• General
  • RFC: Carbon Project Development Initiative

Looking over the horizon

Pursuant to KlimaDAO’s mission of rapidly scaling up the deployment of capital toward high-impact sustainability projects, we propose the utilization of a set amount of treasury funds toward financing the development of new carbon projects. This effort strongly aligns with the coalition-building necessary to accelerate the on-chain carbon ecosystem’s development and showcase the collaborative potential of the ReFi space.

Bootstrapping new carbon pools with partners

Discussions over the past two months with key partners in the ReFi space have yielded a number of exciting developments toward creating new carbon pools on-chain. At this time, three pool types have been identified as likely candidates for deployment in the coming months:

Nature-based carbon removal - C3’s ARBOL pool
Blue carbon - C3’s BLUC pool
Energy efficiency and impact - C3’s EEIMP pool

Note, the final deployment timeline and inclusion criteria of these pools remains contingent on which registries have published tokenization frameworks in the next 2-4 months.

Proposal to fund a project pipeline

In order to maximize the impact and credit diversity of the KlimaDAO treasury and catalyze future growth in the on-chain carbon ecosystem, the DAO should allocate a portion of the treasury’s reserves to be deployed toward carbon project development initiatives. Note that discussions are ongoing regarding potential structures for a separate budget with a wider sustainability mandate beyond traditional carbon credit projects.

Proposed capital allocation

—From USDC currently available in the treasury: allocate $1.5 million toward this forward carbon credit project development effort.
—Some partners have expressed that they are open to accepting BCT in exchange for alternative credits from carbon credit projects in development. In this case, the dollar value of the BCT at the time that BCT is committed to the project is simply subtracted from the $1.5 million allocation above.

Key partners in this endeavor:

Aither is an emission trading firm with over 12 years in carbon trading. Aither has independently traded over 1 billion units of CO2 worldwide to support global companies in the compliance market (EU, CH, and UK schemes) and the voluntary market. Aither guides private and public companies toward carbon neutrality by offering tailor-made projects that result in high-quality carbon offsetting.

C3 works to catalyze the carbon market’s expansion, increase bandwidth between the legacy and DeFi carbon markets, and develop innovative means for delivering finance toward high-impact carbon mitigation and removal projects.

SCB Group is a world leading low carbon commodity group relentlessly pursuing a low carbon future. They work with the whole value chain of the voluntary carbon space, helping to fund projects in least developed and developing countries. Additionally, StarCB also offers portfolio management services and voluntary carbon product sourcing for end users and investors.

Solid World DAO de-risks carbon investments and makes them liquid. The added safety of investing in the carbon space will result in significantly more capital deployed toward carbon projects. They've partnered with the top companies in ReFi, such as SCB, Vlinder, Emsurge, Arbol, SustGlobal, Toucan, OFP and others.

Vlinder is a blue carbon specialist and digital carbon market company. A team of climate tech pioneers, risk managers and environmentalists, engineers and data scientists of 10 nationalities, we plant mangroves and accelerate climate projects with early-stage funding and innovation. Our mission is to empower people to make a planetary impact. Our "North star" goal is to restore 1 million hectares of degraded mangrove forests, recovering what was lost in the last 3 decades.

Driving value into the KlimaDAO ecosystem

New commodified carbon pools composed of projects with methodologies which currently have low representation on-chain will provide additional client choice and further position the on-chain carbon market as the premier access point for a wide variety of carbon projects with low slippage and minimal transaction fees.

In particular, the trend toward supporting projects with strong social co-benefits stands to grow, as does that toward supporting nature-based carbon removal projects. KlimaDAO’s leadership in helping bootstrap pools that promote both of the aforementioned values will further catalyze the innovation and positive impact of the on-chain carbon market. This is critical for accelerating the adoption of tokenized carbon for demand-side VCM participants and ultimately scaling climate action.

Risk mitigation

The partners we have outlined above each employ due-diligence measures to ensure carbon project success. Nonetheless, carbon project development is never risk free. We therefore would employ the following measures to lessen treasury risk and ensure a positive return in terms of carbon tonnage:

-Supporting pre-project financing and forward carbon only when projects have already been registered according to an ICROA-endorsed certification standard.

-Supporting projects which have already completed validation by a verification and validation body (VVB) and are expected to have credits issued within 365 days of capital deployment.

-Leveraging the support of our growing advisory board of VCM experts to weigh in on project development opportunities.

-Engaging in contractual arrangements that provide guaranteed delivery of like-kind-credits should a delivery shortfall occur with a specific project.

Project & Partner Identification

Initially, partners and projects will be identified by the DAO contributors on the Partnerships and Policy Teams. We will move to progressively decentralize this process and welcome the community’s input on how to best structure the authority to allocate funds from the proposed carbon project development budget.

It’s important that the individuals making decisions about which projects to allocate funding to understand the risks associated with carbon credit project implementation, and are prepared to research emerging methodologies and conduct due diligence on each project under consideration. It’s also critical that those individuals are aligned with the long-term mission of KlimaDAO.

In the future, a formal public process can be implemented for project developers to apply for funding consideration. In the interim, RFCs on the KlimaDAO governance (like this one) can be used. We expect to gain valuable information from this first funding phase which will help inform and structure a subsequent application process.

Solving Crypto’s Image Problem and Establishing ReFi as the Premier Real-World Crypto Use Case

One point of agreement for both crypto supporters and critics is the reality that crypto has a negative public image. From the collapse of the Terra ecosystem, freezing of withdrawals by centralized operations like Celsius - not to mention stories of hacks, thefts and rug pulls and the allegation that crypto supports North Korean money laundering and Russian oligarch sanction avoidance - the past six months have not just been brutal for the crypto markets, but also for crypto’s public image. These events have only further solidified the views of crypto skeptics, with economist and New York Times columnist Paul Krugman in early June perhaps best summarizing the overarching critique of crypto as an asset class that “has yet to find any significant real-world uses” and "lacks any real value — that it is a house built not on sand, but on nothing at all.”

However, while Krugman and other critics base their skepticism on the volatility of individual crypto tokens and marketing tactics of various entities, they have overlooked a number of the promising and proven use-cases for crypto that have been demonstrated over the past years. Among the most compelling use cases is the tokenization of carbon credits - enabling credits to be traded on a transparent, efficient blockchain-based market exchange - transforming one of the most promising tools available to combat climate change. Indeed, tokenization has opened a highly scalable and transparent pathway for capital to fund sustainability projects which mitigate and remove carbon from the atmosphere. It would thus not be an exaggeration to view the work done by the growing number of entities seeking to bring the carbon markets onto blockchain - collectively known as the “ReFi” community - as among the most impactful and promising developments in the global effort to reduce carbon emissions and save the planet.

The disconnect between the proven and demonstrable success of blockchain and crypto as a key part of the fight against climate change and the views of critics such as Paul Krugman are the result of a void that has been created in the public messaging and communication strategy for crypto writ-large. The vast majority of talent and energy in crypto is, rightfully so, dedicated toward building and innovating, not communications and politics. However, now that regulators and policymakers are paying closer attention to crypto than ever before, it is imperative that immediate action be taken to actively address crypto’s image problem - and no one is better positioned to do this than the ReFi community.

KlimaDAO and its partners are operating at a critical juncture in the history of blockchain and the VCM. Now, more than ever, it is necessary to show the collaborative power of our efforts in leveraging blockchain technology for the benefit of society and the planet.

Support the Project Development Initiative?

    Slowly the pieces are falling into place. Totally for it!

    Very impressive - great range of carbon types and first-class partners. Fully support.

    I support this initiative and I couldn't be more proud of KlimaDAO. To put this in context, the treasury has 6.2m idle usdc, not including klima/usdc and bct/usdc liquidity. 1.5m for such a grand investment makes sense.
    Greater diversity of credits onchain will lead to more choices and more demand.
    KlimaDAO will be supporting both the demand side and the supply side of the onchain VCM.

    Very good. It appears you do not miss with delivering key insights and partners.

    This all sounds great! Nice to see a range of top quality partners coming together for something that provides a social good, shows the utility of the Refi space, can be pointed to when people ask for "real-world" benefits of Refi, and seeding the growth of a pipeline of DAO-sponsored projects.

    From zero to here in a year!

    My main question: What is the value accrual for Klima holders? So the total expediture is $1.5m, which is about 3% of the total treasury, correct? And do I understand correctly, it's not used to fund liquidity pools, but to "exchange" USDC and BCT from the treasury for other carbon tokens that are currently in development? (Meaning that these will go into the treasury at an equivalent $-value?) So in other words, the funds are used as a loan for financing the new carbon tokens. I see that the risk mitigation consists of due dilligence plus the promise of receiving like-kind-credits in case of a delivery shortfall. However, is there still a risk of not getting back the full funds? If so, would it be fair towards the Klima holders, in form of the treasury, which I consider as the "promise of value accrual through rebases", to give out these loans with an interest? Or do you rather see the benefit of a growing on-chain VCM being enough value accrual for Klima holders? I personally would argue for the former, because in my opinion the true value accrual comes with rising carbon demand, while an increased and diversified supply is only an enabler that itself should come with an actual business model. Finally, it would be great to see a distribution of the $1.5m worth of USDC or BCT into the individual new pools and the related obtained CO2 tonnages.

      Fantastic initiative. Thank you for connecting the dots between the proposal itself and the bigger picture.

      Of course as an engineering lead at KlimaDAO my bias is towards protecting our runway and my ability to keep paying the amazing contributors I work with. But with 6m idle USDC not yet earmarked, I think this is well worth it. Being able to pay in part with BCT would be even better!

      Funding cutting edge, high-impact future-carbon projects is a worthy endeavor on it's own. On top of that, demonstrating that we can do so as a DAO and navigate the risk, complexity and partnerships to integrate new carbon into our ecosystem is fantastic. And even beyond that, deploying three new high-quality pools is an obvious win for the protocol and will help us expand Klima Infinity's reach as our sales team's efforts continue to ramp up.

      And I hope this gets in front of some eyes at Verra or other registries who should soon realize how primed and ready the on-chain VCM is, and how much value we as a DAO can bring to it.

      Our goal has always been to facilitate and strengthen the VCM, and while it may be hard for journalists and idealists to understand, this includes both the top and the bottom of the price curve. We launched with BCT, expanded with UBO and NBO-- now let's show everyone what we can really accomplish now that we have established ourselves as serious players with game-changing infrastructure.

      Heck yeah! Great to see Klima roll up their sleeves and get a little more hands-on and directly involved with the available on-chain carbon projects... this should bring continued growth in diversity and quality of the overall ReFi ecosystem.

      Klima never stops. Love this, and the thought of greater diversity in quality credits on chain. This may beget more scrutiny, and more attention, which may elevate conversation, which further heightens standards, and thus increases quality, and thus attracts more such projects to come onboard. Wondrous!

      Dionysus Brilliant, this is a step to reducing our reliance on Verra and growing our footprint

      rrrmmmmm This is indeed to fund future liquidity pools. Forward carbon & project development are the most economic means the DAO has at securing carbon for future liquidity (i.e., it's likely the carbon will be worth more on the spot market once credit issuance occurs than the price paid to secure it).

      Our advisory board of VCM experts is growing and we will work closely with them to ensure the individual commercial arrangements for each project are completed in a way to maximally reduce risk. Additionally, the community will have a chance to view each of these arrangements and discuss them, vote on them, etc. As a DAO, our strength comes from the myriad skills and experience of our members. This must and will be leveraged when considering opportunities and where to deploy capital from this Carbon Project Development Initiative.

      A dynamic on-chain carbon market benefits KLIMA holders in multiple ways:
      -As the largest holder of carbon liquidity, we benefit from trading.
      -As an infrastructure provider for accessing the market, we benefit from retirements. (via our retirement aggregator + integrations with it).
      -Via bonding, we grow our treasury with tokenized carbon assets --> expanding the types of assets in our treasury helps diversify our holdings and provides greater surface area for value accrual.

        Really interesting and very cool that Klima is contributing in projects that are directlt impacting the climate while giving the VCM a boost! I can imagine that pre-project funding and expertise especially can really give life to some cool initiatives.

        I wish the upcoming projects the best of luck.

        Super exciting development. Extremely well thought out RFC.

        5 days later

        Dionysus Thanks for your response.

        For a retail investor, or non-contributing DAO member, it's hard to understand the inner workings for these decisions. From the optimistic viewpoint, this looks like a good opportunity to invest in order to grow the on-chain VCM, enable supply and demand and thus to ensure the long-term investment return for Klima holders. Also, I totally agree that being active is the right way, in contrast to just sit and wait for the surrounding on-chain VCM environment to emerge. From the pessimistic viewpoint, however, this may just as well be a way to fund on-chain projects with easy money from the Klima treasury, aka the Klima investors, without making the true relationship between the involved players, aka Klima core team, advisors and other DAO teams transparent. The danger in that pessimistic scenario would be that the Klima treasury, or Klima investor money, would just be drained in the long term without building something that is truely successful as a VCM and yields no return to Klima investors. While I don't subscribe to the pessimistic view, I think it's indeed important to make the real benefit for Klima investors as transparent as possible. Even if it's just to avoid the possibility that such accusations could emerge from other parties in the wider ReFi space.

        Having said this, an alternative way to fund the projects, or more precisely, the liquidity pools, would be via LPB auctions, as was done with Klima, where different assets like USDC, Klima, BCT, NCT could be used. This way, every investor could decide directly for themselves instead of being part of a vote. Of course, as a downside, this may generate lower funding than using the Klima treasury. But has this alternative approach been considered and do you see pros and cons therein?

        18 days later

        rrrmmmmm I support the idea of having interest in the loans that KlimaDAO gives or some other mechanism to compensate the risk. I think we should use our funds to deliver on our strategy and I think funding development of new Carbon tokens was not part of the strategy. Or have I missed something? I think we should focus our resources and not start experimenting in areas that supposed to be handled by other players of onchain market.

        2 months later

        Strongly supporting this. We need to keep supporting players who are working closer with the legacy markets but also support the development of the future carbon credit programs.

        Where legasy markets have gained a more stable position for providing carbon credit flows, future credits would also help them to experiment with new kind of CO2 projects. Some might also want to speculate on the prices of credits and some might want to support for local carbon economys to emerge. I see that Klima tokens could be used as a insurance for those future carbon tonnages.

        Example like one project would do carbon sequestration by growing a forest. Investors want those specific carbon credits from that project but nobody knows if the project would fall for numerous reasons. Maby the forest burns down before reaching it's maturity. In case of fire, those locked klima tokens could be retaired and beneficiary would be the investor and those issued future carbon credits would be burnt as a worthless.

        If the project delivers, the investor could swap those future carbon credits more mature ones (Fulfilled/ delivered once?), unlock the klima used as insurance for the project with the AKR provided yelds.

        This insurance utility could drive more demand for the liquidity of klima and Klima could be used to pool those future carbon credits. 👍

        IMO Future carbon credits are essential tool for growth of this space. So many wants to support this space but don't know what projects would actually deliver quality credits. That's why we need good research and analytics about risks and insurance on top of that. Legacy markets going to be essential for providing those quality CCs so let's don't forget them either on this.

        Money in our hand is a tool, let's put it to work.

        7 days later
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