Pool

Carbon Pools bundle multiple project-specific tokenized carbon tonnes (TCO2 tokens) into more liquid carbon index tokens, enabling price discovery for different classes of carbon assets.

Not every carbon offset is created equal đź‘Ľ

As stated in Carbon Bridge, a carbon offset represents a measurable and verifiable removal, reduction, or avoidance of greenhouse gas (GHG) emissions - a tonne of CO2 equivalent that is NOT in the Earth's atmosphere.

It makes a difference whether or not emissions are being drawn down from the atmosphere—commonly referred to as carbon removal—or if the flow of emissions into the atmosphere is being reduced or avoided. The classification into removal vs. reduction/avoidance offsets is a good example of the diversity of carbon offsets and form the core of carbon accounting and reporting best practices.

But within these broad categories, many more differentiating criteria dictate the price carbon projects can expect to get for their offsets. A few important ones are:

  • Project type. Different approaches to reducing greenhouse gases in the atmosphere are more or less effective - techniques like reforestation, protecting forests from deforestation, renewable energy projects (solar, wind, ...), methane capture, soil carbon, or carbon capture and storage (CCUS) projects.

  • Country. Project costs are higher in some countries than others, plus offsets from some countries may be perceived as higher-quality than from other countries.

  • ​Carbon standard.  Some standards are more rigorous than others or demand additional data points to be collected during project monitoring and verification.

  • Co-benefits. Some projects seek additional certification from standards like the Climate, Community and Biodiversity Standards (CCB Standards), which certifies additional benefits like an increase in biodiversity or specific Sustainable Development Goals (SDGs).

The unique attributes tied to a carbon project results in offsets being traded and sold like differentiated products (e.g. wine) rather than like commodities (e.g. corn or rice). Subsequently, the majority of offsets transactions happen over-the-counter (OTC) and behind closed doors, meaning offset prices remain unknown to the broader market. This makes it hard for end customers to know whether or not they are paying a fair price and which percentage of the money lands in the hands of the initial project developer.

Toucan Carbon Pools allow for some level of commoditization and subsequent price discovery for different categories of carbon offsets. These standardized carbon tokens can be traded on DEXs (decentralized exchanges) with much deeper liquidity than a single project's offsets ever could.

Carbon Pools — What you need to know

Once a project's carbon offsets have been tokenized using the Carbon Bridge, these offsets are represented as TCO2 tokens (tokenized carbon tonnes). A TCO2 token still carries all the project-specific attributes, such as the project's country or methodology. This means tokens from one project are not interchangeable with tokens from another project, even if they are very similar.

Pool logic

Each pool has a unique configuration and carries a certain logic that dictates which TCO2 tokens can be deposited into it. This logic is based on two filters:

  1. Is the token to be deposited a TCO2 or another accepted tokenized carbon offset?

    This check guarantees that only whitelisted token contracts are accepted and prevents somebody from depositing a custom token into a carbon pool.

  2. Do the TCO2 token attributes satisfy the pool's requirements?

    When a pool is deployed, it needs to specify gating attributes. A few examples could be:

    • type = removal — a pool that only accepts carbon removal offsets.

    • vintage = >2015 — only accepts offsets from 2016 and later.

    • country = Colombia — only accepts TCO2s from Colombia.

    Of course, it could also be a combination of the above criteria.

For now, we expect the Toucan team to deploy the first carbon index pools. However, want to make the creation of these pools completely permissionless in the future. This will empower market actors to create curated carbon pools, and for us to see which attributes are seen as key differentiators by the market.

Mint a pool token

To deposit into a carbon pool, a TCO2 token must successfully pass the logic filter. If it does, the token gets locked inside the pool, and a carbon index token is minted to the depositor's wallet. Carbon index tokens are fungible ERC20 tokens.

For example, we could create a carbon removal pool, with a token called CRT (carbon removal tonne). This specific pool would only carry one defining attribute: type = removal. In this case, the CRT could be called a carbon removal index token.

Each carbon index token is collateralized by a basket of TCO2 tokens that meet the attribute criteria defined when the pool is created. The benefit here is that we can aggregate much deeper liquidity by pooling carbon offsets of similar project vintages. Carbon index tokens are a much simpler building block for other DeFi protocols to work with.

Market & DeFi integration

We expect every carbon pool token to have a matching trading pair on any of the common DEXs. This will allow carbon pool token holders to directly sell their pool tokens into the market or provide liquidity to the trading pair and earn fees.

However, carbon index tokens with deep enough liquidity represent new DeFi building blocks that can be integrated into lending protocols, locked into planet-positive NFTs, or serve as collateral for stablecoins and carbon-backed cryptocurrencies. We're excited to see which other use cases Web3 builders will come up with once this new carbon money lego has become a DeFi staple.

Redeem

At any point, the holder of a carbon index pool token can burn it to redeem an underlying project-specific TCO2 tokens. This opens up arbitrage opportunities if a particular TCO2 could be deposited into multiple pools, and guarantees the creation of a price floor for on-chain carbon index tokens.

Offset

Let's not forget that whenever a business or individual wants to compensate their emissions with carbon offsets, the offsets need to be removed from circulation. This prevents somebody from reselling the offsets at a future point in time, falsifying the compensation claim. In the Toucan universe, the Carbon Offset module takes care of guaranteeing claims can only be made once by burning the TCO2 tokens that embody the right to that claim.

This means that a user can buy and hold carbon index tokens and 2 years later use them to offset their emissions with a carbon project of their liking (by redeeming and burning the TCO2 tokens locked in the index carbon pool). This guarantees accurate carbon accounting and allows businesses to communicate clearly which projects they have supported—recorded on a public blockchain until the end of time. 💫

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