Introducing IotaOrigin
One of the greatest challenges facing society and the economy is global warming. Global warming has by far the greatest influence on our current thoughts and actions as well as our future coexistence. The renouncement of fossil energy sources and the sustainable management of our resources play an important role in this context. It should be pointed out that for the energy turnaround, we must also achieve a resource turnaround. A resource turnaround is a challenge in itself and can lead to distortions in the access, distribution and use of resources. This can raise new social, political and economic issues.
In the following, we introduce IotaOrigin and explain how we intend to implement DLT to achieve a responsible resource and energy transition while creating value for the economy and society by raising the potential of small-scale mining.
I — Status Quo
To combat climate change, the UNO has agreed to implement the Paris Climate Agreement, which aims to keep global warming below 2°C. In order to meet this target, emissions that are harmful to the climate must be reduced. This is only possible if the use of fossil fuels, which are responsible for 73.2% of greenhouse gases, is abandoned (Fig. 1).
Figure 1 : Global greenhouse gas emissions by sector ( ClimateWatch, the World Resource Institute 2020)
The initiated energy turnaround can only be achieved by a corresponding resource turnaround. The material intensity of renewable energies per terawatt hour is between 200–300 % higher than a terawatt hour generated by fossil fuel, while the emission intensity is significantly lower. Emission intensity from renewable energy is lower even when the production of the raw materials is included (Fig. 2). The World Bank expects demand for numerous raw materials to increase by up to 500% as a result of the energy transition. ( World Bank 2022)
Figure 2: Material and emission intensity for power generation and road transport ( McKinsey & Company 2022)
II — Outlook
The needed pace for realisation of the energy turnaround is creating challenges on the supply side of raw material production. This cannot be offset by industrial mining in the short term. Prospection, exploration and the development of the mining infrastructure can take up to a decade or more (Fig. 3).
Figure 3: Global Metals & Mining conference Bank of America ( Anglo American 2022)
Every three years, the European Commission draws up a list of critical raw materials (Fig. 4). The number of raw materials mentioned in this list have increased from 14, when it was first compiled in 2011, to 30 in 2020. The European Commission defines critical raw materials according to their importance for the economy, the supply situation as well as reliable access.
Figure 4: List of critical raw materials ( EU Commission 2020)
The future supply situation continues to be influenced by external factors:
• Automation and digitalization in production lead to the reshoring of production sites from emerging countries to industrialised countries. This trend supports the dismantling of international just-in-time supply chains and has deglobalizing forces. The reduction of supply chains lead to an increased demand for primary raw materials in industrialised countries and will endanger the already fragile supply. ( S&P Global Market Intelligence, Peter Brennan 2022)
• Political deglobalization is increasingly becoming a threat. The dependencies in supply chains are leading to questions about security, access to raw materials and key technologies. ( Intereconomics, Alicia García-Herrero 2022)
• Covid19 is one of the catalysts of the above trends. Lockdowns and disrupted supply chains lead to a surge in automation and sharpen the focus on systemically important sectors. ( McKinsey & Company 2021)
Consequently, the focus of international competition is shifting from pure labour cost to the geographic location and political stability of countries as well as its access to strategically important raw materials. This will enable resilient automated production in the long term.
The EU in particular will suffer difficulties in this scenario due to its high dependence on imported raw materials and the lack of own geological deposits (Fig 5, Fig 6).
Figure 5: Import reliance for selected non-ferrous metal ores in the European Union (EU) as of 2018 ( statista 2020)
Figure 6: Who owns the Earth? The scramble for minerals turns critical ( THE TIMES 2022)
III — Follow up
The resource turnaround will be one of the most important issues of this decade. IotaOrigin’s goal is to increase security of supply by diversifying raw material procurement to meet the growing demand for raw materials by strengthening small-scale mining. This must be done in a responsible and environmentally friendly way, otherwise it would discourage the development of renewable energies that utilize many critical raw materials from small-scale-mining. IotaOrigin focuses on three pillars to realize that:
- Tracking of critical raw materials through a digital system based on distributed ledger technology (DLT) to comply with international regulations.
- Financing of small mining companies, most of which do not have access to international financial markets, in the form of ESG and impact investments that are based on the tokenization of commodities and real-world-assets (RWAs).
- Commercialize tokenized commodities and spot markets for critical raw materials by building a decentralized digital commodity bank/exchange in the Decentral Finance ecosystem (DeFi).
Small-scale-mining
In this second part, we’ll be exploring more insights about the small-scale mining market.
Artisanal and small-scale mining (ASM) is able to fill the supply gap created by the demand for renewable energy. 15% to 20% of all mineral raw materials are mined annually in ASM (Buxton 2013). The deposits are usually located near the surface have high ore grades and can be activated promptly to cover the supply gap on world markets. ASM is mainly located in developing countries, mostly operated informally by local population due to a lack of employment opportunities. The informality of the sector often forces communities into dependence on illicit financing, which is associated with severe human rights violations and can lead to regional tensions. This gave rise to the definition of conflict minerals.
Conflict minerals are regulated internationally. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the EU Conflict Minerals Regulation, and the Dodd Frank Act Section 1502 define the minerals tin, tantalum, tungsten, and gold (also known as 3TG) from the Democratic Republic of the Congo (DRC) and its neighbouring countries as conflict minerals and require proof of origin and compliance with due diligence measures. It is difficult for the already financially weak ASM sector to comply with the regulations, as the import industry passes on the tracking costs to the mines and producers. This means that the commodity market continues to rely on illegal financing and is even pushed into it. For example, 99,9% of the gold mined from the DRC’s ASM sector is smuggled out of the country, approximately 12–20 tons of gold per year (Federal Institute for Geosciences and Natural Resources, BGR, 2019). Accordingly, the ASM sector must be supported so that international regulations can be adhered to without creating cost pressure as well as making legal financing possible.
More than 45 million people worldwide work in the ASM sector, and another 150 million people are indirectly dependent. The number of people employed in small-scale mining has tripled since 1990. The annual revenue generated is officially put at $100 billion. Worldwide, 90% of the mining workforce is employed in small-scale mines (delvedatabase). Raw materials from small-scale mining can create 100 times more jobs and save up to 600 times more CO2 than the industrial sector (Schein, 2022). Although small-scale mining is becoming increasingly relevant, it is not the content of public discourse and is fundamentally undervalued.
ASM share of global production for a selection of raw materials:
15–20 % Gold
15–20% diamonds
15–30 % Cobalt
30–50 % Tin
50 % Tantalum
80% colored gemstones
(EU Science Hub)
Small-scale mining can not only satisfy the high demand for raw materials, but also supports the implementation of a responsibly implemented energy transition and makes a significant contribution to achieving the UN Sustainable Development Goals. Small-scale mining thus contributes to achieve securing sustainable development on an economic, social and environmental level.
Figure 1: https://www.sciencedirect.com/science/article/abs/pii/S0016718519302714?via%3Dihub
ESG and impact criteria
Before we can manage and live in a sustainable way, we need to invest together in a sustainable way. Environmental, Social, Governance and impact Investments enable investors to act sustainable and thus pave the way to a green economy.
What defines ESG and impact investments?
Figure 2: The spectrum of social and financial investments (Boffo, R., and R. Patalano 2020)
What are the criteria?
Figure 3: ESG criteria (Boffo, R., and R. Patalano 2020)
Macroeconomic trends show the importance of this Market. Impact Investment increased from $77 Billion in 2015 to $500 Billion in 2019 to $700 Billion in 2020. An increase of over 900% over five years (The GIIN 2022).
ESG investments even reached the value of $35 trillion and account for one-third of AUM (assets under management). ESG investments are expected to further increase to $50 trillion by 2025 (GLOBAL SUSTAINABLE INVESTMENT REVIEW 2020). Moreover, the inflow into sustainable investments is steadily increasing and gaining pace. Deutsche Bank expects 95% of AUM to be managed under an ESG mandate by 2030 (Fig 3).
Figure 3: Assets under management with an ESG mandate. (Jim Reid et al. 2018)
Currently, small-scale mining is not able to benefit from this trend. 72% of impact investment groups are from developed countries and invest 75% of their assets in developed markets, thus failing to leverage the potential of the ASM sector (The GIIN 2022).
Figure 4: ASM financing (The GIIN 2022).
IotaOrigin aims to reduce this discrepancy and provide ESG and impact capital access to a new market segment, small-scale mining. This is not only an option, but essential if we want to implement a responsible energy transition without accepting massive overexploitation, uncontrolled deforestation, environmental pollution and human rights violations.
To achieve this, we want to wake up a sleeping giant and create a small-scale mining industry from a currently informal sector by using DeFi and tokenised commodities to introduce transperency and financial inclusion.
IotaOrigin’s Role in Small-Scale Mining Prefinancing
At IotaOrigin, we specialize in the prefinancing of small-scale mining operations, a critical segment in the raw commodities industry. Our approach centers on tokenizing commodities as real-world assets (RWAs) to secure funding, bridging the gap for small mining enterprises that often find themselves excluded from international financial markets. Through this tokenization, we aim to commercialize these assets, integrating them seamlessly into the Decentralized Finance (DeFi) ecosystem. Our vision includes the development of a decentralized digital commodity bank and exchange , facilitating easier access to capital for these vital yet underserved mining operations.
Integrating Bullet Loans for Prefinancing in IotaOrigin’s Operations
At IotaOrigin, we are innovating the use of bullet loans within Centrifuge pools for the pre-financing of logistics and commodity production. This approach allows us to streamline the funding process for critical stages of commodity production, from initial logistics to the final stages of production.
- Logistics Prefinancing : Utilizing bullet loans, we aim to finance the initial logistics involved in small-scale mining operations. This includes transportation, initial processing, and other logistical needs that are essential for efficient and sustainable commodity production.
- Production Prefinancing : Subsequently, we will extend our use of bullet loans to cover the costs of actual commodity production. This step is crucial in ensuring a continuous and stable supply of raw materials, aligning with our commitment to responsible mining practices.
- Towards a Full Commodity Exchange and Bank : The ultimate goal of these efforts is to pave the way for a full-fledged commodity exchange and bank, centered around tokenized commodities. This development will mark a significant milestone in integrating decentralized finance with the real-world commodities market, offering a novel platform for investment and trade in tokenized assets.
Our initiatives are tailored to support responsible and environmentally sustainable resource extraction. By leveraging the Centrifuge blockchain’s capabilities, we plan to introduce these tokenized assets into the broader DeFi landscape. This integration not only aligns with Centrifuge’s mission of enabling transparent and efficient financing solutions for RWAs but also marks our commitment to fostering a more inclusive and sustainable commodities market.