Many people in Web3 talk about 'falling down the rabbit hole'. The metaphor referring to Alice in Wonderland is apt at describing the experience people have when they being to look inside the complicated, confusing world of web3.
Initially, it can be very disorienting. There are so many new terms and concepts it's hard to make sense of what is going on.
Additionally, once you've fallen down the rabbit hole, it's hard to remember what life is like outside.
There are some great DeFi glossaries available to define a wide variety of terms, but here are the core ones you need to know to understand what's happening in Toucan.
Decentralized finance — “DeFi” — is an emerging alternative financial system that allows anyone with an internet connection to perform basic banking functions of lending, borrowing and saving. It's the foundation of the entire regenerative finance movement we call "ReFi".
DeFi builders are creating decentralized alternatives to many of the financial services we know in the traditional finance system, services like borrowing and lending, savings accounts that earn interest, stablecoins and more complex financial products like options and derivatives.
Smart contracts are the core building blocks of DeFi. They are small computer programs that can own money and other assets. These programs are stored on a blockchain, and are always accessible, anywhere in the world.
You can think of smart contracts as an open canvas for innovation—similar to the web page.
DEX: Also known as “decentralized exchanges.” They are an entire category of DeFi applications on their own. A DEX allows users to swap one token for another. Because they run on smart contracts, DEXes are very efficient and don’t rely a human with capital on the other side of the trade to enable a transaction.
Therefore "Liquidity Providers" (or LPs, the people who provide pairs of tokens to enable the market to make transactions automatically) become an essential part of any DEX and any DeFi market. Incentivizing liquidity is a primary source of yield in the emerging DeFi movement.
DeFi meets ReFi
At Toucan, we build infrastructure for carbon markets to finance the world's best climate crisis solutions. We are leveraging the power of DeFi to embed regenerative economics into the fabric of money.
The Toucan Protocol is smart contract-based infrastructure that enables deeply liquid carbon markets. We pioneered the 'carbon as collateral' use case with the launch of BCT in partnership with Klima DAO.
Our docs describe how we use non-fungible and fungible tokens to bridge legacy carbon credits from Verra into DeFi. Anyone can use Toucan protocol to take advantage of the demand being created on-chain in these new emerging markets.
Toucan Meta Registry
We've created the Toucan Meta-Registry, where carbon credits from any registry can be represented as cryptographic tokens and deposited into carbon pools to enable highly liquid markets to scale climate action.
At the moment, Toucan has two reference tokens: BCT and NCT. Both trade on SushiSwap, a major DEX, and can be owned and controlled by anyone with an Ethereum account. You can now buy NCT for a transparent price from anywhere in the world, and retire nature-based carbon tokens with Toucan.
Web3 accounts and wallets
To do anything on a blockchain like Polygon, you need to have an account. Accounts are managed by software called “wallets”. A wallet is an app you can download on your phone or computer, or a browser extension. The most widely used wallet is Metamask, but there are many — Status, Rainbow, etc. We recommend Metamask as it’s the most widely supported.
A world with many blockchains
A blockchain is a database that is kept up to date by a network of computers. No one computer runs the show — instead, the computers are programmed to work together to find consensus on the exact records stored in the database at any point.
Carbon market meets blockchain
Carbon markets happen to be an incredible use case for blockchains. Due to their technology architecture, they address several of the problems with legacy carbon markets to date, namely: Accountability and transparency.
By bridging credits into Toucan, the market is able to ensure there is no double accounting in the carbon market on-chain—a key phenomena that is present in the legacy market and a primary factor that undermines trust and reduces the potential value in the system.
Planet positive blockchains emerging
There are hundreds of blockchains running right now. Bitcoin was the first, and now there are many, each with their own advantages and drawbacks. Bitcoin pioneered a consensus mechanism called 'Proof of Work' which is very energy (and carbon) intensive.
There is a second and third generation of blockchains pioneering highly efficient consensus mechanisms such as Proof of Stake which reduce the network's energy use by 99.95%.
Smart contracts a new financial system
One category of blockchains support a technology called “smart contracts” — computer programs that can own and transfer money. Polygon is a blockchain that supports smart contracts.
Polygon is a sidechain to Ethereum mainnet. This means it is a different blockchain that is maintained by a different consensus network of computers working together to update the ledger. The Polygon blockchain uses the same account system as Ethereum, so the seed phrase you manage in your crypto wallet will work on both.
Polygon's energy efficiency
The efficiency of the aggregate energy used by Polygon as a result of it's sidechain relationship to Ethereum has come into question off the back of the WWF NFT drop.
We are in touch with Polygon to understand more about the validity of these claims and ensure that Toucan continues to be a profoundly planet-positive force in DeFi and beyond.
We have a tutorial with resources on how to use Toucan here:
Big kudos to our friend James Box for articulating this rabbit hole phenomena from the outside! We've been in it long enough to forget what it's like outside...