Flowcarbon announced our partnership with Centrifuge back in April of this year, and we are excited to directly introduce ourselves to the Centrifuge community.
We will be hosting a Flowcarbon Pool Party on Thursday, September 8, 2022 at 1PM EST. Join us to learn more about the carbon markets, Flowcarbon, and the future of green assets in DeFi.
For anyone new to the Centrifuge community, a “Pool Party” is a virtual event in which a new investment opportunity is presented.
We are launching the first carbon-focused opportunity on Centrifuge. It uses forward contracts for verified carbon credits as collateral, thereby bringing on chain green assets that provide efficient capital to projects which have a certified carbon reduction or removal impact.
The Flowcarbon Pool Party will begin September 8, 2022 at 1PM EST.
Register Here: Meeting Registration - Zoom
- Originator team and experience
- Introduction to voluntary carbon market
- Investment thesis / why invest
- How we select for good carbon and high quality projects
- Why Centrifuge and Defi
- Pilot bundle structure / asset
- Post pilot scaling plans
- Meet the Flowcarbon team at Climate Week
Flowcarbon is a pioneering climate tech company focused on unlocking investment capital for projects that combat climate change. We use technology and financial structuring to capitalize projects that reduce or remove carbon from the atmosphere. These projects then generate carbon credits based on their impact, which are sold for revenue to keep the project capitalized. We are also leveraging blockchain to create a liquid and transparent market for those credits, which are purchased by corporations and others to offset their carbon emissions.
The carbon credits are created and sold in what is commonly known as the Voluntary Carbon Market (VCM), which was created to combat climate change by driving resources to projects that deliver verified and certified carbon emissions reductions. These projects, upon certification, are issued “carbon credits” to sell in the exact number of the tonnes of carbon the project reduces or removes from the atmosphere. To be certified, projects must prove–under rigorous methodologies created by independent crediting standards and audited by third parties–that they have a measurable carbon reduction or removal impact, and that the project would not be financially viable without the revenue generated by carbon credits.
The VCM creates a critical counterbalance to potent economic forces that currently incentivize the destruction of nature for activities like cattle grazing, agriculture, resource extraction, and timber. Destruction of nature is currently a major source of global greenhouse gas emissions—About 23% of human-caused greenhouse gas emissions come from deforestation and other destructive activities on land. By contrast, when protected and preserved, natural ecosystems are the most cost-effective and scalable carbon sinks available today—These systems removed a net 6 gigatonnes of CO2 per year from 2007 to 2016, equivalent to the annual greenhouse gas emissions of the United States. The VCM as a market has the potential to cut emissions by up to 2 billion tonnes by 2030. Many project types in the VCM involve nature, such as large-scale forest conservation, reforestation, and mangrove restoration, which have major additional benefits for wildlife and biodiversity.
A major challenge that has prevented the VCM from scaling is a lack of access to capital for new projects, before they are certified and have credits to sell. Flowcarbon’s use of the Tinlake protocol is designed to address this problem directly by increasing supply of funds into project development and reducing financing friction for developers. At scale, we anticipate that Tinlake can become an ongoing and recognized source of investment for developers seeking to finance new projects in forestry, grasslands, and carbon-rich mangrove ecosystems.
We are co-founded and managed by a team of experienced entrepreneurs with collective expertise across carbon markets, infrastructure development and finance, sustainability, and blockchain technology. We are well-capitalized and backed by some of the most innovative in the world including a16z, General Catalyst, Fifth Wall and Samsung Next.
As we have embarked on our mission to help scale projects that preserve our natural ecosystems, we are committed to working with organizations that have the utmost credibility, are forward-thinking in imagining how new technology can be leveraged for innovative use cases like carbon finance, and share our values. We have watched the Centrifuge protocol evolve, spoken with many members of the Centrifuge community and team, and noted Centrifuge’s success in securing a Polkadot parachain, and we believe that Centrifuge is a dynamic community with significant ambition and provides a solid foundation through which Flowcarbon can deploy our project financing solutions and scale up over the coming years. Bringing voluntary carbon assets to Centrifuge will also provide Tinlake investors and the Centrifuge ecosystem with the ability to participate in an exciting and impactful investment class and generate significant utility for Centrifuge participants.
Carbon credits from the VCM are primarily purchased by corporations as part of their ESG strategies, which typically involves a predetermined commitment to reducing their overall emissions footprint on a set schedule, and buying offsets to compensate for the residual emissions.
As the number of these corporate commitments grows, demand for voluntary carbon offsets is experiencing unprecedented growth. Conservative estimates place annual demand for voluntary carbon offsets at ~$30 billion by 2030, putting considerable upward pressure on prices of carbon projects and credits. For context, the price of an average nature-based credit increased from ~$5 per credit in Q1 2021 to over $10 per credit as of Q3 2022 (with high quality credits often fetching $25+ per credit) and the trend is expected to continue as the supply of quality natural carbon sinks become more scarce.
While demand is increasing, the voluntary carbon market has several issues constraining supply:
- Lack of Development Capital: Most capital participating in the voluntary carbon market is focused on trading already existing credits or backing a few well-known, large-scale projects that are largely de-risked. Smaller projects doing tangible impact work are often overlooked and underfunded
- Bringing Liquidity to Illiquid Assets: Forward contracts on voluntary carbon offsets are traditionally illiquid assets, and building structured products on DeFi backed by these assets brings additional liquidity and trading activity to the voluntary carbon market
- Long Financing Cycles: Smaller projects without substantial marketing budgets and in-house teams must go through long sales cycles with corporates / investors to be funded, and many must hire expensive marketing agents and intermediaries given the lack of a transparent marketplace
- Costly Intermediaries: There are many intermediaries that sit in between project developers and end-buyers, materially reducing the economics flowing to developers. The fees taken by current intermediaries can be high: The market currently trades mostly over-the-counter (“OTC”) through brokers who charge fees that can range from 5%-30% per transaction
- Lack of Access: Investments into voluntary carbon credits and projects are restricted to parties with registry accounts and these accounts are notoriously difficult to obtain, especially for smaller investors and individuals. This leaves large sections of carbon market demand essentially “locked out”
These issues greatly restrict capital flow between carbon credit buyers and carbon project developers and thus constrain the supply of climate change mitigation projects globally. But these issues also create tremendous opportunities for investors to gain meaningful exposure to high quality projects as margins remain high due to market inefficiencies.
Centrifuge is enabling RWAs with yield characteristics to be financed on-chain and we believe voluntary carbon purchase agreements are well positioned to leverage this infrastructure. As a decentralized protocol, Centrifuge is positioned to help Flowcarbon access investment capital from other DeFi protocols, with the goal of unlocking cost effective debt financing for carbon project developers who currently rely mostly on equity financing.
Centrifuge also provides Issuers with more transparent data on cost of capital and will help benchmark the true cost of developing carbon projects and make development in the VCM more efficient.
The assets underlying the pilot bundle are voluntary carbon offsets to be issued by the Verra registered Corazón Verde Del Chaco Project (VCS 2611), located in Paraguay within the Gran Chaco Forest. The Gran Chaco is the second-largest forest in South America, second only to the Amazon rainforest. It has one of the highest deforestation rates on the planet due to conversion to cropland and pasture for cattle. This carbon project will initially seek to conserve approximately 32,000 hectares (79,000 acres) of threatened forest and is designed under two leading carbon offset verification standards known as the Verified Carbon Standard (“VCS”) and the Climate, Community and Biodiversity Standard (“CCB”). Furthermore, the project is expected to have the ancillary benefits of protecting several key endangered species and a wide range of other potential environmental benefits. The carbon revenue is intended to provide an economic alternative to deforestation-dependent farming and pastoral activities for local communities, and seeks to mitigate the release of an estimated 2 million metric tons of carbon dioxide emissions over the first 10 years of the project.
The Issuer will raise capital from TIN and DROP investors and will purchase the underlying assets from Flowcarbon. The credits underlying the bundle are expected to be issued by October. The pilot bundle was seeded with short duration carbon assets intentionally to reduce investor exposure to carbon price volatility and project execution risk. After the issuer receives the carbon credits from the developer, Flowcarbon will monetize the credits through its corporate relationships / the open market and proceeds from the sale are expected to be distributed to investors by November.
Flowcarbon, is retaining ⅓ of the TIN tranche to provide investors with comfort. The remaining TIN tokens and DROP tokens will be made available to eligible investors.