The rising tide of the impact economy is driven by capital flows from traditional funding sources. However, this comes with growing costs of knowing (or not knowing) whether the investments are achieving impact. On the horizon is a deep, highly liquid token economy that could transform this landscape with valuable data assets, insights & proof of impact.
All of us — business leaders, employees, pension savers, investors, entrepreneurs, governments, philanthropists, consumers, citizens — will place impact at the core of our decisions and actions, to create a world that works. A world of sustainable shared prosperity, and of social and environmental progress. — Sir Ronald Cohen, 2018
The impact economy
Already valued at trillions of dollars the impact economy must grow rapidly over the coming decade, to achieve the Global Goals for sustainable social, environmental and economic development (the SDGs), by 2030. This growth will be driven by political, institutional and business commitments to sustainability, with emergency responses to the climate & environmental crises.
As the impact economy grows and matures, this must operate according to generally accepted standards for measuring and reporting social and environmental impact. This would help to quantify the value of sustainability outcomes, support accurate tracking of progress toward the SDGs and create the transparency that stakeholders need, in order to make effective resource-allocation decisions and manage sustainability risks.
Business and investment models will change, as the “buy-side” of the market (which includes governments, insurers and other large capital-allocators) moves to paying for outcomes that have been measured and verified, instead of paying input costs to service providers and intermediaries.
Value-sinks in the traditional impact economy
A Morgan Stanley report in 2018 announced that “Sustainable investing has arrived”. $2.28 trillion in sustainable capital is reported as being invested annually. This is expected to increase up to $50 Trillion over the next decade. But Is this really true? What are the impacts?
The World Bank estimates at least 5–7% of capital invested into development gets spent on measurement, verification and reporting. This Increases to 30–80% for new instruments, such as impact bonds and carbon emission reduction credits.
These costs of knowing, together with the unquantified costs of not knowing, and information losses, are huge value-sinks in the impact economy. This lost capital could be recaptured through tokenising impact data, to shrink this economic black hole.
The rising value of tokenised impact
Tokenisation captures the economic value of verified impact data. Producing impact with data provides valuable insights that increase the productivity of capital. Digital verification automates and scales measurement, verification and reporting. These essential activities become faster, cheaper & more beneficial to bigger marketplaces. This could immediately convert a proportion of current value-sinks into rising value. Tokenisation also puts economic value on social, environmental & economic resources that were previously too difficult to quantify and prove. This brings the rising value of quantified benefits, ecosystem services, risk reduction and sustainability into the capital markets and onto the capital balance sheets of companies, projects and investors.
Impact Tokens are a new digital asset class. Tokenising impact enables us to measure, verify, value, price and transact with impact.
Tokens encode and carry information about claims of impact and risks, which has intrinsic value. Each claim is uniquely identified. It includes both qualitative and qualitative data to capture information about observations, events, outputs, outcomes or systems changes. This information is recorded using a high-definition verifiable data format that is based on new web standards from the World Wide Web Consortium (W3C).
The process of tokenising impact data also captures the provenance of the source, context and qualitative nature of impacts, using metadata.
Data assets that are linked to impact tokens can be enriched with further valuable information, such as expert opinions, statistical predictions, comparisons, calculations & data transformations.
The ixo protocol is a set of open standards and methods for evaluating and factually verifying impact claims, to issue impact tokens, with crypto-economic proofs and risk predictions.
Impact oracles are trusted digitally-enabled services that independently process impact claims data using the ixo protocol and capabilities of the ixo blockchain network. Oracles bring information from the physical world into digital transactions, to programme capital for sustainability.
Tokenisation is a fundamental technological breakthrough that could solve problems such as:
- Encoding & measuring impacts or externalities which legacy (Web 2.0) systems cannot achieve.
- Fungibility of impact data (double-counting).
- Inaccurate accounting for impact funding that allows double-spending, such as greenwashing.
- Poor identification and definition of impact, due to non-standard data and lack of comparability.
- Low trust in impact claims (verifiability of data).
- Lack of investment in impact measurement.
- Imperfections of impact marketplaces, including barriers to entry, restrictions on participation and information asymmetries.
- Lack of accountability and transparency of impact financing and reporting.
- Difficulty proving attribution through networks.
- Data silos, with lack of standards, incentives and governance to share impact data.
- Weak incentives to properly measure and value impacts.
Tokenised impact will gain mainstream adoption when it becomes evident that combinations of these problems are being solved with new protocols, data standards and oracle services. Regulated trading venues for tokenised instruments, such as development impact bonds, to be issued are on the horizon.