Tokenized Natural Capital and Regenerative Finance

Transcript

all right so good morning everyone um my name is slobodan sudarage i work with c-labs and i work to talk a little bit about tokenized natural capital assets and their use in regenerative finance and tie this a little bit together in the context of the mentor protocol that sochi also mentioned before for those who attended her talk so let's maybe start a bit with some basics what exactly we mean with refi or regenerative finance because i think there are a couple of definitions floating around and i really like this description by packing mccormick from not boring which describes it a little bit in terms of pricing externalities in so you know

charging those who create negative externalities and rewarding those who create positive externalities and the question then comes up what does this really mean translated to web3 and and blockchain more broadly because there is a very narrow view i would say to look at this for example we could ask ourselves should we only care about like emissions um of the underlying you know blockchain layer and if yes i think we already you know made some good progress there by moving away from let's say energy-intensive proof-of-work mechanisms towards let's say something like proof-of-stake and something like cello blockchain i guess made even one step more in that direction by by taking this concept of externality serious and by by including

protocol level offsets actually the more broader view is should we actually do more than that and this chart here is a bit of an apples and oranges comparison i have to admit but i think it kind of brings across the point because what you see here is in blue the um ethereum d5 tvl total over the last three years and in red you essentially see the global voluntary carbon market and the question is can't we you know channel a bit of the blue stuff into the red stuff right and the next question if we agree that this

is this this makes sense and this is a use case for web free the next question is essentially how can we actually do this and this is where i want to talk a little bit about mentor protocol so as sochi already said cello is this this layer one essentially uh with a focus on financial inclusion and sustainability and mento is a stability platform that is built on on sello that essentially creates currencies that supports sello's mission in achieving this there are currently um three currencies supported by mento one is a euro tracking stable asset one is a dollar tracking and one tracking the

brazilian real and um [Music] they were used in use cases all across the world in humanitarian relief in in haiti and in the philippines and the microwork payment projects for example in kenya i don't really want to go into too much details but just to give you like a rough understanding of how mentor works so those stable assets are backed by over collateralized reserve that is on chain this reserve is essentially a basket of different crypto assets so it includes cello it includes btc it includes eve it includes other stable assets for you know diversification purposes like

usdc and dye and it also includes a small portion that you see on the top there of natural capital and this part of natural capital is what i want to focus a little bit more now on so the idea is really if we look at historical currencies what we can observe is that whatever was used essentially as a currency or whatever backed the currency people to tended to make more of so when when when we used t bricks uh you know there was an overproduction of t bricks when when cattle was used as a currency there was an overproduction of cattle when gold backed currencies everyone rushed into gold mining essentially so

the idea is can't we use the same logic the same mechanism but actually you know back currencies with something that we would actually like to see more of clean water you know unpolluted air or beautiful forests and this is essentially where this allocation comes into play so the mechanism is then quite straightforward so as you know more use cases for mental stable assets emerge more capital would flow into that reserve and as the reserve grows in size also the allocation towards natural capital would would grow in size and the reserve would essentially create additional and incremental demand for

natural capital assets and this in turn would then you know translate into impact in the real world by creating capital flow towards project developers ecosystem service providers and so on and so forth so far so good but the big question is okay fine what are those natural capital assets in the first place right and i think it makes sense to briefly distinguish between assets that currently exist in the real world the ones in green essentially and then in the second step think about where can we actually move with with tools that are provided by by web3 to improve those assets this is this chart is also from a let's

say d5 protocol perspective because it plots impact on the y-axis and liquidity on the x-axis because liquidity is just so important in everything that you build in in d5 you can probably start with you know ownership of underlying assets you could think of you know essentially buying a piece of land to protect it from being cut down a forest from being cut down this is probably a high impact asset but it's probably very very liquid because you essentially have to buy land right if you if you want to move into a more liquid direction let's say you quickly end up in traditional climate finance

instruments so this might be like the private loans for let's say a solar development project or even you know slightly more publicly traded bonds for example issued by by uh world bank or or other institutions [Music] you are still in let's say a class of assets that are from a d5 perspective difficult to handle most of those assets are considered you know security so you have a lot of challenges in actually tokenizing them and working with them in a decentralized setup then there is a class of assets um that i just you know described as ecological

state change um but you can think of it for now as essentially carbon credits so carbon credits is nothing else but like a um a ledger entry that verifies that a ton of co2 has been removed from the air or not emitted into the air in the first place and since this is just recorded in a database in the first place this entry can also live on chain and it's a very very liquid acid in a sense and which is why at mentor we essentially started with this bottom um yeah right bottom area of of fairly liquid acids in that space the question is then like how can we

where does webfree you know help us here i think there is a lot of potential of actually and let's just stick with the example of calm credits here to actually improve on those assets so big problem with calm credits for example is there's a huge time lag between project implementation and actually issuance of those credits and then those credits are traded on the secondary and tertiary markets and we trade essentially credits that have been that represent activities that are that took place 10 years ago so if we through that free technology can actually you know accelerate this process and make improvements and you know efficiency improvements in this monitoring and verification process i think we can

actually keep the let's say advantages of those fairly liquid assets but actually improve in terms of of impact quite a lot on the other hand there is um there is a probably a risk that by moving more into web 3 native assets you lose on let's say trust and buy and from institutional players in this market and i think this is especially in in markets that are still you know not fairly developed let's say the voluntary carbon market actually a big risk and so we should be a bit careful about you know we shouldn't end up in the lower left corner we should try to to reach the upper right corner here

in general over the last um let's say one year that we've worked on this we kind of found four areas that are areas that are challenging in that space so whenever you deal with like real world assets you suddenly deal a lot with counterparty risk right you interact at some point in this process you interact with with counterparties you have from again from a protocol perspective you have liquidity risk there are a lot of you know legal challenges involved in this um i talk a lot with you know the legal team at cello foundation for example and more and more we realize that this is not

really a technical challenge but primarily a legal challenge there is um challenges around regulation there's challenges around ownership and the whole concept of you know how can a decentralized entity essentially own something in the real world in the first place there are a couple of technical challenges as well by pure definition you integrate the off chain world and the on-chain world so you have integration problems you make use of different kind of oracles that introduce new technical risks to this and last but not least i think we should also really be you know serious about the impact that is generated with those assets and i think um like the literature and theory of change can be maybe like a

guiding you know principle here by focusing on plausibility so let's let's say we as you know some arbitrary d5 protocol includes some asset what does the asset actually do how does it actually translate into action in the real world on feasibility as well so let's say we have this asset is actually everything in place in the real world to generate the impact that we want to see and uh last but not least also measurability so are there metrics in place is there something that we can track as like empirical observers on all of this and i think you know if if done right this can have um a huge impact

um i you know included this chart on co2 emissions but it doesn't really matter which chart you look at because i think the message is quite clear and i think the contribution that that refi or web 3 more broadly can have here is quite substantial so on the demand side you know we can introduce like committed large-scale bias into this space that stabilize like demand and create market opportunities for for for the entire supply chain on the supply side especially we can support the launch of like new and innovative solutions at the intersection of like climate tech climate finance and and web 3.

and then there is like this meta component where i think d5 really excels at is like by providing market infrastructure and in increasing transparency and efficiency in this market so that's just a you know very rough rough overview of of how we think about this and how what the challenges are that we see with this um i would you know very much like to discuss this with you and in more detail if you're interested please feel free to check out um the website mento.org or our twitter or you know discord or yeah just ping me if you're interested thanks a lot [Applause]

we have a few more minutes time so in case there are any questions yes hi um i'm not sure you were there earlier but i just got in touch with the revised sector recently so i'm still learning a lot and one thing that i keep wondering about so when you think about positive externalities it's pretty easy to create a token and people want it right but when you talk about negative externalities then the carbon market works uh partly because government kind of coerced companies to do something about it partly because the markets or you know the customers want companies to do something about it but it's kind of no

discoersion that that needs to happen so i've been wondering a lot whether there's waste whether there's ways to create incentives for these players that create negative externalities to voluntarily accept the cost of them and offset them yeah i mean that's that's a great great question and i think especially like climate finance in the esg space i think struggles with this for 20 years now or more or more i think what we see now is essentially a moment in time where it's actually the customers that kind of dictate this right so

there are studies that show that for example capital costs for companies that are not esg compliant are actually higher than for compliant companies and at that point in time like you might even ask yourself is this really still voluntary like this participation in the carbon market if it has like a tangible benefit um but i agree maybe there are more direct you know mechanisms to like force them to do something but i think um even like the shift in consumer you know attitudes and consumer demand already created something like a tangible channel as essentially to you know create this this this feedback mechanism hi so

if i understand you correctly you're trying to tokenize natural resources to be to back up other currencies and i'm wondering if as long as governments or really big companies and enterprises are the ones that hold areas or all the technology that create this um let's say that the natural new technologies so doesn't it compromise the decentralized character your uh suggesting i mean yes and no i would say it's um the way i i see it in a quite pragmatic

way i have to say um so i mean if we can kind of use the tools of let's say decentralized finance and even if we you know have to deal with like centralized entities somewhere in the real world as long as it works i'm good in an ideal world sure this would be more open and more decentralized but you know we're running out of time essentially and you know whatever works essentially so it doesn't necessarily have to be integrated with web3 or just an initiative to change a bit the economical system we're working on let's tokenize some uh natural resources as you suggest i think it's getting more and more integrated so um so

i'm not sure if you were in in her talk um she mentioned this team climate collective and there are like a lot of projects in there that actually work on providing this integration between like real world assets and turning them into something that is more red free native but like this entire space is so new that i think it will simply take some more time to be honest thank you [Applause]