To the ReFi Community,
As mentioned in our previous post, the Toucan Core team recently acted to secure nature-based carbon tokens for long-term liquidity as a public good.
We did this in response to third-party actors performing large scale redemptions of nature-based tokens from the BCT pool. We are soon launching our next carbon pool, NCT. These redemptions put the integrity of the NCT launch at risk, and forced us to act before we had fully aligned with all the stakeholders and community.
Our intention was to secure this value for the good of the ecosystem. But we’ve heard the concerns of the Klima DAO community and BCT holders loud and clear.
🙏 Klima DAO + BCT holders
We want to apologize to the Klima DAO community and BCT holders who had not been properly informed about the ability to redeem underlying TCO2s from the BCT pool.
We are releasing updated documentation and working on a proposal to improve the redemption function’s accessibility and economics.
Thank you to those of you who have shared your perspectives and made your criticisms clear to us — especially the NCT stakeholders, everyone who joined our AMA and who trusted us to make this situation right
Initially, we felt strongly that the best purpose of these credits would be long-term liquidity for the NCT market. We now recognize that this is a decision the community needs to make — not us.
Accelerating decentralization and governance
Our vision as a carbon market infrastructure provider is to build strong governance systems—ones that allow the expert community to make these decisions with clear processes and aligned incentives that have the health of our planet at heart.
As a result of these events, we’re accelerating the creation of proper governance structures and processes to ensure the integrity of the on-chain carbon market, putting decisions like these into the hands of industry experts and the ReFi community.
We would like to invite expressions of interest in the Toucan Protocol governance council for the ecosystem of carbon market experts, standards bodies and industry working groups:
A step in the right direction
While we still feel that securing this value for the ReFi community was the right decision, we recognize that the choice of how this value is used needs to be made by the community. We believe the secured value should:
- Be used short-term for liquidity to launch the NCT pool as soon as possible (and enable bonding with Klima DAO via a KIP)
- Be used long-term for the greatest impact to accelerate the ReFi movement, as proposed by the community
We’re working on several detailed proposals for the community, and will soon launch Toucan’s community forum. Here we will have open, structured conversations about key decisions, including how we can reciprocate the support shown by BCT holders, create economic carbon sinks and improve the quality of the BCT pool.
Inviting the community to decide
We will use this forum to gather input that will help the multi-sig signers decide on the long-term use of these funds for the ReFi ecosystem. We’re working on a few suggestion, and will invite proposals from the community as a part of this process.
We’ll take these 8 steps to achieve best outcomes for the community, Klima DAO and BCT holders.
- Move the secured value into a 5/7 multi-signature account. This value will be deposited as short-term liquidity to launch the NCT pool, and the LP tokens will be held by the multi-sig. Signatories will include representatives from Klima DAO, Regen Network, BICOWG, Moss and Toucan.
- Launch the Toucan community forum to discuss requests for comment and receive community proposals, including for the best use of the value in the multi-sig.
- Accelerate progressive decentralization of the protocol with the evolution toward Toucan DAO, engaging the community as a core part of the process.
- Optimize the redemption function to ensure regenerative economic alignment.
- Update our documentation and app interface with clearer information and guidance about the ability to redeem selective TCO2s from a pool.
- Invite expressions of interest to participate in the Toucan Protocol Governance Working Group.
- Improve lines of communication for all key NCT stakeholders by creating a private discussion space.
- Meet with representatives from Klima DAO on Monday to gain alignment on how to best move forward with the above.
Below we share an exact account of events from planning BCT up until the Community AMA held in Discord on Monday, 31 January. We link to spreadsheets of all redemption transactions of nature-based TCO2 tokens from the BCT pool and specify which were affiliated with Toucan and which weren’t.
Very soon, we will announce the launch of the Nature Carbon Pool with final pool gating criteria. The more liquid the market at launch the better — we invite partners to contact us if they’re interested in supplying liquidity.
A recap of events: Toucan + Klima DAO
For the launch of Klima DAO we created BCT, which is backed by a carbon pool that accepts a variety of carbon tokens that all meet a minimum quality threshold of VCS credits from 2008 and onwards.
After launch, people deposited TCO2 tokens of significantly varying qualities and prices. These included a number of nature-based tokens supplied from values-aligned actors — many of whom did not understand the selective redemption function in the BCT pool.
Nature-based redemptions begin
In the months after the BCT pool launch, unaffiliated third-party actors began redeeming nature-based credits out of the BCT pool. This selective redemption functionality was not described in detail in our documentation so required a level of technical knowledge not available to most.
Threatening community value
We saw these higher-quality nature based credits leaking out of the BCT pool — removing value from the Klima DAO community and BCT holders.
In early January, the largest selective redemptions yet to occur took place.
- On 3 January 2022, 67,600 nature-based TCO2 tokens were redeemed by account 0x362...9c0 in four transactions: 0x60f...a25, 0xe0d...8c2, 0x095...127 and 0xe0d...8c2.
- On 12 January 2022, three transactions from the same account redeemed 60,129 additional TCO2 tokens: 0xc9d...577, 0x13a...8b4 and 0x961...07c
We do not know who redeemed these tokens. We also began to get the sense off-chain that unaffiliated actors were aware of the opportunity and might act.
These factors forced us to act swiftly in a compliant and risk-minimized way to preserve this value for the broader ecosystem.
We coordinated with liquidity partners aligned with the long-term success of the ReFi ecosystem. These partners volunteered to perform the operation and provide liquidity as a public good.
These partners bought large volumes of BCT and directly called the redemption function on the Base Carbon Pool contract, specifying the withdrawal of nature-based TCO2 tokens. Private accounts controlled by Toucan core members participated the exercise to secure all the value.
No one affiliated with Toucan intended to profit, has profited or will profit from this mass rebalancing.
Why was the community not consulted from the outset?
The smart contract-based financial ecosystem — decentralized finance — has emergent properties. Smart contracts can be thought of as small computer programs that can own money, and that anyone can use. Sometimes, value held by a smart contract is available for anyone to claim.
The ecosystem has a number of well-resourced, profit-driven actors with strong technical capabilities — actors who are motivated to capture this value if they become aware of it.
In any other situation, we would have consulted the community about such a significant activity. But doing so would have identified the location of the value, which would have been captured by a minority of profit-seeking actors and put the NCT launch at risk.
We could not openly discuss this on the Klima DAO forum (via a KIP for example) for the same reason. The likelihood that this value being captured by non-aligned actors would result in short-term market instability forced us to coordinate this quietly, and explain afterwards.
As a result of other actors making large redemptions, we were forced to act before we finalized a clear and coherent plan on how to manage the value of the nature-based credits in the BCT pool in light of the upcoming NCT launch.
It was always our intention to do the right thing for Klima DAO, BCT holders and the broader ecosystem — as we’ve tried to communicate here.
We’re determined to learn from this experience. And we’re devoted to building a resilient community with strong governance — one that can channel Web3 technologies to address climate change at scale.
Thank you for your trust. 🙏
Nature-based token redemptions from the BCT pool
The Toucan-affiliated Polygon accounts
- Initial announcement of events on our blog here.
- Spreadsheet with each 2012+ nature-based redemption transaction submitted to the BCT pool contract since launch here. We’ve included pivot tables and charts to show the timeline of redemptions, as well as some statistics showing redemption breakdown by month, vintage etc. Polygon addresses, as well as whether the account is controlled by an affiliated or non-affiliated entity, are included.
- Mass Balancing Community AMA from Monday, 31 January 2022 recording is here, and transcript here.