Converting Corporate Demand to Regenerative Finance
Modeling Ecological Token Potential with Curaçao’s Coral Reefs
This blog introduces a unique method for corporate demand to flow into green crypto-assets by defining territorial output rights: a novel form of staking that leverages the GeoNFT. In particular, it highlights Ecological Tokens — ERC20 portions produced from a GeoNFT — as a potential “green” yield-bearing instrument by simulating revenue flows gained from the tokenization of Curaçao’s coral reefs.
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“More and more coastal restoration efforts are turning towards carbon markets… which focus solely on climate rather than more holistic nature conservation goals.”
The demand for high quality carbon offsets and credits is skyrocketing due to a potent mix of corporate net-zero pledges, government regulations, and institutional investors. This being said, carbon offsets and credits are just two assets of a broader field of environmental accounting mechanisms that seek to compensate for the regeneration or conservation of ecosystem services — the goods and services produced by ecosystems that are useful to humanity. Similar to the growing popularity of the carbon market, demand is also building for more diverse environmental assets, such as biodiversity or plastic removal credits.
The growing interest in carbon credits is good news, but it is nevertheless just as urgent — if not more so — to formulate and channel demand towards a diverse array of environmental assets. According to BloombergNEF, there are at least 30 compliance carbon markets operating around the world; yet there are far fewer addressing the biodiversity crisis, social inequalities, water pollution, and other critical issues.
Kolektivo’s Ecological Token Thesis
“[O]ne of the key issues in today’s voluntary carbon markets is that there are no “liquid” reference contracts (e.g., spot and futures) with a daily, reliable price signal.”
Carbon markets, and more generally, any environmental asset markets present a curious design problem:
- On one hand, estimations around the value of the sum of planetary ecosystem services land in the trillions of dollars.
- On the other hand, for most existing ecosystem service markets, prices are fixed by centralized actors. To make a long story short: a typical environmental credit or offset tends to be set and purchased at a certain fixed price, and does not float in an open market — i.e. there is no orderbook. There’s a lot of very good reasons for this, such as the huge diversity of offsets and credits that exist. With each environmental asset having its own unique vintage, it’s hard to design liquid markets capable of achieving price discovery for each individual asset.
The Kolektivo Framework proposes to sidestep these market design issues by leveraging certain advantages that Web3 enjoys upstream from legacy environmental asset markets. Any issued token can achieve price discovery using an automated market maker to facilitate decentralized exchange (e.g. Symmetric). Furthermore, Web3 solutions like Toucan Protocol are pushing the envelope by standardizing disparate vintages to produce common tokens, such as the Nature Carbon Tonne. In order to unlock the diverse value of ecosystem service markets, Kolektivo proposes a middle ground between excess diversity and complete standardization with locally produced and governed Ecological Tokens.
In Kolektivo, ecological datatokens aim to offer an adapted response to this issue by helping measure, report, and verify (MRV) for a whole cohort of ecosystem services — such as biodiversity, soil regeneration or water sanitation. Reporting can occur for a variety of services because datatokens are produced from fractionalized GeoNFTs which represent areas of territory and not individual ecosystem services. From collected data inputs for each territory, multiple overlapping environmental assets can be assigned. OpenEarth has written about the need for modular, stackable credits that faithfully represent the complexity of each territory’s ecosystem services — particularly in the context of oceanic ecosystems, which are particularly diverse.
Staking for Environmental Assets: The Corporate Demand Funnel
Ecological Tokens aim to offer a previously nonexistent business model for territorial stewards of any size to mint a GeoNFT, fractionalize it to produce Ecological Tokens, and immediately begin monetizing their data. Fractionalization is when a GeoNFT is sharded — that is, split into fungible ERC20 tokens.
Problem: Carbon offsets and their financing tend to only be granted to mature environmental assets — think of them as a proof of carbon storage. This excludes small landholders from traditional carbon markets — simply because the fixed costs for MRV are too high. Financing possibilities exist, such as futures markets or grants, but are limited, and often fail to deliver the majority of value to the territorial managers themselves.
Solution: Kolektivo aims to offer the staking of Ecological Tokens as a present means of acquiring future revenue rights for assigned environmental assets of some territory. We call this territorial staking, with an associated territorial conviction score. When a territory reaches maturity, stakers receive pro-rate revenues of liquidated environmental assets (or, in some cases, the assets themselves) proportional to the [quantity of Ecological Tokens staked x length of time staking]. If the environmental assets are valuable enough, the open nature of blockchain enables anyone — from large-scale farmers to managers of small forest-gardens — to attract speculative funding by issuing Ecological Tokens.
We dare to imagine a democratized green financial environment where stewards of any territorial size can and are able to raise funds through the minting of a GeoNFT and issuance of Ecological Tokens. This is how planetary regeneration scales: by boosting the quantity, quality, and diversity of green crypto-assets fundamentally connected to our underlying material reality, and linking their value downstream to environmental asset revenues collected from legacy actors who would otherwise not participate in Web3.
Modeling the Impact
Kolektivo’s Ecological Token thesis raises a critical question: How much yield does staking have the potential to generate? In order to fully understand the revenue model, let’s look at a basic four-step scenario demonstrating the potential revenue flow of a Curaçao coral reef GeoNFT, using analogous environmental assets where appropriate:
- For one year of protection of 1km² of coral reef in Curaçao, biodiversity credits are allocated in line with the principles of OpenEarth conservation credits. Note that these credits should reflect the richness of the biodiversity, number of marine habitats included, vulnerability, and endemism of the species..
- The credits are sold. It is difficult to estimate an exact price, but by looking at past or existing projects, we can provide a brief analogy. For example, in the case of Voluntary Biodiversity Credit in Columbia, each biodiversity credit — costing $30 — corresponds to 30 years of conservation for 10m² in the Bosque de Niebla forest (or simply: $1/year/10m²). If we apply this same valuation to our reefs, this amounts to $100k/year/km² for conserved coral reefs. (Note that in this step we do not apply any operations cost to credit/offset issuance, in order to keep our hypothetical scenario simple).
- Now, onwards to our staking model: assume 1 Reef Ecological Token (REF) is sharded per m² of reef — our 1km² area of coral reefs amounts to 1m REF. Assume that 50% of the 1m REF are staked for one year, and that the other 50% are staked for 6 months.
- Credit revenues are redistributed to the stakers based on their conviction scores, or [quantity of Ecological Tokens staked x length of time staking]. The first cohort of stakers, who have staked 500k tokens for a year, enjoy 66% of the credit revenues, or $66,666; the second the remainder of rewards ($33,333).
Imagine a REF is worth one dollar. For a single km², REF’s market capitalization would amount to $1m. $100k of annual revenue — as described in our scenario — would amount to a 10% Annual Percentage Yield (APY) distributed to stakers of the token. Knowing that the total surface of Curaçao’s coral reefs amounts to 7.85 km², this estimation could be expanded to a $7.85m market cap, with $785,000 annual yield at a 10% rate.
According to the Waitt Institute methodology, the total of Curaçao’s coral reefs should be valued at more than $445 million per year — approximately $56.7 million / km² / year. This estimation is far above REF’s market cap under this scenario. Nonetheless, it’s important to emphasize that our staking revenues deal with biodiversity credits only. Once again, OpenEarth’s proposal for modular, stackable credits that faithfully represent the complexity of each territory and its myriad ecosystem services rings true. We hope that when the accounting is done, yearly revenues would lead to an approximate market cap that follows the best scientific estimates — in our case, the Waitt Institute — at last arriving at a value that accurately reflects the untapped value of the Curaçao reefs’ myriad ecosystem services.
The current environmental asset market must solve several dysfunctions to serve our planet — such as expanding its focus beyond carbon, and building a big tent of both large and small market participants. It should aim to be representative and divert liquidity all across our underlying material reality and its incredible diversity of life-sustaining ecosystem services.
Kolektivo takes the position that the programmable assets afforded by Web3 offer a solution that helps address these issues and unlock the latent value of ecosystem services. Territorial staking and channeling demand from legacy institutional buyers is one proposal among the many that are blooming in the emerging Regenerative Finance sector, and we’re thrilled to be its pioneers.