Move over GameStop, carbon trading will hit the retail trading scene soon

Shihan Fang
11 min readApr 1, 2024


Founder of Carbon Exposure Project podcast Rene Velasquez describes the blockchain-based app as the “Robin Hood of the carbon markets”.

As Bitcoin passes US$70,000 this week, the voluntary carbon market continues sitting in bear market territory.

As I write this, “Nature-Based Global Emissions Offsets”, or NGEOs are now trading at less than a dollar on average, according to data from environmental commodities exchange CBL, compiled by ClearBlue Markets. That’s down from a high of about US$16 at the start of 2022.

Granted, with 80% of the carbon market driven by over-the-counter transactions rather than through exchanges, carbon spot prices don’t actually say much.

To see what was really going on, I poked around the carbon market as the owner of a micro business. Using an account on Climate Impact Exchange (CIX), one can buy a AA-rated (as per ratings agency Sylvera) REDD+ carbon credit for US$5.75, the equivalent of a latte at Starbucks.

Less picky buyers like myself can get a BBB-rated carbon credit for US$3. On CIX, buyers are only allowed to purchase and retire carbon credits. There is no trading feature.

While cheap carbon credits are good news for companies looking to offset their emissions, it doesn’t bode well for the industry as a whole. With high quality carbon credits trading near or below the US$5 “danger zone”, there is a risk that carbon projects with higher operating costs may lack the financing to continue operating.

(Do read the interview with Clearwind co-founder Gabriel Eickhoff to get his take as a project developer in Southeast Asia.)

But what if the voluntary carbon market wasn’t beholden to the whims of institutional buyers like Shell, which canceled its US$100 million per year plan for nature-based carbon credits last year?

I first reached out to Rene Velasquez, former head of carbon at CBL, for insights on what happened the first time retail traders got access to the voluntary carbon market.

It ended badly, with Verra, the world’s largest carbon standard and registry, banning crypto company Toucan from tokenizing retired carbon credits in May 2022.

Long story short, Toucan’s business involved retiring carbon credits on Verra, then issuing a cryptocurrency token representing one tonne of carbon that it had retired. They called it a “Base Carbon Tonne” (BCT).

The retail traders of crypto group KlimaDAO were the primary buyers of BCTs, retiring (through Toucan) around 5.5 million tonnes of carbon credits after operating for only half a year. In doing so, Toucan became known for being one of the largest buyers of carbon credits in the world in 2022. They also became notorious for buying the cheapest carbon credits in the market, many of those which had no climate benefit.

(The relationship between BCT and the Klima token is quite convoluted. Read this.)

Velasquez says that what Toucan should have done is to custodialize the carbon assets, rather than retiring them with a hash. He also eventually interviewed the co-founder of KlimaDAO, Giorgio Donà-Danioni, for his podcast, the Carbon Exposure Project (watch the entire thing below).

Velasquez’s interview with Donà-Danioni reveals some interesting facts:

  • The Klima token hit US$1.2 billion in market capitalization after just three days, an indication that there’s appetite for a cryptocurrency token backed (albeit indirectly) by carbon credits.
  • The notional value of transactions in the KlimaDAO ecosystem hit US$5 billion after six months, indicating high speculative activity on on-chain carbon credits, which usually aren’t flipped more than twice in an off-chain scenario.

Velasquez won’t be launching a carbon cryptocurrency token anytime soon. But he says that the Toucan/KlimaDAO/Verra experiment opened his eyes to the liquidity available in Web3.

Now based in Singapore, Velasquez is baking two startups: A carbon advisory and execution firm for corporates working on their net zero commitments, and a blockchain-based carbon trading app that he describes as an E-Trade or Robin Hood for the carbon market.

The latter isn’t a Web3 startup, but it is an attempt to provide retail traders with access to carbon credits.

This post showcases the highlights from his AMA at the ReFi Singapore meetup on 21 March 2024. The actual discussion is a lot more entertaining than what I’ve written out here. Do listen to the recording on Regen Supply.

By the way, if you’re still scratching your head at the first paragraph, carbon influencer and CEO of Carbon Growth Partners Rich Gilmore has a post about the similarities and differences between Bitcoin and carbon.

Han: Could you share a bit about what happened during the Toucan/KilmaDAO/Verra saga?

Velasquez: I was at CBL at that time and I started to receive requests from a whole bunch of really random buyers who wanted to buy large volumes of carbon credits.

As an exchange, each new client needs to pass a KYC or Know Your Client and an AML, Anti-Money Laundering process. In addition to that, they also have to have accounts with the various registries (such as Verra), which is akin to digital wallets.

I asked them what the buy orders were for, and they said tokenizing carbon credits. So I said cool, good luck. Then we started to see brokers and traders were coming in and effectively mopping up those orders.

Then I started to see retirements done in the registries with “hashes” in them. I asked, and they said that each hash is a unique code, and based on that, allows them to tokenize the carbon credit even if the carbon credit was retired. That was against the terms and conditions at Verra. Plus, once you retire a carbon credit, that’s the end of life.

They claimed to have reached out to Verra hundreds of times but no one responded.

What I said to many of them, including the guys at Toucan in particular, is: essentially what you’re doing is pointing a bazooka towards the standards. Do not be surprised when they fire back with artillery and heavy tanks. That was the conversation, end of story.

Then we saw the incredible growth that occurred across the river. So that’s the context, a little bit negative. But then what it did was disrupt the market. It was a really incredible force.

So what happened is that these guys tokenized a large portion of carbon credits without permission at a time when both the crypto and carbon markets were at an all-time high. It was a perfect storm.

I saw tokenized carbon being traded at a really high churn, in intra-seconds. In contrast, settlement in a siloed environment might take seconds or sometimes even days to settle if you do an OTC. So speed was the superpower of blockchain.

The price of the tokens started to shoot up and then effectively the standards came and threw cold water on it.

That’s what happened on the first iteration. But that’s innovation. You take a punt, you innovate and then maybe you fail. I’m really curious as to how we move beyond that.

The disruption and innovation in Web3 is fantastic. But it’s a powerful force. You can’t let it just take over. It’s got to be harnessed like anything to yield the results that you want.

Han: Why did the Web3 traders only buy the worst carbon credits?

Velasquez: These guys were novices of carbon and experts on crypto. They got played because they didn’t know, they didn’t bother to ask the questions. What a lot of traders did was effectively saddle them with a whole bunch of junk credits that they knew was junk that they couldn’t offload. There was no curation on the first iteration of the contracts.

But I think that that lesson was learned. And the crypto world, or the ReFi community as what it’s called today, is actually pretty educated around all of these different issues around carbon. And they’re helping to advocate for improved quality.

So I don’t think they’ll make the same mistake again.

I also have to add that initially KlimaDAO had a thesis that would take out of circulation the lowest quality carbon credits from the market. By taking that out of supply, just removing it from the float, it would have an inflationary pressure on the rest of the market and would actually increase overall climate impact.

I actually subscribe to that. Take out the trash. But then when they tokenized it and started trading those instruments. That didn’t work out.

Han: Do you want to share what you’re doing next?

Velasquez: I don’t think of myself as a crypto guy, maybe I’m just too old. So I’ll bring it down to fundamental principles. Our mission is to democratize carbon markets. To date, the carbon markets have only really attracted enterprise and institutional participants. Institutional meaning large banks and investment banks, hedge funds, commodity traders, all those financial intermediaries are put into institutional buckets.

But retail was excluded and what the KlimaDAO version 1.0 showed us was that there was a huge potential appetite for speculation. Speculation is not a bad thing in markets. It’s actually really essential because it provides liquidity.

Think of liquidity as the lifeblood of markets. If you are short, let’s say you have a liability and the market’s liquid, it means you can enter at any point in time. Conversely, if you need to sell, you can exit at any point in time. If I go onto my E-Trade app, I can buy 10 Tesla shares now and then sell them in an hour. And if it went up I made money. If it went down I would lose money. That’s the power of markets. At least I’ve got in and out.

In an illiquid market, if I bought it, I’m stuck with it. That’s not helpful. So speculation can actually help to solve that issue.

Our thesis is we can democratize carbon markets, we can have greater liquidity with a broader market, and help to drive more finance to where it can make impact.

This is most likely going to include a blockchain backend to it. However, we would like to custodialize those underlying credits in a bank fold effectively, so you have a professional custodian, and create curated fund products that market participants can effectively buy and sell, hold or retire.

So it’s essentially a mobile app, like an E-Trade, like a Robin Hood of the carbon markets. I’m doing a seed round right now. We’re building the gateway with folks like the KCGs (affiliate company of KlimaDAO) of the world and others in the space to see if we can leverage their expertise.

We may open it up to the crypto world eventually, we may tokenize the fund. But what we recognize is that the standards, they’re the certifying bodies. We don’t want to disrupt them.

They control right now the issuance, the transfer, and then ultimately the retirement of these [carbon credit] units. Those units, we have to respect that. That’s their environment. So they sit and live within that ecosystem, hence why we want to custodialize them. We can create a parallel venture that allows for the benefits to be achieved.

Maybe there’s a fractionalization that can effectively lower the barrier of entry. That would be interesting. Certainly the speed of which and how crypto assets can trade is also really attractive. I just think that providing access is really the mission.

Han: With more standards and registries coming up, is there going to be disruption to Verra’s business?

Velasquez: My short answer is no. Verra is still dominating in terms of total issuance and total retirements, so they’re sitting fine.

Can other standards and other registries emerge that are really competitive? Yeah, hell yeah.

But if you fear that it’s a Kodak equivalent where they stay static and then get replaced by digital technology as opposed to film in the Kodak analogy, then so be it. Then they didn’t take care of their dominance in the market. That’s business.

They’ll survive, is my thesis. They’ll survive because they deliver a really high quality product.

Audience: Actually, Verra’s engineering team is one of the best in the industry. I’m with the World Bank and we work with Verra, Gold Standard and a lot of others. And I think they hesitate to [engage with Web3 and tokenization] because they have other priorities right now.

To them the biggest return-of-investment on the table today is Article 6, not tokenization. Because when Article 6 transactions can be used for carbon tax, that will bring them more volume overnight.

But for tokenization, the biggest challenge is the legislation because it is unclear if these tokens are securities, warranties, or other types of financial instruments. It creates more confusion.

That’s why tokenization is on the backburner. Let’s go and solve Article 6 first, because it’s going to bring us more money.

And I think it’s just a matter of prioritization. Because they have only four guys in the engineering team. Ultimately they’re just an NGO. They’re not a conglomerate like CBL. They’re dependent on donations and the fees that the members are paying.

I just wanted to share my good experiences working with Verra. They’re very friendly.

Velasquez: I think maybe they’re not really interested in disrupting their centralized registry system because it works just fine. But if the market then says a decentralized ledger is a better solution, then they’ll deliver.

Xpansiv operates the registry that is provided to Verra, Climate Action Reserve (CAR) and American Carbon Registry (ACR). It’s a blockchain company that created a digital twin ecosystem for physical commodities. So the tech expertise is strong within the broader organization.

But if the client, Verra, is not asking for a decentralized ledger, then they’re going to just continue with the current registry system.

Audience: One solution that makes sense to me is the automatic generation of a tokenized credit based on the data generated, for example, from a solar inverter. Do you see that kind of thing happening and is there volume?

Velasquez: I think it can but there’s a long way to go on the digital monitoring reporting verification component, the dMRV. If we could solve for that and have systems that could undeniably provide confidence around that data, then the standards could maybe take a step back instead of doing a manual desktop review of each individual project, pushing back and forth with project developers. The data would be immutable.

That would be cool, and then like you get a proof when you don’t get a proof kind of thing, you could actually have much more leverage.

You can actually capture a bigger supply of pollution and the quality concerns can be addressed, have higher trust, hopefully leads to more demand, and boom. You hit the number on the head.

I guess forestry is notoriously difficult, but you could do it for methane projects. You could do it for a bunch of other things, and you could achieve scale. And it could be really cool.

Han: I just want to point out two projects. Arkreen uses data from sensors on solar panels to generate crypto-native Renewable Energy Credits (RECs) and Ixo puts IoT sensors on cookstoves to generate cookstove carbon credits.

Forests are harder to track because it’s costly to put IoT sensors on trees. The reaction to that has been to use satellite data as well as artificial intelligence (AI).

Velasquez: It’s natural in any technological transformation that there’s going to be resistance. Think about IBM back in the 70s building mainframes. That was their business, so they didn’t want to be disrupted.

Then you started to have the personal computing revolution emerge, they resisted that. But then ultimately, they did pivot. I don’t think that this is any different. Right now, this is how it’s been done for a long, long time. And then there’s a new squad of people that are trying to innovate and create different interesting solutions.

Ultimately, the market will decide.་If the market says, hey, we really trust that technology to provide us that granularity of provenance, then the finance dollars will start to go to those types of projects as opposed to projects that lack the IoT sensors on the cookstoves.

If the cost is $10,000 to buy those internet sensors, and you can extract a million dollars worth of increased value, and you’re not doing that, you’re going to be replaced. Like your board is going to sack your ass, right? That’s just markets operating. And I think that we’ll see that transformation occur in a very short period of time. We’re not talking decades, we’re talking years.



Shihan Fang

This is the official Medium page of Han. Follow the podcast on Spotify for more interviews with the people behind the latest climate innovations.