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Introduction & Terms
- Protocol - the sum of all Solid World mechanisms and processes that create a liquid market for forward offtake agreements.
- The Project - The organization that works to implement practices to receive issuance of certified carbon credits in the future based on following an approved methodology.
- The Foundation - The Solid World Foundation is a legal arm to sign and enforces agreements off-chain when necessary.
- 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.
- Supply Partner - A third party who brings their supply of forward offtake agreements on-chain in the form of Forward Clips. These may be Project Proponents directly in some circumstances, but more often, trading houses, hedge funds, and family offices.
The Solid World Protocol is a set of mechanisms that aim to create a liquid market for forward offtake agreements. To understand why all of these elements are necessary - we need to consider the current status quo.
Forward offtake agreements for carbon credits are a normal facet of the voluntary carbon market. These agreements, however, are currently not standardized, opaque, relatively illiquid, and do not provide the markets with pricing information.
The following pages outline Solid World's approach to creating liquid markets for forward offtake agreements. The steps this includes are:
- Due Diligence & De-risking: An off-chain process in which Solid World's expert contributors confirm the Project's viability, ownership, and risks and confirm that Supply Partners are capable of covering delivery in case of project failure or under-delivery. These assessments are accepted by the Expert Council and Governance respectively. If both the Project and the Supply Partner are approved, they can access the Contract Tokenization facility.
- Contract Tokenization: An hybrid process in which the Supply Partner brings approved Projects' forward offtake agreements on-chain via the Foundation and Governance. As a result, the Supply Partner is issued related Forward Clips, which indicate ownership.
- Collateralization: An on-chain mechanism through which the Forward Clips are exchanged for tokens reflecting de-collateralization rights from a particular Basket. This mechanism provides the market with the liquidity required to accelerate the VCM's expansion.
- De-collateralization: An on-chain mechanism through which Market Participants can take Collateralized Basket Tokens and turn them back into the Forward Clips for the purposes of arbitrage and delivery.
- Ecosystem reward distribution: An on-chain mechanism through which the Liquidity Providers are compensated for providing the financial means for Collateralized Basket Tokens to be exchanged for fiat currencies. These rewards originate from a variety of sources, including governance tokens as well as Forward Clips within the Baskets nearing their certification event.
- Delivery: A hybrid process in which the specific agreements are exchanged for relevant certified credits when the underlying Project reaches certified issuance.