• General

  • Request for Comment: Toucan NCT Bonds

Summary

We are requesting community commentary on the following topics:

  1. The introduction of Nature Carbon Tonne (NCT) into the Klima treasury via bonding of NCT and NCT liquidity pairs.
  2. Greater coordination between Klima DAO, Toucan, and other ecosystem participants to most effectively scale environmental asset markets.

Motivation ✨

The climate crisis requires urgent and collaborative action. We believe that Klima DAO, Toucan, and all adjacent projects are uniquely positioned to align on high-leverage opportunities that drive planet-positive impact. Only together can we best coordinate a response to humanity’s greatest challenge.

In their current state, carbon markets suffer from fragmentation, inefficiency, a lack of uniform data, and limited access. These infrastructure issues silo liquidity and participation, while also providing poor price signals for environmental project developers. As protocols innovating at the intersection of the climate and Web3, we find it imperative to work collaboratively on addressing these challenges. Failure to do so will only lead to increased fragmentation (e.g. multiple token standards for the same underlying assets) and the perpetuation of existing market shortfalls.

Klima DAO has established a strong position as an economic engine for on-chain carbon. We believe it is in Klima DAO’s interest to diversify its treasury with a range of environmental assets. Specifically, we see Klima DAO benefiting from an exclusively nature-based carbon reference token, Nature Carbon Tonne (NCT).

Further, we are motivated to encourage increasing collaboration between ecosystem participants to establish cross-protocol alignment that will most effectively scale environmental asset markets.

As neutral infrastructure responsible for the vast majority of on-chain carbon, our greatest concern at Toucan is not which assets gain the most adoption; rather, it is how we can ensure all on-chain environmental assets share high integrity and data uniformity. With this, we can converge on a Web3 meta-registry of interoperable assets and make meaningful progress in addressing the carbon market’s greatest issues.

About Nature Carbon Tonne (NCT) 🌱

NCT is the second carbon reference token to be launched on the Toucan Protocol.

Klimates are already familiar with Base Carbon Tonne (BCT), the primary reserve asset of the Klima treasury. BCT is the carbon building block of Web3, capturing approximately 85% of the on-chain carbon market share. Further, BCT is underpinned by 4% of all Verified Carbon Units (VCUs) held on the Verra registry, the world’s largest carbon standard.

The Base Carbon Pool was developed in close association with Klima DAO to align with Klima’s theory of change to raise the floor price of carbon. As such, the Base Carbon Pool is highly permissive and accepts all carbon credit types (solar, wind, nature-based, etc.). The Carbon Pool backing NCT, however, is more restrictive and only accepts newer carbon assets that meet nature-based methodologies.

Methodologies:

  • Nature-based carbon credits, excluding VM0022

Vintages:

  • 2012 and later, with a 10-year rolling acceptance window

Standards:

  • Verra, with the plan to support additional registries soon

A detailed report on the gating criteria and design process for the NCT pool can be found here.

NCT will be an ERC-20 token traded on the Polygon network upon launch. Like BCT, NCT tokens will be created when a compatible Tokenized CO2 (TCO2) token is deposited into the Nature Carbon Pool. NCT tokens will be removed from supply when they’re redeemed for a pooled TCO2. Every NCT is backed by exactly one TCO2 and each TCO2 is verifiably linked to one carbon credit in a supported registry.

With the introduction of NCT, the ReFi community has access to a premier carbon asset that’s backed by nature-based carbon tokens well-suited for high-integrity emission compensation via on-chain retirement. It is an asset for individuals, DAOs, protocols, and corporations alike to incorporate into their climate action strategies, while also serving as another building block accessible to Web3 developers.

Design Decisions 🌈

The market response to BCT makes us confident that Toucan Protocol is well-positioned to be the de facto infrastructure layer for on-chain environmental assets. We strongly believe that we’ve developed the most secure and Web3-aligned approach for several reasons:

  • Building for a deterministic system: The deterministic nature of smart contracts limits the need to trust central entities and ensures immediate settlement and self-sovereign retirement. Until legacy registries establish a clear process for migrating credits and/or introduce a “tokenized” state, retirement in the source registry is necessary to protect against double counting and guarantee market integrity.
  • Enabling decentralization: We are designing for increasing permissionlessness, censorship-resistance, and decentralization over time. This is aided by transparent and irrevocable tokenization.
  • Preventing double-counting: the verifiable retirement of carbon credits that point to a Web3 beneficiary address establishes full transparency for the carbon credits’ lifecycle.
  • Accelerating the transition to Web3: Carbon markets have been slow to innovate beyond Web1. Our deep commitments to Web3 values and a fully on-chain design will help us leapfrog Web2 models so that we can most efficiently scale markets and expand participation.

Proposal 🖊

We propose introducing Nature Carbon Tonne (NCT) into the Klima treasury via bonding of NCT and NCT liquidity pairs.

Further, we are calling on all ecosystem participants for an open and collaborative effort to most effectively scale environmental asset markets. This collaboration requires coordination on multiple fronts and we’re encouraging the following:

Adoption of consistent data standards

Capturing 85% of the on-chain carbon market share, BCT and its underlying TCO2s have set a precedent for carbon credit metadata within Web3. This ensures that carbon credit attributes — vintage, project type, registry of origin, etc. — are retained on-chain. Consistency in this data structure across protocols and environmental assets will ensure maximum interoperability, liquidity, and reporting capabilities. We encourage other protocols to align with and continue to co-develop the TCO2 data structure. If you’d like to participate in this continued development, let us know (TypeForm) and we’ll invite you to our next working group.

On this front, we’re very excited to leak details of an upcoming partnership between MOSS and Toucan. Very soon, we’ll be releasing a public announcement. In the meantime, we can hint that MOSS represents a large source of liquidity for NCT 😉

Working together to align data, we will establish a unified meta-registry of environmental assets across many bridges, protocols, and source registries. If you’re bringing environmental assets on-chain, we’re here to help. We’ll lend our code, insights, and resources as best we can.

Commitment to Web3 values of open access, transparency, and trustless design

The permissioned, siloed, and opaque nature of carbon markets has held back participation. As new projects come to market, we encourage critical discussion around how such projects align with the Web3 values that are helping to democratize our financial and economic systems.

At Toucan, we’re thinking deeply about our path to decentralization. This requires limiting points of trust, expanding transparency, and evolving toward a fully permissionless protocol that provides open access to our Bridge, Pools, Meta-Registry, and future infrastructure modules. Given that Toucan interfaces directly with existing markets and real-world assets, this process is made more complex and requires deliberate, thoughtful design.

Governance ⚖️

Web3 governance is hard and getting it right is critical to a project’s success. On this front, we’ve been quietly piloting a stakeholder engagement forum for launching the NCT Carbon Pool. We call this a Pool Party — the process of meaningful engagement with industry experts to inform the launch of a new carbon pool. This represents an early step in our path toward decentralized governance.

For the NCT Pool Party, Regen Network, MOSS, BICOWG, StarCB, BlockForClimate, Toucan, and Klima DAO all had representatives at the table. This group brought expertise and perspectives from different stakeholder categories.

Together, we designed the gating criteria for NCT and developed a launch plan. Moving forward, we will invite additional participants to make their voices heard. You can signal your interest via the following link: Toucan stakeholder engagement interest form (TypeForm).

Security 🔗

The Toucan codebase was audited by byterocket prior to the BCT launch in October. The BCT contract has now securely held upwards of $100m worth of tokenized carbon assets. NCT shares much of the same code base as BCT and we are therefore confident in NCT’s security. Nonetheless, we have applied for another audit specific to NCT and will provide the updated audit report as it becomes available.

In Closing 🌍

At Toucan, we believe Web3 has a key role to play in helping us urgently address our shared climate crisis. The importance of this cannot be overstated: we are working to secure the habitability of Earth for future generations.

Since launching with Klima DAO in October, we’ve collectively made a strong case for the future of carbon markets to live on-chain. This future is supported by Toucan’s pioneering Bridge, Meta-Registry, and Pooling infrastructure.

Looking ahead and to fully realize our vision for Web3 and the climate, we need both human and programmatic coordination. We’re calling on you to work with Toucan and align your DAO, protocol, corporation, or even yourself.

We look forward to hearing your feedback, questions, and general commentary.

Together, let’s make change 🌳

Resources

Taskforce on Scaling Voluntary Carbon Markets Final Report (2021)

Toucan: https://toucan.earth/

Toucan Bridge: https://toucan.earth/bridge

Documentation: https://docs.toucan.earth/

Twitter: https://twitter.com/ToucanProtocol

Community: https://discord.gg/cDbWuZKWxe

Should we introduce NCT bonds?

This poll has ended.

Before voting, I would like to to see the initial NCT arb by Toucan resolved. 1,265,655 BCT was turned into TCO2s and redeemed for NCTs by Toucan. Assuming a $4 premium, this represents a little over $5MM gained by the Toucan team. Based on sentiment in our Discord server, I don't think the community views this issue as resolved.

The main points that don't sit right with me:

  1. It seems like Toucan is asking Klima to buy back (via bonding) the arbed value Toucan extracted from BCT.
  2. Toucan chose to launch liquidity itself without the help of Klima. Why are we needed to bond liquidity? We would have to build up substantial KLIMA-NCT liquidity before any volume would travel through the pool. If Klima was made aware of the new standards it would've been fair to allow Klima to claim ~ 90% of the arb using our treasury (since we held ~ 90% of the BCT supply). Then Klima could've used that newly minted NCT to form a KLIMA-NCT pool. But now Toucan already has an NCT-USDC pool, which breaks Klima's goal of being the central carbon trading pair of the on chain market.

I want to see the symbiotic relationship between Klima and Toucan enhanced in an authentic way for the benefit of the ReFi ecosystem. Until then, all we have is words, and I will abstain from voting.

    I would also like to see the "rescue operation" fully resolve before this proposal goes to an official snapshot vote. Currently, we have seen a written commitment from Toucan the value rescued from BCT will be distributed via a board of "stakeholders", with Klima being a member of the board, but 0 visibility in what percentage of the board that is, nor any voted and confirm roadmap of value distribution from that pool other than "for the greater good of the ReFi community." There is already a significant concentration risk for the Klima treasury posed by the proposed Moss Toucan partnership, it would reduce Klima to a single point of failure if further commitments were made to the NCT pool without even fully resolving the BCT situation.

      IBuyShitCoins I have the same opinion - I'll vote yes BUT ONLY if we have tangible results (e.g. specific dates and plan) regarding arbitrage reimbursement.

      Also, in the proposal, Toucan is talking about the need for a single standard and unification but they (I suppose without consulting with Klima DAO) chose to introduce NCT-USDC pool that is in direct contradiction with Klima DAO's goal - to be the central carbon trading pair of the on-chain market that would make adding new pairs MUCH EASIER and thus helping the whole on-chain carbon market.

          I feel there has not been a clear explanation provided so far as to how Toucan is going to handle a) the situation with BCT and b) the issue of how solid any guarantee that it won't happen again with this current NCT pool is. We all love Toucan and what it stands for - on that basis, I hope Toucan can take the time to actually facilitate communication and transparency with the Klima community which has only goodwill for the team.

          Echoing all of the above. I am also not very keen to pay twice for the same carbon, especially as one of many who have supported the treasury all the way at much higher prices via BCT purchases, enabling Toucan to get where they are today in the first place. In the real world, business dynamics don't really work like that when you are heavily relying on 1 customer to start and grow.

          I am abstaining from this vote until further clarity is established around Toucan's RFC Fund Allocation, as outlined here: https://governance.toucan.earth/t/rfc-fund-allocation/17. KlimaDAO utilized capital raised during our LBP to seed the first BCT pool. Part of this initial liquidity included 463,825 nature-based tonnes which fit the criteria of NCT (current value = $3,800,000). I'm hopeful that we can move swiftly to return this value to Klima's treasury and regain strong alignment between Klima and Toucan.

          On another front, I'd like to see additional information on how Toucan plans to cultivate offset demand in the ReFi space such that NCT is not overly dependent on Klima. This is one of our core criteria for examining bridging partnerships and was an active area of discussion with Flow/Goddess DAO. I appreciate your team's thoughts on this @Robdog.

            Things aren't white or black and often don't happen as expected initially. These projects die easily if you're unable of swift decision-making. At that point there was no perfect solution, one that satisfies everyone, and there never will.

            Many people will invariably disagree with whichever path is finally taken. Toucan will deliver what's likely the best available solution. If you no longer at that point believe in them vote with your feet.

            Its time to acknowledge that it's been two weeks, we now have a fully functioning nature-based token - an incredible ReFi feat, offering immense possibilities - and it's time to move on and keep building.

              GoingJohnGalt You're right, it's time to move on but Toucan needs to fulfill their promises first. What was done was done and I have no hard feelings towards Toucan but the arbitrage situation needs to be fully resolved, the sooner the better.

                IBuyShitCoins +1 on this and other comments highlighting the need to actually resolve this before we can move forward.

                Struggle to see how Toucans words about working towards common are translating to actions.

                  ollumi We are having an open discussion around the value distribution on the Toucan governance forum https://governance.toucan.earth/. Before moving forward with voting, we are giving the community some time to put forward their RFCs.

                  To answer your question about the board, the funds are now in a 4/5 Multisig that consists of:
                  Klima DAO, BICOWG 1, Toucan Protocol, Moss, Regen Network

                    Dionysus

                    On another front, I'd like to see additional information on how Toucan plans to cultivate offset demand in the ReFi space such that NCT is not overly dependent on Klima

                    Completely agree. Moreover, it's hard for Klima to absorb all new supply through the bonding mechanism without a demand for offset. So in a ideal world Toucan should nudge/direct the demand for offset to Klima Infinity.

                        gui_m_p and @Dionysus the team has been working hard on solidifying demand for on-chain carbon in the broader ecosystem, which resulted in numerous leads. To my knowledge, we can't publicly announce any particular parties at this moment, but will hopefully be able to do so soon. Someone else from Toucan will most likely expand on this further here.

                          Can you make the images either scalable, or links to the originals? Its not possible to read them, and they have some very nice looking details that are lost in the blur!

                          • ela replied to this.

                            You're right, the situation isn't fully resolved yet. You can see our suggested timeline for resolving the outcome of the mass-balancing activity here: https://governance.toucan.earth/t/rfc-governance-process/16. We aim to announce a final decision on the allocation of the funds on 11/3. I think this also refers to your comment @ollumi

                            I also invite you to submit a RFC on our governance forum, if you have any alternative courses of action you'd like to see implemented.

                            In regards to your points:
                            The value that was secured was never priced into BCT in the first place, and members of the Toucan core have advised against depositing nature-based carbon credits into the BCT Pool at/before launch.
                            The LPing was part of/an outcome of the mass-rebalancing action, and, as previously stated, it would have been hard for Klima to co-execute it, as such decisions need to go through public voting with the Klima community (thus alerting profit-driven actors)

                              tiltom see my comment above re. specific dates (outlined here https://governance.toucan.earth/t/rfc-governance-process/16)

                              In regards to a single standard, we are referring to TCO2s, the semi-fungible carbon tokens that back BCT and NCT; not BCT or NCT or any trading pairs (as a large advantage of on-chain carbon is that it can easily and verifiably be retired by anyone, not only traded or held).
                              Having one single carbon token standard while still preserving the attributes and complexity of carbon credits addresses many issues with the existing carbon markets, like fragmentation of credits in different registries, while at the same time still allowing a healthy carbon trading system.

                                I Wholeheartedly agree with the sentiment here from all the apes and I think it's absolutely ridiculous that you guys even consider the fact that it might be OK for you to come arbitrage 5 million dollars of value out of the Treasury and ask klima to burden seeding your pool back at a higher price with new investment that you alone benefit from. You guys are fucking crazy. I hope no one votes yes on this

                                I personally am okay with the mass rebalancing undertaken by Toucan. I think they acknowledged that there was an oversight in the structure of their token and they took the steps to retain value. I am also confident that once they have established better community governance that the rescued value will make its way back to Klima. I am not okay with delaying bonding of NCT as it delays climate action and stalls the accumulation of credits. I feel a lot of the votes here are spiteful and many of those on this forum have whipped themselves into a frenzy and are overstating the impact to Klima. I understand price is down, but it’s not because of the mass rebalancing.