This is the first in a series of articles introducing Toucan’s carbon tokens. We begin with Base Carbon Tonne, a new Web3 building block that’s empowering a wave of regenerative innovation on the open internet.
Launching Base Carbon Tonne
On October 18th, 2021, Toucan released a new lego to the DeFi and web3 ecosystem: a liquid carbon token called Base Carbon Tonne (BCT). In the week following launch, one million carbon credits were bridged on-chain. Now, after eight weeks, over 15 million carbon credits have been tokenized. Nearly all of these carbon tokens have been deposited into the Base Carbon Pool, representing a basket of environmental projects that underpin BCT.
Further, as of this writing, BCT ranks among the highest-volume tokens trading on the Polygon network, generating in excess of $100m in weekly volume. For comparison, the traditional voluntary carbon market is tracking $1b for the whole year of 2021. This early success demonstrates that BCT — along with innovations in decentralized finance — can meaningfully advance the state of global carbon markets. Web3 has a key role to play in fostering a healthier and more sustainable planet.
Exciting as this is, we are only getting started 🌳
To make a dent in our shared and ongoing climate crisis, we have serious work to do. That work begins with mutual understanding.
Today, the topic of exploration is BCT. Read on to learn more about how BCT is created and why it’s establishing itself as the leading carbon asset of Web3.
What is a Base Carbon Tonne?
A Base Carbon Tonne is a fungible carbon token backed by a 1:1 verifiable link to carbon credits in a supported registry. Given BCT’s deep liquidity, it’s well suited as a new building block for DeFi, DAOs, NFTs, and the metaverse.
How is BCT created?
The Toucan Bridge enables the journey from carbon credit to Web3 asset. This gives users the ability to securely “bridge” carbon credits on-chain — a transfer of value that unlocks increased utility. To ensure that carbon credits aren’t double-spent, they are permanently retired on the traditional registry with the on-chain beneficiary (an Ethereum wallet address) publicly declared in the retirement message.
After bridging, users may then obtain project-specific TCO2 (Toucan CO2) tokens. These are semi-fungible ERC-20 tokens that retain metadata (project origin, type, vintage, etc.) from the original carbon credit. TCO2 tokens can be held, transferred, or deposited into a Carbon Pool. (They can also be retired, but more on that later!).
By depositing TCO2 tokens into a Carbon Pool, the depositor receives Pool reference tokens (e.g. BCT) on a 1:1 basis. The innovation of Carbon Pools solves problems intrinsic to traditional carbon markets: fragmentation, lack of price discovery, and poor liquidity.
Toucan’s Base Carbon Pool
BCT is the carbon reference token of the Base Carbon Pool. This pool was launched with an intentionally permissive design: any bridged Verra Carbon Unit (VCU) of 2008 vintage or later qualifies. Over time, the qualification criteria may evolve in an effort to continually improve the integrity of BCT. We also plan to support additional registries beyond Verra.
Redemption of BCT for project-specific TCO2s
At any time, BCT may be redeemed for the underlying TCO2 tokens held in the Carbon Pool. The Carbon Pool contains a subset of the carbon tokens held on the Toucan Registry. Any token held in the Base Carbon Pool is accessible to holders of BCT. This redemption mechanism provides open and permissionless access to carbon tokens that still retain the original carbon credit attributes.
Climate action via retirement
Toucan will soon be launching a burn feature, enabling the removal of BCT and its underlying TCO2s from circulation. In the traditional market, this can be compared to carbon credit retirement — the elimination from supply often used for offsetting purposes. It’s also the final and most important step in a carbon credit’s lifecycle.
Using Toucan and transparently burning on a public blockchain yields several results:
- Raising the price of carbon: burning carbon permanently removes it from circulation, contributing to a higher price of carbon and incentivizing emission reduction
- Climate finance: as a strong and consistent price signal is established, new environmental projects will gain the confidence they need to start their impact work
- Value transfer: the first value transfer we discussed was from off-chain credit to on-chain asset; the final value transfer is when a carbon token is burned — directing value from the carbon token to organizations who showcase their participation
With time, we may implement incentives to encourage further planet-positive actions. We’re in the process of exploring how such incentives could best be embedded into Toucan’s infrastructure for high-leverage climate action.
Beyond retirement: embedding carbon into the fabric of Web3
Given the state of our climate crisis, we need swift and impactful action. At Toucan, we’re often skeptical of carbon neutrality claims and the common approaches to emission compensation. This is not to suggest that offsetting isn’t important, but we need to do more.
Programmable carbon opens opportunities to embed regenerative and planet-positive measures into the very fabric of our economic interactions.
If BCT were simply a compensation token, demand would be limited to balancing negative externalities. But we believe the scope of BCT to be larger: BCT is a composable building block to generate new, positive externalities through consistent carbon credit demand.
How builders can use BCT for regenerative innovation
The use cases for BCT in Web3 are extensive, and we’ve been delighted to learn about the projects already underway. Let’s unpack how Web3 protocols are using BCT:
- Carbon as Collateral: Add tokenized carbon credits as a diversified collateral type in decentralized finance.
- Transaction Climate Action: Offer a small tip for the planet with every Web3 transaction.
- Carbon in the Metaverse: Incorporate carbon into the metaverse and incentivize IRL positive impact.
- Earn Interest on Carbon: Access new ways of turning carbon credits into productive, yield-bearing assets.
- Carbon-Backed Currency: Launch a new cryptocurrency with carbon backing.
- Green NFTs: Integrate carbon with your next NFT project for planet positive works of art.
- Carbon as an Investment: Diversify treasury or portfolio holdings with a liquid, fungible, and real-world asset.
The ideas above are not just ours. In fact, they’re already underway among pioneering protocols leading a new wave of regenerative innovation. Check them out:
- KlimaDAO: a cryptocurrency backed by BCT
- Qi DAO: diversifying into BCT as a green treasury asset
- Market.xyz: borrow against BCT and explore new ways to generate yield on carbon
- Carbonized: BCT-infused NFTs
- Atlantis World: building carbon-sequestering forests with BCT in the metaverse
And now to you: what are you going to build? 🖊
Toucan exists to help us rapidly coordinate a response to our species’ greatest global challenge.
On one level, we are building neutral market infrastructure. But we are also taking a strongly pro-climate stance in how that infrastructure is used. To this end, we are heavily prioritizing our focus on the most impactful actions to solve the climate crisis. As pragmatists, we’re thinking creatively about leverage points in the system and where we can apply pressure to make the greatest progress.
With BCT, Web3 has a key building block to create a regenerative society — one with ecology and economics aligned.
This is only the beginning, and we need to do more. We’ve taken one step in the marathon that lies ahead. And it’s not just Toucan that needs to do more; rather, confronted by the scale of the climate challenges in front of us, we need you.
We need engineers, creators, and innovators of all types to build with carbon and stimulate a regenerative Web3 ecosystem as we strive for a better world 🌎