Carbon Infrastructure
Key Actors:
- The Protocol - the sum of all Solid World mechanisms and processes that create a liquid market for forward carbon credits.
- The Project - The organization that aims to receive issuance of certified carbon credits in the future based on following an approved methodology.
- The Foundation - The Solid World Foundation, which functions as a legal arm to sign and enforce agreements off-chain.
- Market Participant - Any organization or individual interacting with Solid World's on-chain infrastructure.
- Liquidity Provider - A Market Participant who provides the financial means to turn commoditized forward agreement units into fiat currencies.
The Solid World Protocol is a set of mechanisms that aim to create a liquid market for forward credits. In order to understand why all of these elements are necessary - we need to consider the current status quo.
Forward agreements for carbon credits are made regularly. However, these agreements are currently not standardized, opaque to outside observers, are not particularly liquid, and do not provide transparency for projects regarding the state of the market. This creates a situation where projects do not fully grasp their negotiating power, and deals are hard to compare and evaluate.
Our infrastructure consists of key parts - which are outlined here:
An off-chain process in which Solid World's community of experts confirm the project's viability, ownership, and risks and confirm that delivery is within reasonable bounds guaranteed in cases of project failure or under-delivery. If this step results in the team's affirmative position, the team proposes Contract Tokenization for the Project.
Major liquidity providers are given information about the previous step, so they can assess if the project meets the criteria to be included. All major liquidity providers have a veto over incoming supply if they find that it does not meet expectations. If the project is not vetoed, an agreement is signed with the Foundation, and the Project's supply is tokenized.
An on-chain mechanism through which the tokenized agreement is exchanged for a liquid commoditized form of forward credit agreements for a particular class of credits (for example, Mangrove Restoration based on Verra's methodologies). This gives the Project access to the financing required to successfully deliver certified credits later on via selling off the commodity tokens. Specific agreements are tokenized based on a forward discount - with the forward discount being distributed to Liquidity Providers over time as the forward contract approaches maturity.
An on-chain mechanism through which Market Participants can take commodified forward agreement credits and turn them back into the underlying specific agreements for the purposes of arbitrage or delivery. Exchange rates from commodity back to specific agreements are based on a forward discount and decommodification premium.
An on-chain mechanism through which the Liquidity Providers are compensated for providing the financial means for commoditized forward credits to be exchanged for other value. This compensation comes from the assets composing the commodity pool nearing their delivery event and therefore being re-priced in relation to the commodity token.
A hybrid process in which Market Participants may exchange the specific agreements for relevant certified credits when the underlying project achieves issuance. Depending on Market Participant's preferences (and infrastructure availability at the moment of delivery), delivery can occur both off-chain (onto the original registry) and on-chain (onto collaborating protocols like Toucan or Flowcarbon).
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