Shermin Voshmgir: April 29, 2021
This is a sneak peak into my upcoming book with the focus on Token Economy Use Cases where I will be on analysing use cases of purpose-driven tokens that incentivise individual action towards a public good. It will be practical guide to a wide array of use cases with the focus on DAOs and public goods that are steered and maintained by purpose-driven tokens. The aim is to describe and analyse existing use cases and identify common patters towards the economic engineering of these token systems as a means to create alternative economic systems that are more inclusive and sustainable. I will be publishing some draft chapters of this upcoming book in a series of blog posts over the next months. As a first excerpt I am very happy to start out with the use case of biodiversity tokens that the Rebalance Earth initiative is working on:
Rebalance earth is an initiative that is working on a biodiversity token that incentivizes the maintainance of keystone species such as African Forest Elephants that play a vital role in capturing carbon and restoring ecological resilience. Rebalance Earth is aiming to launch a pilot project in partnership with the government of Gabon and a number of other global entities in the Loango National Park end of 2021.
The IMF has valued the carbon capture and carbon sequestration services of African Forest Elephants at 1.75 million USD per elephant over their lifespan of 60 years. This number is based on studies that show that forests with elephants in the Congo Basin contain 7 percent more above ground carbon than forests where elephants have been extirpated. By protecting elephants, one can therefore prevent the loss of this 7 percent of carbon capture. The International Union for Conservation of Nature, however, has put the African Forest Elephant under the critically endangered list. Most studies show they this species is likely to go extinct in 10 years time.
If one could prevent the extinction of this species, the market value of the calculated lifetime carbon capture of an Elephants’ natural habitat alone equates to an income of 80 USD a day that could be paid to local rangers and the communities protecting these previously unvalued natural capital assets. In a pilot project the Rebalance Earth initiative is therefore planning to create an economic system whereby the elephants’ carbon capture and carbon sequestration services can be funded by any organization or individuals worldwide wishing to offset their carbon footprint. The funding process is facilitated by smart contracts.“Carbon sequestration is the process of capturing and storing atmospheric carbon dioxide. It is one method of reducing the amount of carbon dioxide in the atmosphere with the goal of reducing global climate change” though geological or biological means.
Rebalance Earth is working with local communities to co-design the approach for releasing tokens and funding micro-investments that best serves their needs of local communities maintaining the species and their natural habitat. The aim is to build an incentive model that promotes a circular economy on a local and global scale.
In this setup, local communities are directly incentivized to maintain a public good (biodiversity maintenance as a natural means of carbon offsetting) with tokens that are issued upon proof-of-biodiversity-maintanance. These tokens represent CO2 certificates that can be bought by individuals and organizations with any form of currency who are looking to offset their own carbon emissions.
A combination of Internet of Things (IoT) sensors, tokenization and AI will be used to track the amount of carbon capture and carbon sequestration that the maintenance of biodiversity creates. By collecting biodiversity data with IoT sensors that are installed within the forest and the subsequent algorithmic analysis of this data, predetermined conditions can automatically trigger the smart contracts to release a daily amount of 80 USD per elephant in the form of Web3 tokens that is needed to pay forest rangers and other community services. Since Web3 tokens are settled over public infrastructure this system can guarantee those who want to offset CO2 with traceability and transparency on the usage of the funds. Before we analyse the token flow and token design a few facts on biodiversity protection, carbon markets and the Sustainability Development Goals (SDGs) in general:
THE CARBON VALUE OF BIODIVERSITY & OTHER SDGS
Over the last decades carbon capture has started to have a market value as a result of a global attempt ratified by many countries to combat climate change. Tokenized carbon credits that are issued based on a proof-of-biodiversity-protection can therefore generate income for the Elephants and those who protect the elephants. This means that the sheer existence of the elephants in their natural habitat can be used to generate income for the local community that protects them.
The circular economy aspect is quite important to understand in this context. Today, many elephants are killed by farmers that trespass their land and ruin their crop. This is due to the lack of adequate fences around the national park. Other animals are killed by illegal hunters who hunt for fun or the extraction of ivory etc. Forest rangers can only protect against illegal hunters, but can always be bribed, and will not resolve the issues of farmers killing the animals on their own land. This is why the Rebalance Earth Initiative is planning to allocate a part of the carbon offsetting revenues to build fences, and protect the farmers, so they don’t have an interest in killing the animals anymore. This is just one example of how the conservation of Biodiversity is underfunded. In some places the systems also suffers from additional local corruption. In some regions, for example, park rangers have not been paid for months.
Tokenizing proof-of-biodiversity-protection can not only create a new type of funding mechanisms that combines elements of carbon markets, micro-financing and and conservation funding, but it also increases the reliability and transparency of how biodiversity protection is managed today.
It is usually governments together with NGOs who fund the maintanace of the Elephants, and other species, not only in Loango National Park, but also of most other other national parks. While the benefits are global, they have not been accounted for so far. Currently we have no public and global accounting system of who produces carbon emissions and who captures carbon emissions. While the Paris agreement and other international treaties have started to create the conditions for such an accounting system and carbon offsetting markets, we are far from collecting global data, and rewarding all those individuals and communities who naturally contribute to carbon offsetting.
Carbon offsetting system today is still in its early stages and also has considerable transparency challenges. The current systems suffers from information asymmetries and time lags regarding where the money flows and how the revenues are shared. Governments who fund many of the carbon emission and conservation projects want to avoid carbon bandits who double or triple sell carbon offsetting certificates. With a Web3 based system local community members can be guaranteed their social contract and have full transparency of how much of the funds reach their local communities. Web3 based solutions can also bring more transparency to carbon offsetters (those who buy the certificates).
Another challenge of “pure” carbon offsetting markets is that they don’t stop natural ecosystem destruction. They don’t stop wildlife crime. And they don’t directly protect biodiversity. Rebalance Earth combines the concepts of biodiversity protection with carbon emission and micro-financing to create an economic systems where the Elephants are protected by the local community, and the money this generates though the issuance of carbon offsetting certificates can flow back into the community and be also used to build additional local community services: Park rangers can be paid, fences can be build, and much more. Depending on the needs of the local communities the funds can be used as micro-financing alternatives. Many local communities have to commute far for receiving medical services or schooling. Depending on the governance decisions of the communities, the funds could be used for building and maintaining a local clinic where the doctors and nurses salaries are all paid for by the revenues generated through selling the tokenized carbon certificates. These new clinic could have a placard saying “built and maintained thanks to the conservation of your local elephant.”
This approach ties the protection of elephants and the prosperity of the local community together in a reciprocal beneficial bond. Animals including their natural habitats are a natural asset that can now be valued and measured and funded using technological solutions. The proposed biodiversity tokens create a new type of Web3 based “carbon finance” that can create direct employment opportunities aimed at protecting and monitoring animals in their natural habitat. Locals can be rewarded with tokens to be forest rangers which can stimulate sustainable economic opportunities, thereby raising the living standards of local communities that reside around the elephants’ habitat through micro-investments. With this proof-of-biodiversity mechanism the Regenerative Earth project tries to tackle six Sustainability Development Goals (SDGs) simultaneously: • SDG 1: No Poeverty • SDG 8: Decent work and economic growth • SDG 10: Reduced inequalities • SDG 13: Climate action • SDG 14: Life below water • SDG 15: Life on LandThe Sustainable Development Goals (SDGs) were born at the United
Nations Conference on Sustainable Development in Rio de Janeiro in 2012. The objective was to produce a set of universal goals that meet global environmental, political and economic challenges. The Sustainable Development Goals are organised into 17 goals, which cover 169 more detailed targets. The goals cover social, environmental and economic aspects, and they often influence each other which means that they cannot be dealt with in isolation. From the Paris Climate Agreement, to Greta Thunberg’s “Our House is on Fire”, to David Attenborough’s increasingly urgent calls for action, and now COVID-19, people around the world are starting to realize that what happens in one part of the world can very often affect remote other parts of the world and needs global interconnected solutions. The Rebalance Earth initiative taps into this need to rebalance socio-economic value creation that accounts for public goods and common goods, not only rent extraction and the accumulation of private property and unlimited growth.
Capturing carbon is a public service that should be directly rewarded to those who conserve biodiversity. Instead our current economic system only rewards production of private goods that result in the accumulation of private property, and fails to account for the negative externalities such as CO2 emissions that reduce the quality of our natural resources, and scarce public money has to clean up “the mess.”
HOW IT WORKS
Carbon offsetting value only accrues when the elephant can live freely in its natural habitat, unhindered by human activity. A network of “Internet of Things (IoT)” sensors will be used to monitor and verify the location, health and safety of the forest elephants. Such sensors can help to track the status of the animals and also detect poachers and negative human activities within the protected area.
By tracking the amount of species in a region — not only the elephants, but also other the evolution of other animal, plants as well as geological conditions — and by measuring the carbon capture of their natural habitat, one can calculate not only the CO2 value an elephant generates by its sheer existence, but also the influence the animal has on other biodiversity conditions. The sensors have the capacity to collect any biodiversity data and share the data collected with the scientific community, in situ and around the world. This real time data can be used as a basis for better research to further the understanding of natural processes and the value of biodiversity beyond carbon emission reduction only. The project also plans to share their data with other carbon offsetting markets to encourage the establishment of common data standards and data interoperability.
As for the ownership questions, the elephants and their habitat are not “sold.” In the case of the African Forest Elephants in Loango National Park the government of Gabon owns the elephants. Today, those elephants are doing their natural carbon sequestration services today “for free.” The Elephants don’t get paid, neither do their owners — the People of Gabon. With the proposed biodiversity tokens the carbon capture of biodiversity can be tracked, accounted for and monetised. The existence of this data, and the fact that the data is publicly verifiable is the basis for creating an alternative economic systems.
In such a system of carbon capture accounting, however, it is important to avoid the risk of double counting carbon sequestration services. Currently Rebalance Earth is negotiating an exclusive permission to be the sole manager of elephant sequestration services. Anyone can fund the conservation of these animals and their habitat by buying biodiversity tokens for carbon offsetting purposes that directly fund these activities.
By settling all payments with Web3 tokens, the Rebalance Earth system can provide real time traceability and transparency, which current CO2 offsetting services cannot provide to this extent. For every day that an elephant is alive and free within its natural habitat, tokens will be issued to pay forest rangers and fund micro-investments in the nearby local communities. The team is planning to use a permissioned blockchain network as the core infrastructural component to manage the contracts, data flows and token payments.
BIODIVERITY TOKENS: TOKEN FLOW
The objective of the pilot project in the Loango National Park of Gabon is to demonstrate the success of the use of Web3 tokens for a new type of environmental economics. Tokens will be used for: • Tracking of African Forest Elephants’ wellbeing and location within and around the Loango National Park using the IoT sensors array, coupled with in-person community monitoring outside the park by registering sensor data on the blockchain infrastructure. • Issuance of asset-backed tokens once confirmation of each known individual elephant’s well being and location is delivered by the IoT sensors. • Transfer of payment tokens to park rangers and to local communities within and surrounding Loango National Park in accordance with agreed operational protocols. • Cashing out of payment tokens at merchants and institutions signed up on the Rebalance Earth platform.
The current token design envisions following allocation of funds generated by selling the issued tokens: 5 percent of revenues will go to the forest rangers, 70 percent goes to local community infrastructure projects such as local healthcare clinics, local educational services or building fences so local farmers crop is protected by elephants accidentally trespassing their lands. 25 percent goes to Rebalance Earth — the entity managing the technological infrastructure (tagging of forests, tokenisation, and Web3 infrastructure) as well as coordinating governance structure with local communities and evaluating the data generated by the forest. Rebalance Earth is a profit-for-purpose company. The project team plans to provide the infrastructure, research and facilitation. The 25 percent fees collected will fund following activities: • Research & development of pilot project including economics modelling, sensor installation and operational costs. • Further research to expand the concept to other keystone species. • To develop the sensors to safely monitor the wellbeing and location of keystone species
STAKEHOLDERS
This system needs a series of stakeholders to be effective: • Governmental partners such as the Government of Gabon, and in the future also other governments. • NGOs such as Born Free, a wildlife and conservation NGO which provides biodiversity applied knowledge coupled with delivery mechanisms for local community engagement and education. As an international wildlife charity, we oppose the exploitation of wild animals in captivity and • Existing scientific and conservationist groups that already have sensors within forests by interfacing their existing data into the Rebalance Earth blockchain network. All data originating from their sensors will be paid in tokens thus creating a data market for (i) biodiversity protection data, (ii) CO2 data, (iii) other data relevant to circular economy activities and micro-investments into local communities.
OUTLOOK
After a test phase of the pilot project in Loango National Park, the goal of the Rebalance Earth founders is to expand across other jurisdictions where African forest elephants reside, from Liberia to the Democratic Republic of Congo, before expanding to other keystone species, such as gorillas, savannah and Asian elephants, giraffe and rhino, and other ecosystems in other parts of the world.
Each new jurisdiction will require a local office to ensure direct relationships with the local communities, and consult and engage with them about their needs and ideas, thereby ensuring the best possible outcomes that are co-governed by all stakeholders. The use case of biodiversity tokens is not limites to land animals but also to ocean animals and their habitat such as whales whose carbon capture and sequestration services have been valued by the IMF at 2 million USD. Special thanks to Walid Al Saqqaf who provided detailed insight into the economic design at such an early stage of the project.
REFERENCES & FURTHER READING
• https://www.imf.org/external/pubs/ft/fandd/2020/09/how-african-elephants-fight-climate-change-ralph-chami.htm • https://www.iucn.org/news/species/202103/african-elephant-species-now-endangered-and-critically-endangered-iucn-red-list • https://epub.wu.ac.at/7464/1/SustainableDevelopment Report_BlockchainWeb3_SDGs.pdf • https://medium.com/crypto3conomics/blockchain-sustainability-7d1dd90e9db6 • https://www.imf.org/external/pubs/ft/fandd/2019/12/natures-solution-to-climate-change-chami.htm • Rebalance Earth internal documents disclosed by curtesy of Walid Al Saqqaf