Storage of carbon offset value leveraging an elastic supply with yield.
Present-day carbon offsetting markets suffer from many challenges ranging from double-spending, ignorance of actual positive environmental impact to the validation and audit of an individual asset. Furthermore, landowners from all over the globe maintain carbon stores inside of soils that have no standardized method to monetize from the carbon-positive asset whilst providing accountability through public transparency. In this paper, we are introducing a solution for solving these issues, a two-sided marketplace for monetizing carbon assets backed by an elastic supply token targeted to the price of carbon. This system will enable the allocation of assets into verified carbon offset projects and retain a fair ongoing representation of the value of carbon they hold through a dedicated elastic supply token with multiple daily rebase events. The first rebase event will adjust the total supply to tend toward the price of carbon and the second will provide a passive mechanism for individuals to offset their carbon footprint.
The primary challenge with understanding the environmental impact of carbon is that it is difficult to visualize the effect our individual behavioral habits change the world around us. Somehow we need to work together as an egalitarian society with the responsibility that together we will make a difference. Media dictates imagery ranging from humongous arctic icebergs collapsing to severe changes in weather, the macro damage from the collective, but for us, the everyday individual it is difficult to conceptualize our duty. There has been a colossal influx of carbon-offsetting products and services throughout the last decade but for consumers, they tend to act as a tool for charity and to increase status. The majority of products aren’t audited for carbon change over time, so in many cases the actual tangible impact is unknown.
There are many intersections within the carbon offsetting industry that require innovation to provide a two-sided marketplace of buyers and sellers of carbon assets.
- Ongoing demand and pressure for environmentally friendly carbon offsetting solutions on both the consumer and business side.
- Large enterprises have a legislative responsibility that requires them to offset internal carbon emissions, with proof.
- Verification of real-life behavior or actions from a trusted source.
- Dapps that interact with the real world.
As the price of carbon changes week-by-week it is difficult to ascertain if there was a fair exchange for the real environmental value delivered. This volatility needs to be captured through the use of a range of oracles to feed up-to-date data into the economic carbon system in order to gradually adjust or rebase the entire supply such that the price of an individual token tends to the current price of carbon. We’ll call these tokens cDOV from now on, representing a unit of value with a single-use to offset real-world carbon.
In order for a carbon asset to be rewarded, it has to be verified and offered on the carbon market. From this point, a new mini-pool of cDOV and carbon tokens is minted, to provide an opportunity to monetize an asset over a locked period with a set of predefined conditions.
Finally, once carbon has been allocated to a project the offset capability benefit has been consumed which in turn results in the cDOV being liquidated to the asset owner then subsequently burned. In its wake, a non-fungible token (NFT) is created and sent to the buyer as proof of environmental impact. All cDOVs in the circulating represent a constant of the potential carbon offset value for all holders.
How it works
The project builds upon the work from Ocean Protocol marketplace and elastic supply rebase tokens such as AMPL, Base Protocol, and Rebase Capital. For the carbon market, we extend the functionality of Ocean, ensuring through an additional feature set, to ensure that the assets are verifiable and auditable. The rebase token features have been extended to track a dynamic price of carbon which is novel as it directly affects all of us, with an additional burning mechanism as a potential carbon offset can only be consumed once.
Our dynamic target pricing for the dynamic value of carbon is similar to the approach that Base protocol has taken to create an index of the crypto market cap and inspiration has been drawn from Rebase Capital’s use of “stimulus” payments as an additional daily rebase yield.
In short, the scope of the system delivers three distinct innovations to improve the foundational layer.
- A rebase token pegged to a real-life single-use asset with a burning mechanic.
- Verified and auditable assets inside of a decentralized data market.
- An engine to schedule the liquidation of cDOV to an asset owner over a duration of time triggered by predefined rules.
In the first case of the carbon market, we’ll discuss the seller as an example being a land manager who wishes to monetize a carbon asset, the soil on land. Ground soils especially farmland can contain a diverse range of environments, such as peat bogs and forests, which can be used to maintain carbon stores. By using modern and environmentally friendly farming practices carbon emissions can be sequestered into the soil and measured to uncover insights into how successful carbon stores have changed over time.
Inside the market, we can use this information in addition to documents that prove ownership and location to create rules and a schedule for payments locked in a smart contract. Sellers can offer the asset with the documents, as a tokenized pool of potential carbon storage to buyers of the market.
This is all bought together through the use of the elastic supply token, cDOV, that is targeted to rebase to the price of carbon, with an additional benefit for passively offsetting an individual’s carbon footprint for simply holding the token.
The DOVU carbon token flow
The diagram illustrates the token flow for DOV and carbon tokens, cDOV. These tokens are elastic thus adapting or rebasing the supply to tend toward the current price of carbon. An additional daily rebase event occurs to generate the offset footprint reward for all network participants, to an upper APY limit. There are carbon yield farming opportunities, to earn a higher rate of cDOV as an incentive by providing a service to the network through liquidity.
Carbon footprint offset reward
(hCv / Mc) * (Mc / 364.25)
Where hCv is the held carbon fiat value in cDOV, Mc is the maximum carbon reward representing an average daily carbon footprint for an individual.
Note that the held calculated multiplier may not be higher than 2, this is to incentivize the distribution of cDOV over multiple wallets providing opportunities for all participants to passively offset their carbon footprint.
Holding cDOV will provide a resource for an individual to live a carbon positive life, passively, only having to choose assets in the carbon market to assign their asset to.
The average person in the world produces 4.8 tonnes of carbon dioxide emissions a year and the average cost of a tonne of carbon is 31.60 euro as of 14/12/20. Extrapolated out an individual would have to pay 151.68 euro to offset their footprint. In terms of holding cDOV an individual could maximize the passive offset by holding enough cDOV to meet that cost. The benefit would be for subsequent years the cDOV value would only need to be topped up, if required, to meet the current carbon price levels.
Why elastic supply is key for carbon offsetting?
An elastic supply provides a solution for pegging the value of a token to value in the real world at a given point in time. Imagine this scenario, as mentioned above if the price of a tonne of carbon is 31.60 euro and there are theoretically 100 cDOV in circulation, cDOV would provide 100 tonnes of potential carbon offset.
If the cDOV market price changed, the daily rebase will adjust the supply to tend toward the price of carbon. Purchasing of cDOV provides a tool for the holder access to the potential carbon offset, the purchase of 1 tonne of carbon today at a given price point may not represent the value of a tonne tomorrow, but the fiat value invested should be relatively stable within the constraints of a DEX market.
- cDOV tokens are only minted to support the passive offset for a carbon footprint, up to a limit, to disincentivize large holdings for the risk of market manipulation.
- cDOV tokens are burned once they are traded into DOV, as that represents the conversion of potential carbon offset into real value, to add positive price pressure.
- cDOV price discovery is based on the pairing with DOV tokens, where the market has settled to a market cap of approximately 250-300k.
Furthermore, our primary pairing for DEX is to pass through our current DOV token. All volume for trading cDOV, our carbon market, and new price discovery will benefit current DOV holders. Third parties or partners may create new markets with other tokens.
Current DOV token holders can use their current holdings to swap to cDOV, with the addition of gas to swap tokens.
1 tonne of carbon = 1 cDOV
Daily target price using an oracle using an average index of multiple carbon price feeds.
Initial supply: 1100 cDOV
1100 cDOV in liquidity supply
Using the price of carbon at $30, for a simple illustration.
Initial target market cap target: $30k
Undiluted market cap: $33,300
All tokens are linked with the value of DOV and staked as liquidity onto a DEX, such as Uniswap.
Current DOV/USDC price is 30,000 DOV to $30.
30,000,000 DOV paired to 1000 cDOV.
The pairing of both DOV and cDOV will create a liquidity pool worth approximately 60k.
Daily rebase to the price of carbon using the average of 3 data sets using an oracle.
Daily yield of up to 100% APY, based on an upper limit of ownership of 4.8 cDOV, average individual consumption of carbon a year.
Holders will be periodically notified of whether they need to “top-up” their cDOV balance to maximize carbon yield reward on DOVU applications.
Experimental v2 concept: Token Burn & Carbon reseed function.
Every cDOV that is traded out of the DEX is assigned to be burned, compressing supply, as it is considered “consuming” or “deploying” the potential offset value.
One token is locked in the contract to ensure that the supply will never be exhausted for daily rebasing events and will be a basis for seeding the supply in case all tokens are sold on the market.