retiring a carbon credit) is complex and needs to be followed through diligently by those wishing to take climate action.

There are competing products and offerings on the market. For individuals, there are different apps, subscription models, and self-serve solutions. For organizations, there are a variety of corporate solutions and brokers that must be navigated prior to achieving an offset.

Both individual and corporate users are confronted with varying prices, credit types, and verification standards. The delivery method, in terms of how the carbon credit is actually ‘offset’, also varies. Some brokers choose to offset directly on behalf of a customer, with others waiting days or sometimes months to ‘batch’ offset carbon credits on behalf of a number of customers at once.

In a market that has conflicting, complex, and hard-to-attain information, the decision process can be slow. In the case of the carbon markets, inefficiency ultimately reduces the amount of capital flowing toward high-impact carbon projects across the globe. Uncertainty around why key criteria vary also undermines confidence in the market as a whole, which is a detriment to scaling up climate impact when we need it most.

One of the key benefits of building markets on the blockchain is that the system is decentralized, transparent, and permissionless. The tokenized carbon market that KlimaDAO is empowering achieves unparalleled clarity around available options, the market price for any asset, and fees that are incurred on top of any transactions. It also gives those who wish to retire their carbon credits the opportunity to do so easily and immediately, without relying on a third party.

The on-chain carbon market being built around KlimaDAO, where carbon tokens flow through liquidity pools on decentralized exchanges, empowers buyers by giving them information about the spot price that pools of carbon credits are trading at. This enables them to immediately execute a trade based on their needs and the market conditions. This is revolutionary.

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Klima Infinity: A consumer-focused product, powered by Web3

The process of scaling climate action doesn’t just end with the development of permissionless markets powered by DeFi. It will be achieved by integrating the market with consumers. For KlimaDAO this means integrating three core building blocks:

  • The deep, transparent liquidity pools of tokenized carbon tonnes and KLIMA trading pairs;
  • The tokenomics of KlimaDAO, which reward those who participate in the ecosystem; and
  • An intuitive and accessible platform for all consumers, from individuals to multinationals.

KlimaDAO empowers consumers of carbon credits (or offsetters) to take ownership over managing their carbon commitments. It enables a more active approach to acquiring and retiring carbon, one that is fundamentally based on clear, logical, and personalized insight with ease of access the top priority for the end user.

Klima Infinity integrates the above, and by participating in the program users can take custody over their carbon. Custody is achievable because each KLIMA token itself is backed by at least one verified carbon credit. By purchasing and staking KLIMA, this custodied carbon becomes a yield-bearing asset that grows in tandem with KlimaDAO’s treasury of diversified carbon assets.

When a user decides they want to retire carbon credits to deliver on their environmental commitment, they can unstake a portion of their yield-bearing (staked)KLIMA and swap it for a tokenized carbon credit in one of the KLIMA liquidity pools that is paired with another tokenized carbon asset. Once these carbon credits are acquired, they can then be retired within KlimaDAO’s native carbon offset aggregator tool. Using the burn function removes these tokenized carbon credits from the system and allows the environmental benefit of the credits to be claimed (i.e. the on-chain equivalent of a classic offset ‘retirement’).

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The KlimaDAO protocol itself utilizes the KLIMA token to provide liquidity across pools of tokenized carbon credits. KLIMA is the main asset used for tokenized carbon trading pairs, and it facilitates efficient on-chain carbon market activities.

With the DAO itself providing liquidity for tokenized carbon credit pools, and holders accruing custodied carbon over time through staking KLIMA, we can together unlock a powerful and efficient solution for managing a portfolio of carbon-backed assets to deliver on environmental priorities.

To help achieve this vision, those participating in Klima Infinity have access to a dashboard to visualize and track their climate commitment. The dashboard provides a publicly accessible record of an organization’s environmental footprint, greenhouse gas accounting methodology, public pledge, and the aggregate value of their tokenized carbon assets and offsetting activity.

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Carbon offsetting has until now been a transactional and ephemeral process. Whether using a subscription service, a self-service lifestyle carbon calculator, or a corporate service, a buyer pays for a retailer to offset on their behalf; they then walk away from the relationship at the end of the process until they next need to offset.

KlimaDAO changes this paradigm, allowing users to acquire, hold, and manage their carbon tonnes as they wish, enabling quick and transparent portfolio management and hedging against the market. By including KLIMA within their portfolio, the user can accrue rewards in a carbon-backed asset over time; these rewards can be used to acquire more tokenized carbon tonnes without fees, friction, or any additional cost.

The big picture: Additional benefits of participating within KlimaDAO’s ecosystem

The holding and staking of KLIMA is one of the core tenets of the KlimaDAO ecosystem. It benefits the DAO by helping limit liquidity on the market for KLIMA tokens, and it helps bring confidence to the wider ReFi ecosystem. It benefits the user by enabling them to passively accrue a carbon-backed asset.

Consequently, leveraging the rewards of staked KLIMA is core to unlocking the new paradigm of carbon offsetting. It is a win-win situation that helps KlimaDAO execute its vision for ReFi, and it means the holder can compound carbon for future pro-environment action with only marginal costs (i.e. from transparently listed fees) incurred.

Layering a compounding carbon asset on top of a permissionless system for managing carbon liabilities means that carbon strategies no longer need to be a complex and exploitative process. Instead, they can become more efficient and focused on the ultimate goal: scaling climate finance.

KlimaDAO: Scaling ReFi and maximizing participation in the carbon markets

Active participation in the carbon markets via KlimaDAO can help anyone achieve a cost-effective carbon management strategy, welcoming them as an active participant in the development and improvement of the ReFi economy.

The benefits of leveraging KLIMA and the wider KlimaDAO ecosystem can be summarized as follows.

The KLIMA token:

  • Provides a potential hedge against future offset price increases
  • Grants holders the right to participate in KlimaDAO governance, including treasury management, partnership initiatives, and blockchain carbon market leadership to cultivate ReFi
  • Accelerates the delivery of finance to sustainability projects globally by driving demand and adoption for carbon offsets as part of a wider movement to pool capital across interested parties
  • Provides portfolio diversification via an asset linked to carbon markets, which historically have a low correlation to other asset classes
  • Allows for quick and easy exposure to the carbon market, which is set to benefit from consumer pressure and the tightening of emissions regulations worldwide

On-chain carbon provides:

  • Automation potential via integrating on-chain carbon with smart contracts that retire credits when certain transactional thresholds are met, for example, or when external data via an API is provided
  • Integration and an expansion of utility for carbon offsets. On-chain carbon can be used as collateral in DeFi lending protocols, integrated natively with NFTs, and transferred/retired with minimal transactional friction
  • Alignment with the Taskforce for Scaling Voluntary Carbon Markets – working to catalyze a robust and efficient on-chain carbon market

If you are interested in learning more about how KlimaDAO can enable coordination and financial activism to tackle climate change, join us on Discord and follow us on Twitter.

Disclaimer

The information provided in this blog post pertaining to KlimaDAO (“KlimaDAO”), its crypto-assets, business assets, strategy, and operations, is for general informational purposes only and is not a formal offer to sell or a solicitation of an offer to buy any securities, options, futures, or other derivatives related to securities in any jurisdiction and its content is not prescribed by securities laws. Information contained in this blog post should not be relied upon as advice to buy or sell or hold such securities or as an offer to sell such securities. This blog post does not take into account nor does it provide any tax, legal or investment advice or opinion regarding the specific investment objectives or financial situation of any person. KlimaDAO and its agents, advisors, directors, officers, employees and shareholders make no representation or warranties, expressed or implied, as to the accuracy of such information and KlimaDAO expressly disclaims any and all liability that may be based on such information or errors or omissions thereof. KlimaDAO reserves the right to amend or replace the information contained herein, in part or entirely, at any time, and undertakes no obligation to provide the recipient with access to the amended information or to notify the recipient thereof. The information contained in this blog post supersedes any prior blog post or conversation concerning the same, similar or related information. Any information, representations or statements not contained herein shall not be relied upon for any purpose. Neither KlimaDAO nor any of its representatives shall have any liability whatsoever, under contract, tort, trust or otherwise, to you or any person resulting from the use of the information in this blog post by you or any of your representatives or for omissions from the information in this blog post. Additionally, KlimaDAO undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed in this blog post.