CLIMATE FUND

What DAOs can do about climate change 🌏

A deep dive by the Orca Climate Fund into carbon accounting, validator energy consumption, and other ways crypto projects can take responsibility for their climate impact.

Hello! Ori (@oritheorca) here, co-founder of Orca, the leading AMM on Solana. When I co-founded Orca with Yutaro Mori (@rawfalafel), one of our goals for the protocol was to make a positive impact on the world beyond crypto. One of the ways we’ve put that commitment into action is establishing the Orca Climate Fund (OCF), a group within the Orca DAO that assembles members of the community to contribute to a more sustainable climate.

Together with fellow OCF contributors Andy Lin (@twocrows_) and Thazin (@teezin_orca), I’m proud to present the first non-donation initiative of the OCF: An investigation into carbon accounting, offsets, and other ways that DAOs can make a positive impact on the climate.

But first, what is the Orca Climate Fund? Three percent of all trading fees on Orca go to an account managed by the OCF, which has accumulated 1.2 million USD (!) since fees were enabled in August 2021. Originally, I imagined donating all the funds earned to organizations with expertise tackling the thorny problems of climate change and sustainability.

I’m proud that the OCF recently made good on this promise with its first donation: 550,000 USD to the Ocean Conservancy, which will fund a Small Grants Program dedicated to community-based ocean debris removal.

I’m also grateful to my colleague, Thazin, for challenging me to consider expanding this mandate. “Any well-funded organization can make a splashy donation,” she said. “Surely, there’s something DAOs can uniquely do to further this cause.”

After two months of combing climate forums, interviewing experts, and crunching numbers, I present to you the full, five-part results of our investigation: What’s a DAO to do about climate change?

Table of Contents
Part #1: How to think about carbon
Part #2: Validators and RPCs, oh my
Part #3: Are offsets worth buying?
Part #4: Other avenues for impact
Part #5: A greener financial system

Part #1: How to think about carbon

It’s no secret that blockchains don’t have the best reputation when it comes to climate. Processing transactions requires energy… in the case of Proof of Work chains like Bitcoin and Eth1.0, a lot of energy.

Orca is built on Solana, which is staggeringly energy-efficient. The Solana Foundation also offset the carbon produced by the entire validator network in 2021, making the entire chain credibly carbon-neutral.

But how much of that carbon is Orca responsible for? If we could come up with an accurate analysis, perhaps we could purchase high-quality offsets (thereby making Orca the first carbon-negative protocol) and offer other DAOs the tools to do the same. Orca uses approximately 25x fewer transactions per dollar traded compared to Serum’s order book, so if it were true that more transactions = more carbon, we could proudly call Orca a green protocol.

The latest Solana Energy Use Report states that a non-voting Solana transaction consumes 3,290 Joules — roughly the equivalent of 3 Google searches. At first blush, this might imply that calculating a protocol’s footprint is as simple as multiplying the total number of transactions produced by 3,290 J.

Alas, it’s not necessarily true that more transactions = more energy — at least, not linearly. Based on our investigation (skip down to the bottom of this part for the math!), Solana’s energy usage is strongly correlated with the number of validators online, not the number of transactions. We’re looking at ways to measure the exact energy usage of validators and will stay in touch with the Solana Foundation as they continue to improve their measurements.

For the time being, we’ve come to the conclusion that the Solana Foundation is best suited to perform carbon accounting for the network as a whole. Protocols pay a fee to put transactions on-chain, and a portion of those fees are used to make the chain carbon-neutral — just as the Solana Foundation is already doing.

(This isn’t to say that the number of transactions a protocol generates doesn’t matter at all! Fewer transactions lead to a less congested blockchain, which leads to a better experience for end users. But the correlation with energy usage is lower than we initially thought.)

So, what’s a planet-loving DAO to do? After speaking with folks in the sustainability space, we learned that carbon reduction is generally more impactful than offsets. That meant going straight to a source protocols can control: RPC servers.

Part #2: Validators and RPCs, oh my

Most validators serve the network as a whole. However, DeFi protocols like Orca also commission validators called RPC nodes to serve their requests. So, one way for a protocol to directly reduce their carbon footprint is to deploy RPCs in greener data centers.

In an ideal world, protocols would be able to deploy servers in data centers running on 100% renewable energy. However, maintaining an RPC is a nontrivial task, so most DeFi protocols work with a 3rd-party service to provide their RPC infrastructure. To ensure the dApps they build reliably feel snappy, protocols’ top considerations for RPC servers must be high availability and low latency.

In Orca’s last round of conversations with RPC providers, none of them were able to offer RPCs running on 100% renewable energy that met the necessary policy and technical requirements. However, Solana’s Climate Footprint data shows a correlation with geographic location, so Orca has asked its provider to deploy in regions with lower CO2 emissions per kWh.

Given the PR hullabaloo around Proof-of-Work energy consumption, we found this investigation helpful to solidify our understanding of the emissions generated by the Solana network itself. However, the results only serve to reinforce the fact that Solana is incredibly energy-efficient. The average Solana validator consumes a mere 4,414 kWh per year, on par with about 5 classic 100W light bulbs (876 kWh/year). And if the OCF were to purchase carbon offsets or renewable energy credits for this amount, the total cost would be only $76 per year.

…But as John Oliver recently explained in his signature style, offsets are not a one-size-fits-all solution to emissions.

Which brings us to our next area of investigation: Should we even be buying offsets? And for what emissions?

Part #3: Are offsets worth buying?

At first glance, carbon offsets sound like an easy solution to high emissions. Throw some dollars at the problem and wipe your conscience clean — you’re carbon-neutral!

I’m being facetious, of course. Thankfully, much attention has recently been drawn to this type of “greenwashing” behavior. According to the GHG Institute, “studies of the world’s two largest offset programs — the Clean Development Mechanism (CDM) and Joint Implementation (JI), both administered by the United Nations under the Kyoto Protocol — suggest that up to 60–70% of their offset credits may not represent valid GHG reductions.” No bueno.

This doesn’t mean that all offsets are bad. When emissions cannot be reduced, offsets provide another way for protocols to take responsibility for their footprint. (Plenty of more qualified folks have written at length about how to select a good offset: Check out this article from the GHG Institute for a primer.)

But even for an organization committed to doing its due diligence on offset quality, offset markets remain opaque, inaccessible, and confusing. Blockchains have the potential to solve many of these issues at the root level. While previous attempts haven’t always been elegant, as more protocols start building in this space, it’s encouraging to witness increasingly high bars being set for nature-based, recent, transparent offsets. To date, these initiatives have been focused on other chains, but we’re excited about several efforts to bring tokenized carbon to Solana.

As discussed in Part 2, offsetting RPC emissions is one way for projects to take responsibility for their carbon footprint. However, given how small those emissions are, the bigger vector for impact may lie in off-chain activities.

For instance, take the upcoming Solana Breakpoint conference. According to the myclimate flight calculator, a round-trip flight from NYC <> Lisbon emits 1.53 tons of CO2. From London <> Lisbon, it’s 0.582 tons. To put things in perspective, in 2021, the total estimated footprint of the Solana network was 2,976 tons. There are 5,000 tickets for Breakpoint 2022, so if we assume an average of 1 ton of carbon per round-trip flight, the flights to Breakpoint alone generate more carbon than running the entire network for a year.

For this reason, Orca has committed to offsetting the flights of major protocol contributors to Breakpoint. The offsets will be purchased on-chain if high-quality options are available on Solana by the end of the year, or off-chain otherwise.

To our Solana ecosystem friends: We encourage you to join us in the fight for a healthier climate by pledging to offset your flights to Breakpoint, too. Regardless of whether the offsets are on- or off-chain, we’ll share how the purchase is made by the end of 2022 so it’s easy for other protocols to join in. (You can also use tools like Google Flights to choose flights that emit less carbon in the first place.) It’s a small step, but hey — 2x the annual usage of the entire network is nothing to sneeze at.

So, that’s where we landed on offsets. But what about all the other ways to get involved?

Part #4: Other avenues for impact

So, we’ve talked carbon accounting. We’ve talked philanthropy. But these are only the tip of the iceberg when it comes to climate impact.

A DAO is simply an organization made up of people, and as long as those people agree that climate is a priority, the DAO can vote to allocate time and resources to climate-related initiatives. From there, the sky’s the limit! In this respect, our hope is that the Orca Climate Fund can serve as an example for other DAOs interested in forming a climate action group.

This post represents the first non-donation initiative from the OCF. Before embarking on other projects, we felt it was important to provide an understanding of the core protocol’s impact on the climate. But as Orca continues to move toward full decentralization, we are hopeful that the community will form a more formal working group to carry out future projects. These could be much more varied in scope:

• Sponsoring grants or fellowships for community members to work on climate change mitigation projects
• Investment in carbon removal technologies or research
• Partnering with protocols working at the intersection of web3 and climate
• Supporting protocols to switch to greener base chains (like Solana!)

Part of the future working group’s mandate will be deciding which ones to prioritize. If you’re interested in getting involved or would like to nominate a potential candidate for the working group, fill out this form. We’d love to hear from you!

Part 5: A greener financial system

Solana’s net carbon footprint is incredibly low compared to Proof-of-Work chains — according to the recent White House Report, Bitcoin and Ethereum are estimated to account for 80–99% of global crypto electricity usage. But if you ask us, what we should really be comparing to is not other chains, but the traditional financial system that DeFi seeks to replace.

How many Wall Street firms are bending over backward to protect their fossil fuel investments? How many servers power centralized networks that service only a small fragment of the world’s population? And that’s not to mention all the energy that goes into powering the people and physical offices: the gasoline-fueled commutes, the food delivery, the A/C… the list goes on.

Assertions like these call for evidence, so let’s talk numbers. In 2020, a report by the Center for American Progress and the Sierra Club found that at 1.968 billion tons of carbon, the U.S. financial sector would be the fifth-largest emitter in the world if it were a country, just after Russia. And that’s just the United States.

But perhaps the most important piece of the puzzle is not quantifiable. I’m talking about talent: The raw human ingenuity spent performing services that could be largely, if not entirely, replaced by smart contracts. If an on-chain financial system enables even a fraction of this talent to be redirected toward creating a healthier planet, we may be able to welcome a much brighter future.

Whew — you made it to the end! We hope you found some inspiration in this journey into what DAOs can do about climate change. If you’d like to get involved with the Orca Climate Fund, fill out this form — we’d love to hear from you!

Addendum: The nitty-gritty math

The latest Solana Energy Use Report estimates the energy use of a single transaction to be 3,290 J. After diving into the report, that number appears to have been derived by the following calculation:

1. Calculate energy used by a given data center:

# validators * kilowatts per hour * hours per year * validator uptime (99%)) * % renewable energy * Joules per kilowatt

2. Sum the above number for each data center

3. Dividing by the estimated number of transactions per year.

This calculation makes the following assumptions (presumably to simplify the estimation of emissions):

1. A validator burns the same amount of energy all the time, regardless of whether it is processing transactions
2. Each transaction takes an equal amount of time

Note that the number of transactions processed is not a factor in the calculations. In other words, the network’s energy consumption is primarily a function of the number of validators, not the number of transactions — and more transactions doesn’t necessarily mean more validators, either. Why?

1. While additional validators improve the decentralization and reliability of the network, each validator still needs to process every transaction.
2. Currently, 85% of all Solana transactions are voting transactions.
3. Until we’re able to measure the exact emissions of a specific validator, the current calculations assume an idle validator uses the same amount of energy as one running at full blast, which may not be far from the truth.
4. Approximately half of the network’s energy consumption is spent on hardware production.
5. The network is currently processing approximately 3,000 transactions per second (TPS). Solana can support up to 50,000 TPS, so there is plenty of block space available for additional transactions.

TL;DR: The majority of Solana’s energy usage comes from simply keeping the network running. The impact of additional transactions from an individual protocol appears to be marginal. (These conclusions are based on our best-effort analysis, but any corrections are more than welcome!)

Disclaimer: The content of this communication is not financial advice and should not be relied on by any persons or entities as financial advice. This communication has not been provided in consideration of any recipient’s financial needs. We have not conducted any financial assessment based on the personal circumstances of any recipients. Before using the Orca protocol, carefully review all relevant documentation and consider risks, including, without limitation, total loss of funds.