Bootstrapping Impact Markets @ ETHPrague 2023


Marcus Aurelius


June 10, 2023

It was a joy to visit the beautiful city of Prague and speak at the historic Paralelni Polis. ETHPrague brought together some of the sharpest minds in Ethereum, open-source software and distributed computing, alongside solarpunks and the ReFi community.

There is growing excitement about new environmental assets that fund impact “beyond just carbon.” However, after about 30 years since the first voluntary carbon market, the Clean Development Mechanism (CDM), was created under the Kyoto Protocol, carbon markets themselves are still quite immature, and there are plenty of lessons to learn from their development thus far.

In this talk, I go over the basic structure of impact markets, discuss how carbon markets implement that structure, and some insights about how to bootstrap new impact markets.

I specifically highlight the tension between liquidity and fungibility for building scalable markets. Since a given environmental project will only create a certain number of impact certficates, the number of comparable assets may be quite small, which limits liquidity.

However, deep liquidity is necessary to support sophisticated financial instruments (e.g. forward funding, insurance). Given the high up-front funding requirements for environmental impact projects, spot liquidity is critical to ensure project developers and financiers have reliable prices to discount against.

I also highlight the ongoing work at KlimaDAO to bootstrap new strata in the digital carbon market by forward funding carbon projects using treasury capital, then once those credits are delivered, deploying a new liquidity pool that prices that type of project. For instance, KlimaDAO funded a cookstove project in a refugee camp in Bangladesh under the Gold Standard, and a forestry project in Africa under Verra’s Verified Carbon Standard. Upon delivery, proposals will be advanced to use these credits to create a spot liquidity pool for the EEIMP (small scale energy efficiency) and ARBO (afforestation and reforestation) carbon pools proposed by KlimaDAO’s bridging partner C3.

These new liquidity pools will then provide real-time pricing data for spot credits of those types, so that financiers and project developers can negotiate forward funding for new, similar carbon projects on a level playing field. Project developers will also be able to access liquidity immediately upon delivery, rather than waiting to offload their credits to a buyer.

All views and opinions expressed here are my own, and do not reflect the official positions of organizations to which I contribute.

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