ReFi Generation
Ep. 21 Carbon Markets & Blockchain with Marcus Aurelius from Klima DAO
Welcome back from our summer break! Marcus Aurelius from Klima DAO joins us to discuss how blockchain technology can revolutionize the carbon offset market. Marcus has a background in data science and data engineering and is passionate about leveraging data to solve problems and make better decisions. Marcus sets the stage for us by sharing how nearly 2 trillion tons of CO2 have been emitted since the industrial revolution, yet the carbon markets to date have yielded only 2 billion CO2 credits, with only about half being retired. This is a huge mismatch, especially with an estimated 40 billions tons of CO2 being emitted yearly.
Klima is an exciting protocol for bridging carbon offsets onto the blockchain. You might ask why this is necessary? By bridging carbon offsets on-chain, Klima brings an unprecedented level of transparency and auditability to the carbon offset market. Klima is mostly focussed on the demand side of the carbon market, but we also learn about some of the carbon projects that Klima is supporting on the supply side who are using dMRV, digital measure report verification. This drastically reduces the cost of verifying ecological data claims, thus further democratizing the ability for smaller scale regenerative actors to enter the market.
Marcus is skeptical of the top-down approach, especially in the time frame needed to solve the environmental crisis. We discuss the key players in the carbon offset markets. From buyers to suppliers, Marcus shares nuanced insights on how this traditionally opaque carbon market is in dire need of improvement. In comes Regenerative Finance - bringing greater access to carbon markets with lower barriers to entry, allowing for greater liquidity, better on ramping rails for purchasing offsets, along with reducing green washing because the authenticity of impact claims can be verified and trusted.
We learn how AMM’s (Automated market makers) or decentralized exchanges, are the key innovation in decentralized finance because they allow for the creation of an asset with complex underlying behavior, unlocking the ability to create liquid assets out of previously illiquid assets.
Klima is looking to address the “Carbon tunnel vision problem” to move beyond just the carbon market and we learn of some of the exciting forward financing projects Klima is taking on. The beauty of ReFi is that some of these projects are cutting edge and would be traditionally hard to fund with the more conventional due diligence process of a philanthropy, but because KLIMA is a DAO, the public who holds the KLIMA token is able to vote and make decisions on where climate financing is invested.
Klima Twitter
Marcus' Twitter
Klima's Carbon Dashboard
Klima App
Offset your emissions with Carbonmark
Welcome back from our summer break! Marcus Aurelius from Klima DAO joins us to discuss how blockchain technology can revolutionize the carbon offset market. Marcus has a background in data science and data engineering and is passionate about leveraging data to solve problems and make better decisions. Marcus sets the stage for us by sharing how nearly 2 trillion tons of CO2 have been emitted since the industrial revolution, yet the carbon markets to date have yielded only 2 billion CO2 credits, with only about half being retired. This is a huge mismatch, especially with an estimated 40 billions tons of CO2 being emitted yearly.
Klima is an exciting protocol for bridging carbon offsets onto the blockchain. You might ask why this is necessary? By bridging carbon offsets on-chain, Klima brings an unprecedented level of transparency and auditability to the carbon offset market. Klima is mostly focussed on the demand side of the carbon market, but we also learn about some of the carbon projects that Klima is supporting on the supply side who are using dMRV, digital measure report verification. This drastically reduces the cost of verifying ecological data claims, thus further democratizing the ability for smaller scale regenerative actors to enter the market.
Marcus is skeptical of the top-down approach, especially in the time frame needed to solve the environmental crisis. We discuss the key players in the carbon offset markets. From buyers to suppliers, Marcus shares nuanced insights on how this traditionally opaque carbon market is in dire need of improvement. In comes Regenerative Finance - bringing greater access to carbon markets with lower barriers to entry, allowing for greater liquidity, better on ramping rails for purchasing offsets, along with reducing green washing because the authenticity of impact claims can be verified and trusted.
We learn how AMM’s (Automated market makers) or decentralized exchanges, are the key innovation in decentralized finance because they allow for the creation of an asset with complex underlying behavior, unlocking the ability to create liquid assets out of previously illiquid assets.
Klima is looking to address the “Carbon tunnel vision problem” to move beyond just the carbon market and we learn of some of the exciting forward financing projects Klima is taking on. The beauty of ReFi is that some of these projects are cutting edge and would be traditionally hard to fund with the more conventional due diligence process of a philanthropy, but because KLIMA is a DAO, the public who holds the KLIMA token is able to vote and make decisions on where climate financing is invested.
Klima Twitter
Marcus' Twitter
Klima's Carbon Dashboard
Klima App
Offset your emissions with Carbonmark
What Klima is really trying to do is to disrupt the set of brokers and intermediaries that sit in between the project developers and the people who have money and want to support climate action, so that more of the money gets the project developers one and two, so that more people can access this market.
Speaker 2:Welcome to ReFi Generation, the podcast that talks to experts and leaders in the new frontier of regenerative finance to examine how blockchain technology is creating the next generation of environmental and humanitarian initiatives. I'm your host, cash Upton. Welcome back from our summer break. Today, we have the pleasure of talking with Marcus Aurelius from KlimaDAO. A DAO is a decentralized, autonomous organization where decisions are made by the holders of that token. Marcus has a background in data science and data engineering and is passionate about leveraging data to solve problems and make better decisions.
Speaker 2:Marcus sets the stage for us by sharing how nearly 2 trillion tons of carbon dioxide have been emitted since the industrial revolution. Yet the carbon markets to date have yielded only 2 billion CO2 credits, with only about half of those being retired. This is a huge mismatch, especially with an estimated 40 billion tons of CO2 being emitted yearly. This is why the Klima Protocol is so exciting because they're bridging carbon offsets onto the blockchain. You mighta protocol is so exciting because they're bridging carbon offsets onto the blockchain. You might ask why is this necessary? By bridging carbon offsets on chain, klima brings an unprecedented level of transparency and auditability to the carbon offset market. Klima is mostly focused on the demand side of the carbon market, but we also learn of some of the carbon projects that Klima is supporting on the supply side of the carbon market. But we also learn of some of the carbon projects that Klima is supporting on the supply side who are using DMRV, aka digital measure report verification. This drastically reduces the cost of verifying ecological data claims, thus further democratizing the ability for smaller scale regenerative actors to enter the market.
Speaker 2:Marcus is skeptical of the top-down approach, especially in the timeframe needed to solve the environmental crisis. We discuss the key players in the carbon offset markets, from buyers to suppliers. Marcus shares nuanced insights on how this traditionally opaque carbon market is in dire need of improvement. In comes regenerative finance, bringing greater access to carbon markets with lower barriers to entry, allowing for greater liquidity, better on-ramping rails for purchasing carbon offsets, along with reducing greenwashing, because the authenticity of impact claims can be verified and trusted. We learn how AMMs automated market makers or decentralized exchanges are the key innovation in decentralized finance, because they allow for the creation of an asset with complex underlying behavior to be unlocked and have the ability to create liquid assets out of previously illiquid assets.
Speaker 2:Klima is looking to address the carbon tunnel vision problem, to move beyond just the carbon market and we learn of some of the exciting forward financing projects Klima is taking on. The beauty of regenerative finance is that some of these projects are cutting edge and would be traditionally hard to fund with the more conventional due diligence process of a philanthropy. But because Klima is a decentralized, autonomous organization, the public who holds the Klima token is able to vote and make decisions on where climate financing is invested. It was a pleasure to talk with Marcus. I hope you enjoy the episode. Hey, marcus, how are you doing today?
Speaker 1:Hey, cash, pretty good. How are you?
Speaker 2:Doing well. I'm excited to have you on and it was great to meet you at ETH Denver and I really liked some of our philosophical refi conversations and also the practical Excited to have you on. I think it'd be great to start with just a little background how you got into refi and kind of what refi means to you, how you explain it to someone new in the space and then go into a little history on KlimaDAO, what Klima is up to and kind of where you see the refi space evolving.
Speaker 1:Sure, yeah, likewise, it was great to connect in person in Denver. So a little bit about me and how I got involved. My background is in data science and data engineering. Professionally, I worked in Web2, at a consulting firm and then an ad tech company, and I really was interested in how to use data to solve problems and to make better decisions. I'd always had an interest in sustainability and, growing up in South Florida, the pending impact of the climate crisis was evident to me from a pretty young age. I didn't really see, though, how to apply myself to address the problem. I took one class in undergrad about sort of the philosophical problems of climate change as part of my philosophy undergrad program, and I had a technical programming background, but I didn't really see how to apply myself. I didn't see how to make an entry into the sustainability and climate space on a professional level, so I was sort of During my experience in ad tech, I was sort of feeling a bit directionless, feeling a little unmotivated, working for the corporate machine, and so I started looking around and I found blockchain technology, basically through a neighbor of mine who had gotten excited about it and jumped in with two feet, started investing my own money, started learning about the technology and what was possible.
Speaker 1:And then, in September of 2021, I heard about CleanMindow on the Bankless podcast. So I had heard about carbon markets. Back in that undergrad class, I took a little bit. I didn't know much about it, but I had heard about carbon markets. Back in that undergrad class, I took a little bit. I didn't know much about it, but I had heard about it. And I started learning more and saw CleanMidow really as an opportunity for me to jump into a space where technology was being used to try to scale up climate action.
Speaker 1:So I started learning about carbon markets, started poking around in the Discord asking questions and eventually I started to. And eventually I started to answer questions because I started to understand a little bit about what was going on and pretty quickly got deputized as a moderator in the KlimaDAO Discord back in September of 21. And it became clear that there was a need for someone with my data science background and data engineering background to solve some problems that the Klim clement out team was facing as they built out um, yeah, as they built out their product. So came on board and uh, yeah, basically the rest is history. Uh, since late 21, I've been a contributor at clement out, working mostly on our our data stuff. So data analytics I built a bunch of discord bots. I built the carbon dashboard um, it's now one of our main data products, as well as some of the project data Carbon project data. That's fueling a lot of the applications that Clean the DAO has built.
Speaker 2:Awesome. Yeah, we'll put a link into that dashboard to share it. So most of our listeners will have heard of Clean the DAO, but what is the TLDR on what Clean the DAO exactly does? And tokenized carbon? And then let's also zoom out a little bit on why this is important, why blockchain, why is tokenized carbon and other eco-assets important? Because of what traditional problems face the carbon markets.
Speaker 1:Yeah, sure. So I guess one thing to put in perspective is the scope of the problem that we're dealing with when it comes to climate. So, on one hand, there are different dimensions of impact that our changing climate is having on both our human systems as well as the natural ecosystem. So, obviously, with increasing temperature comes impact on increased prevalence of natural disasters, which obviously impacts human communities and natural ecosystems, and so the scope of the problem we're dealing with has both depth and breadth. So, on one hand, there's these different aspects of the problem, whether that's, you know, putrefaction, loss of biodiversity, warming temperatures, increased natural disasters, but then the scale of each of those dimensions is quite large as well. And so, if we focus specifically on the carbon aspect of the climate challenge, we've emitted about 2 trillion tons of carbon dioxide already since the industrial revolution up into the atmosphere, and we're still emitting about 40 billion tons per year. Pollution up into the atmosphere, and we're still emitting about 40 billion tons per year. Meanwhile, the scale of the carbon markets as they exist today has only led to the creation of about 2 billion tons of carbon credits ever, and only about half of those have been retired, ie a claim has been made using them, and so this is a huge mismatch. If this mechanism is going to be meaningful in addressing the climate issue, then it needs to scale up dramatically, but also in a way that has high integrity, so that we're not just creating a bunch of numbers that don't mean a whole lot, but that we're actually addressing the scale of problem, getting that 40 billion tons per year down dramatically and also addressing the 2 trillion tons of historic carbon emissions that need to be addressed if we're going to stabilize the climate.
Speaker 1:And so, from my perspective, there's sort of two ways you can approach this problem. Either you can just say well, the government will come in from the top and they'll implement a carbon tax, or they'll fund a bunch of projects that will go and suck the carbon out of the atmosphere and sort of the governments will ride in and save us. Or you can come from the bottom up and try to solve this by getting everyone to change the way they behave, by getting every company to change the way they do business, and really addressing the problem from the ground level. I'm a bit skeptical about the top-down approaches. I think the negotiations going on through the UN, fccc, the UN's climate negotiation process, are super important, but I'm also a bit skeptical that there will be coordinated action on this issue, at least until the consequences are quite severe. My sort of cynical take is that when things are really bad, when there's mass migration, millions of people, you know, leaving countries because there's famine or heat waves, then the governments will become very, very concerned and they will act decisively. But until then the political incentives are not really aligned for government action to take place at scale.
Speaker 1:So I view a lot of what's going on in the carbon markets and other environmental asset markets as building infrastructure, building rails that right now are being paid for by private entities who want to support climate action for whatever reason, whether that's PR marketing, whether that's because they just feel like it's the right thing to do, or maybe their financers are putting pressure on them to have a sustainability strategy. The point is private capital that's going and doing stuff, paying for things to be done, and eventually the same infrastructure that we're building to fund climate action through private money could also be used by governments to channel capital toward regenerative activities through public capital of government action from the top down, and so hopefully we can build technology infrastructure that will make it possible to fund climate action among the along these different dimensions whether that's climate or other aspects of the problem at scale, so that when governments are ready to deploy trillions of dollars of capital, they can leverage the same technology Anyway. So that was a bit of a deep dive into, like, my philosophical positioning in this space and specifically what Klima is trying to solve is a set of problems with the market structure of carbon markets in particular, but also these environmental asset markets in general. So a little bit about how carbon markets currently work. There's really four different players in the carbon market space, four key players.
Speaker 1:On one hand, you have people with money who want wanna support climate action, so this is typically corporations. It could also be individuals. They have dollars and they wanna fund climate action in a verified way. On the other side of the market, you have suppliers or carbon projects developers. They're going to go and do something. They're gonna plant trees or install solar panels, take some activity that either avoids carbon emissions or removes carbon emissions that have already gone up into the atmosphere.
Speaker 1:Those are the two key players the supply and the demand. But then, because of the unique nature of carbon and the sort of environmental activities, they need to be verified. And so there's two players that come in on the verification side. On one hand, there's a registry that come in on the verification side. On one hand, there's a registry, and a registry is basically a database where all these projects register themselves and say you know, this is what my project, this is what I'm doing, my location. And then there is a VVB or a validation and verification body, and the VVB's job is to basically check the project developer and make sure that they did what they said they were going to do, that they follow the methodology, they collect a bunch of data from the project developer and analyze that data to confirm that the claim being made by the project developer that they avoided or removed X number of tons of carbon dioxide is legitimate, based on the scientific understanding yeah, based on mainstream scientific understanding. So those four players work together to issue and basically drive this market.
Speaker 1:The issue that Clemandown is really trying to solve is closer to the demand side, because currently the way that a buyer who has money and wants to support these client projects gets their hands on. The underlying asset is by calling a broker on the phone, going back and forth over email, sending a wire transfer, and then they get a PDF in their inbox and that PDF is like their proof that they actually did the thing. They said that they actually retired a certain number of carbon credits, and then they typically A big company will bury that PDF in page 50 of their 100-page sustainability report. And that's how they're operating, how the market currently operates, and what Clemo is really trying to do is to disrupt the set of brokers and intermediaries that sit in between the project developers and the people who have money and want to support climate action, so that more of the money gets the project developers, one and two, so that more people can access this market.
Speaker 1:Because if you're calling a broker, um, there's a sort of minimum order size that the broker will take seriously. And if you want to buy, you know, for me, for instance, I run a you know a personal business. My work at clema dow is basically, um, you know, done under a personal business that I run. I want to offset my business's emissions, but I only have like 100 tons of emissions per year, and so if I call a broker on the phone, I'm like, hey, I want to buy $200 or $500 worth of carbon credits. They're going to laugh at my face and hang up. And so the idea behind using DeFi and some of this on-chain infrastructure to build a better carbon market is that we can provide broader access to people who just want to buy a few tons or a few hundred tons and do so in a way that's much lower fee, much lower cost than going through a broker.
Speaker 2:I love it.
Speaker 2:Yeah, that's a really top good reasons to read them back a little bit that you add liquidity and create easier rails for everyday people to invest in smaller offsets. And then I'm also thinking of some of the issues that were reported with some greenwashing or questioning if a project was as impactful as as they said it it was. So the blockchain kind of gives us layer of transparency and verification. I'm wondering, too, where the MRV Measure Report Verified comes into your thinking as why refi as well? Real quick, I'm wondering if you could just share a little bit of what the defy tools, the decentralized finance tools that were created that were able to be used in a in the regenerative finance, uh, ecosystem, and just kind of like that broader picture of you know. Like maybe a quick thing about olympics and why that was chosen, and then just kind of how, how Klima works as well, because I think it is a really cool mission statement to be like the black box of carbon credits right You're in and how Klima is trying to, you know, be a repository for those.
Speaker 1:Yeah, okay, I'll try to address those in turn. So, on one hand, the DeFi innovation so what is different about DeFi that allowed us to do some of that stuff? So I'd say the key innovation that really unlocked the possibility for what we're doing is the AMM, or decentralized exchanges, because they allow you to create an asset that has complex underlying behavior and then treat it as just an asset that you can buy and sell. So, in particular, we have these baskets of carbon credits, called carbon pools, that contain many different underlying carbon projects within them, but once you wrap them in this ERC-20, right a sort of fungible token wrapper, you can then buy and sell that asset as a whole, rather than having to buy and sell the individual underlying carbon projects, and so that really unlocks liquidity. The AMM unlocks the ability to create liquid assets out of otherwise illiquid assets. So that's the key innovation. The other key innovation that's related is the Olympus DAO model, and one of the real, in my mind, the most meaningful insight behind Olympus DAO is the notion that a protocol can own liquidity positions in its treasury Rather than just holding, like Ethereum. You can hold Ethereum, usdc, lp tokens in a protocol treasury and then you can use governance to manage that protocol or manage that liquidity. So CleanMidow used both of these innovations. We have a treasury, an Olympus-style treasury, that holds carbon credits as well as liquidity pool tokens, and then we use our native token, the Klima token, as the key liquidity pair. So you have carbon Klima and then Klima's paired with stablecoins, and the interesting thing is that because Klima is much more liquid than any of the individual carbon credit tokens that back it, you can have basically a volatility buffer. Anyway, I don't want to get super technical, but basically Klima the token provides a very liquid index of carbon credits and then provides access to buy and sell a particular type of carbon credit through this liquidity routing mechanism. So those are really the key insights from DeFi. The other thing we get sort of off the shelf from just running on a blockchain is an unprecedented level of transparency and auditability that you just don't get off the shelf with the traditional Web2, like a SQL database. You can enable an audit log in a SQL database, but you're still trusting that the administrator of that SQL database is not going in and manipulating the audit log, whereas once you put transactions on chain, everything is auditable and is verified by a network of thousands of nodes all over the world, so we get some of that nice traceability and auditability off the shelf.
Speaker 1:You asked was more about like um, mrv and sort of assessing carbon credits, um, and particularly around concerns like quality, double counting, transparency, um, so the interesting thing is that this problem sort of breaks down into two different sets of problems. So on one hand, on the demand side, there's a set of problems around how do you make sure that people are publishing the prices they paid, for instance, for their carbon credits, that they're publishing what particular projects they used, how many tons they retired versus what their emissions were. Basically, that companies are being honest about their disclosures and they're not sort of either understating their emissions or overstating the number of credits that they purchased, understating their emissions or overstating the number of credits that they purchased. Basically that the claim, the final claim that the company is going to make or the individual is making, is legitimate. Then, separate from that, there's a set of problems around the projects themselves, the carbon credits themselves, and whether or not the projects were carried out appropriately, whether or not the monitoring was done correctly, that they estimated the amount of tons they avoided or removed correctly, and so I want to tackle those two sets of problems separately, most importantly because Klima is very much focused on the demand side problems. We are not really directly touching the supply side problems except in some sort of indirect ways.
Speaker 1:We do support projects through project financing and some of the projects that we're financing are using innovative DMRV approaches, dmrv being digital monitoring, reporting and verification. For your listeners, a little context here. Typically, when a carbon project is being verified, the organization went out and planted the trees, they waited a few years for the trees to grow out and now they have a third party that's going to come in and count the number of trees and figure out if they're healthy or not, how much carbon they sequestered. The typical way that's been done over the last 30 years is they literally fly out a consultant from a European or North American country to wherever the project is. The consultant has a clipboard and a tape measure and a little clicker thing and they go around and they count trees or they measure the diameters, the average diameter and stuff like that.
Speaker 1:Very old school, very analog. And the idea of digital MRV is can you use technology to make that process faster, cheaper and more effective, more accurate? So things like drone footage, satellite imagery, iot sensors there's a variety of different data modalities, but we've been financing projects and we financed a few that are using either. So one of them is an IoT based water filtration project. So they have a water purification plant in India and they're using an IoT device to monitor the amount of water being purified and the amount of energy being consumed. Iot device to monitor the amount of water being purified and the amount of energy being consumed so they can calculate the net carbon benefit using hard data instead of like sending someone out with their eyeballs to look at the gauge and like calculate the flow rate. They have a sensor to monitor that Similarly. Yeah, that's an example of a project using DMRV.
Speaker 2:Yeah, I really like those reasons you gave, because sometimes I hear the argument that DMRV may not lead to democratization and price decreases for this, but it sounds like the traditional way of bringing someone on the ground and flying them in is a lot more expensive than using these drones and satellites and IOTs. So maybe where blockchain comes in is that that's the underlying ledger that will show that that drone or sensor was legitimate and verified, more than just a traditional satellite image that maybe isn't isn't verified. So that is that kind of like why blockchain? Because obviously drones and sensors have been around for a while, but the actual tying it to verified blockchain data is kind of like the gap maybe yeah, definitely so.
Speaker 1:on the dmrv, like supply side set of issues, um, the key role of blockchain is for data provenance, um and and lineage. So, like you know, a sensor. Well, how do I put this? A particular sensor may or may not be accurate, a particular sensor may or may not be compromised, but if you embed in that sensor a cryptographic secret that's, that proves, like the identity of that sensor, you at least know that the data came from that particular device, as opposed to being provided by an analyst at the BBB who hooked up a spreadsheet that looks good. And so that provenance, the fact that the data came from a particular sensor with a particular cryptographic ID, gives greater confidence in the resulting analysis.
Speaker 1:The other interesting thing you can do with blockchain technology on that side of the market, on the supply side, is some of the calculations are quite complex, to go from a raw data point to an estimate of the carbon avoided or removed, and so one of the cool things you can do with these decentralized compute platforms is you can say here's a piece of code, a script that I want to run.
Speaker 1:My input data is already on the blockchain. I want someone to go and run this code and attest like I ran this code. This is the result I got, based on the input data coming from a blockchain, and this gives a much greater level of confidence. If you know that the code was published, it was run on an decentralized network of computers all over the world. It gives you much greater confidence that the analysis was carried out appropriately, because you're not just trusting one third party to do that analysis. You have a mechanism for reproducing that analysis on demand. But just to be super clear again, the problems that Clean the DAO is mostly focused on solving are on the demand side, although we are supporting some of the DMRV supply side focused solutions as well.
Speaker 2:Gotcha, and those would be more of the protocols that are bridging the on-the-ground work into carbon offset credits. And then Klima is creating the marketplace or the decentralized exchange for allowing the purchase of these and the retirement of these credits.
Speaker 1:Yeah, basically we're on one hand financing projects through the Dallas Treasury that are using DMRV to issue carbon credits and on the other hand on the demand side we're building that marketplace so that users can buy and sell and retire these credits more easily.
Speaker 1:The other thing I would bring up that we haven't mentioned is this programmability aspect that blockchain brings. So the way that these retirements of carbon credits are typically done in the legacy world is like once a quarter, maybe once a year, a company estimates their emissions and then does everything in one batch on an annual or quarterly basis. But one of the things that a lot of our clients are really interested in is can you retire carbon on a more frequent basis, like every time someone books a flight or every time a widget is manufactured? And so that programmability aspect I think often gets glossed over because it comes out of the box with all the other blockchain stuff once you have the credits on chain. But I think it's a really powerful primitive. That's not really possible in the traditional market because of this network of people calling each other on the phone to settle transactions. Automating the retirement of credits is quite challenging in the Web3 space, but it's sort of a non-issue. It's very trivial in the Web3 space.
Speaker 2:Cool yeah, the power of smart contracts. Going back to the DeFi tools Exactly, defi was built on Lima's done some pretty incredible work so far. I mean millions and millions of tons of carbon have been put into klima. So do you want to just give us like a quick recap, because when when I met you at at east denver, we had a really interesting conversation of just kind of you taking me through kind of the narrative history, and you know I don't want to go down the road today and and talk price, but I want to talk you know what, what was the whole just story behind launch and kind of where you guys are at now, just to kind of give everyone like the, the full picture yeah.
Speaker 1:So when we met out, launched back in late 2021, uh, suffice to say, the project made quite a splash. We've attracted about 5% of all the outstanding carbon credits in circulation to come on chain, be deposited into the Klima DAO treasury, so that does make Klima now one of the largest holders of carbon credits in the world. Really, as I was saying earlier, the objective was to disrupt this inefficient market structure and, at a certain level, that objective was achieved with smashing success. There is now liquid prices for a variety of different carbon credits available on-chain public, 24 hours a day, and now there's a whole new set of people, of users, that can access these credits and use them to meet their sustainability goals. But that was really the start of the journey, not the end, and my perspective is that there was a lot of excitement, a lot of energy around the launch. That then was looking for an outlet, and what ended up happening is that we built a retirement tool that would allow people to, you know, consume the underlying credits and make claims you know that I've supported installing wind power in India or whatever the project did and that took a few months between the time we launched and the time that feature went live. That feature went live and honestly, I think, looking back the expectations that things would move really quickly, that all of this would take off overnight, that the legacy market would suddenly shift their behavior and start using the on-chain market, I think they got out over their skis, got ahead of themselves. And the other thing is that the Web3 space crypto people are used to really rapid progress, really rapid change, and we're interfacing with the traditional market that is quite slow moving, very deliberative, mostly staff with people who have been in this market for 10 to 20 years to like be pushing and moving quickly. There is also this sort of slower, more deliberate process that needs to take place of getting incumbents who have been doing business this way for, you know, 10 plus years to come along for the ride if we're really going to drive change. So, yeah, that's where I see a lot of like.
Speaker 1:The tension around launch I think came from this expectation that things would move quickly. And then the reality that we're interfacing with a legacy market full of incumbents who are much more deliberative and slow moving than the crypto markets. And then, in terms of where we're headed or what I see coming, I think there's two big areas. One. We've been doing this forward financing stuff for some time for about a year and a half, and that was something we weren't really doing around launch. It wasn't even being talked about around launch, but it was a direction that was pretty obvious to move in as we started developing relationships with the traditional carbon market players that we were trying to bring along for this new ride. So we want to keep doing more of that. But the exciting thing that's happening is we've got delivery coming on some of those credits quite soon now. So the first vintages we bought were 2023. So they're being verified right now and then we would expect delivery of those 2023 vintage credits sometime second half of this year. And, yeah, once we take delivery of those, we have some more options about what to do. Options about what to do. For instance, we can create a liquidity pool with some of those credits to allow people to buy and sell different types of credits that aren't currently available through the existing liquidity pools. So I'd say, generally, diversification of supply is one exciting direction that I see coming.
Speaker 1:The other thing that's happening is beyond carbon markets. There are some emerging environmental asset markets that are totally different right, attacking a different part of the climate problem, this multidimensional, complex problem that we're all dealing with, and the impact that human activity has on biodiversity, and ways in which you can fund projects that are going to go and do something that either conserves or restores biodiversity somewhere in the world. And so now there is a new framework that's been being developed by this group called the Lexicon, and it's called the Ecological Benefits Framework and the idea behind the EBF your listeners might have heard about this from other guests. It's sort of making the rounds in the space, but the idea is to think about carbon as just one of multiple dimensions of impact against which you can assess a particular ecological benefit. So the six that the EVF is currently circling around are air, carbon, water.
Speaker 1:Currently circling around are air, carbon, water, soil, biodiversity and social equity, and those six dimensions, we think, are more or less exhaustive of all the different types of ecological benefit that a particular project might have, and the idea is that one project might deliver multiple benefits.
Speaker 1:It might only deliver one, but if you're a funder or someone who wants to support projects like that, the EBF provides a common language for all these projects to use, so that they can speak in a language that everyone understands, and so the buyers can communicate what they're looking for to the project developers.
Speaker 1:And also, ideally, we can create a market that prices these benefits relative, that provides insight to the project developer of how much money they can expect to make if they can deliver a given unit of benefit, and also to the seller of like you know what kind of benefit are they supporting when they support a particular project. So, yeah, I'd like to see Klima move into this direction of alternative ecological benefits. It's just that these markets are super new. Carbon markets are in an adolescent phase where they've been around for about 20 or 30 years, starting to grow up, but still quite immature, whereas, for instance, water markets are super new there's barely any assets in circulation. Water markets are super new there's like barely any assets in circulation, and so it's not entirely clear like how that's going to happen and how quickly those markets are going to develop. But that's the direction that I see Klima moving is diversifying, not just within the carbon markets, but also diversifying its holdings to other ecological benefit assets.
Speaker 2:Yeah, that's really cool. You guys are addressing the carbon tunnel vision right, because we all need it to address carbon. But now we need to go further. Yeah, douglas from the Lexicon was actually on episode six of Reef Regeneration and really cool to hear his story of going from organic to EBF now and how now you can have six markers of regeneration and get more nuanced in what it means. But I will be interested to see how the MRV side plays out of. What are we measuring when it comes to water and soil and air? Right, I mean CO2 is a little easier, I think, to quantify in that way. Do you have any experience with renewable energy credits versus carbon credits? Any work there in the space?
Speaker 1:Yeah. So one thing I just want to clarify is it's super confusing. I think you're talking about RECs, or Renewable Energy Certificates, right? Yeah, yeah, recs, yeah. So one of the super confusing things is that I mentioned, for instance, like installing solar panels as a mechanism for generating carbon credits. I just want to clarify that a carbon credit can be created by installing renewable energy, especially on a grid where there's a lot of fossil fuel-based energy, because you're basically removing that fossil fuel energy and replacing it with renewables, and that delta represents carbon avoided. On the other hand, you have renewable energy certificates. In other parts of the world they're called energy attribution certificates, which is, uh, quite abstract, but it's actually a little bit more clear what it's talking about there.
Speaker 1:Um, the idea is that, like a solar installer, install some solar panels, uh, and then, rather than um, just selling that energy naked onto the grid, um, the idea is that you sell the right to claim I supported installing this solar panel to a third party. So the use case would be like I'm a data center operating in I don't know Germany and the German electricity grid happens to be, you know, 50% fossil fuel, 10% you know hydro and 40% renewables, and I know that half of my power is effectively coming from coal-fired and gas-fired power plants, but I want to claim that my data center is running on 100% renewable energy. So the idea is that the renewable energy certificate gives you the right to make that claim that, like you helped produce renewable energy, even if the grid you happen to be running on is not a hundred percent renewable. That's the use case. Um, I think it's a super interesting market. Um.
Speaker 1:I've been following along with some of the tokenization and blockchain projects that are using renewable energy certificates um as part of their um.
Speaker 1:Very much like there's Jasmine energy, there's these guys, zero Labs. I've been following along from the sidelines trying to figure out, like, is there a way for Clean Without to be helpful in this market? So far, I haven't seen like a super clean way to be involved. You know, like there are ways in which Clean Without could just like deploy capital to support solar projects in general, which I think would be cool, but I haven't seen a clear way for, like the REC market in particular to benefit. I do think there's an opportunity to create pools around RECs and use the same AMM liquidity pool approach that we used for carbon to introduce greater liquidity for RECs. I just don't know if that's something that the REC buyers actually like, care about and want um, so I need to do a little more research there. But I am very interested to see how um fema dow's um approach could benefit the rec market, and if any of your listeners have ideas about that, I'm happy to happy to chat cool.
Speaker 2:Yeah, I'll. I'll think about that a bit more myself, natalie. Uh, jasmine's coming on next, actually, um, later this week, so it'll be really cool to go down that road a little bit more. And it's great to see that, yeah, klima is going beyond carbon, so that's really cool. What are some of the forward financing projects you guys have taken on? What sort of funding and how can some of our listeners maybe apply for that?
Speaker 1:Yeah, so we have an open call on our governance forum, forumklimadaofinance I think it's called Carbon Financing Framework, something like that and we funded so far half a dozen projects, ranging from a cookstove project in Bangladesh, an IoT water filtration project in India, as well as a forestry project in Africa actually two different forestry projects in Africa that are restoring degraded forests. Forestry project in Africa actually two different forestry projects in Africa that are restoring degraded forests. We also did some more experimental stuff. So we financed a project called Limenet and they're doing what's called ocean alkalinity enhancement. This is like pretty far out there in the like technical removals space. So the idea is basically to put a form of limestone in the ocean and, as that limestone reacts with the ocean water, it absorbs carbon dioxide out of the ocean, sequesters it in the limestone itself, and then that limestone sinks down to the bottom of the ocean and gets sedimented so that it can sequester carbon for on the order of thousands of years. So it's a very exciting methodology. It's also very new. So CleanMadao took a bit of a risk financing this, but I think that's part of the exciting thing that CleanMadao can do, because it's a DAO Basically, if a proposal comes forward and the governance token, participants vote to approve it. It's happening in a way that a corporate buyer or a more traditional investment fund would need to go through a very complex diligence process and probably be convinced that this risk is actually worth it. We were able to basically go through a public diligence process where the questions come out in public on our governance forum and try out a new methodology.
Speaker 1:So, yeah, those are some of the projects we financed. We didn't just do a biochar project, we financed a biochar project issuing under Pure Earth. It's a pretty interesting project. Actually, they're using waste heat from I think it was breweries or scotch distilleries or something like that. They're using waste heat to power the biochar pyrolysis machine. So I thought that was really interesting. I'll buy their product power the biochar pyrolysis machine. So I thought that was really interesting.
Speaker 2:I'll support that Feel free to. I'll buy their product.
Speaker 1:Exactly, yeah, but check out the governance forum for more details. There's always new projects coming across and, yeah, if one of your listeners is a carbon project developer, especially if they have experience issuing carbon credits under a mainstream registry, then, yeah, they should definitely check out our carbon forward financing framework.
Speaker 2:Great, yeah, we'll put a link in the notes. That's really cool. You guys are pushing the needle and investing in some of those more cutting edge projects. I think we've covered a lot of what I wanted to ask you Did we miss anything? What would we cover that maybe we didn't talk about? Before we sign off, anything come to mind.
Speaker 1:No, I think that's a pretty good overview. The one thing I didn't mention and it often comes up is we originally built a product under CleanMiddle called CarbonMark. That's really designed to be a user-friendly interface for people to interact with the on-chain carbon markets, because the reality is that most of the people who want to participate in carbon markets, who want to use environmental assets to support projects all over the world taking positive climate action, they're not necessarily Web3 native, and a lot of the first generation of tech that Clean and Dow built was really focused on Web3 native users, and CarbonMark was the first foray into a more normal user-facing application that sort of looks and feels more like a traditional Web2 marketplace rather than a Web3 application. So we built CarbonMark under Klima DAO and then last year we spun out CarbonMark the product into a separate organization that's going to commercialize and basically take that product to market. So that happened late last year, and so there's sort of this tenuous relationship right between CleanMidow and CarbonMark.
Speaker 1:Carbonmark was a product originally created by CleanMidow, spun out into a separate entity, and so I'm now splitting my time between working on KlimaDAO and working on CarbonMark, but in my view, it's really exciting prospect for KlimaDAO and the ReFi community to have a company out there that is using the underlying Web3 Rails to enable its business but is selling to a market that's totally outside of the normal Web3 user and, honestly, like from a what is the like crypto space? How can the crypto space benefit from environmental assets and carbon markets? Like I think there's a huge unlock there to bring players in and convince them of the value of this technology by just showing them a better version of the thing that they're used to that's faster, cheaper, uh, more accessible. Um, as opposed to sort of pitching the same like oh yeah, there's this cool financial primitive that you know we implemented on chain. Um, there are real users out there who want a better experience and blockchain can be, you know, a tool to offer them that better experience yeah, that's really cool.
Speaker 2:You're building the refi mullet there, marcus, I love exactly. Yeah, and to allow people to immediately use a tool and not have it be some ethereal. This is what we can do with this technology, but this is what's actually happening. I think it's really powerful. So that's really cool to see that We'll put a link and follow it as it launches. That's really exciting. Thanks, man. Well, marcus, thanks for coming on today, and I look forward to catching up as CarbonMark progresses and Klima brings more assets on chain, and maybe we can check in in a few months and see where things are at.
Speaker 1:Awesome. Likewise Thanks Cash. Thanks Marcus.
Speaker 2:Cheers Thanks to Matthew Patrick Donner for the ReFi Generation production, including the music, mixing and editing. As a reminder, none of this is financial advice, and feedback is the breakfast of champions. Please subscribe to our show and send your thoughts, critiques and ideas for future content. Be well, take care of each other and do something good today.