WORKWEEK

A tale of two tokens

Earlier today, Bloomberg put out an exceptionally well researched piece covering how tokenization of some carbon offsets has been hurting offset markets more than it’s helped. How? Well, by bringing old offsets onto the blockchain and stimulating demand for them, Toucan + Klima DAO (previously covered here) created demand for offsets that had long been sitting idle on registries like Verra.

These offsets were gathering dust on the shelves for a reason – no one that applied a degree of analysis as to whether they were valuable offsets wanted them.

The project developers behind these previously zero bid offsets had stopped creating offsets because no one was buying them (good). 

But since the whirlwind of crypto activity last fall, they’ve turned on the faucets again, as undiscerning buyers came in to buy their old assets.

In light of this read, which I highly recommend digesting in full, it may seem strange to come in here and talk about a different crypto token tied to carbon removal.

But that’s exactly what I’m going to do. Also because it offers a sterling opportunity for contrast. And because I’m excited to finally talk about this.

The NORI token

Carbon removal marketplace Nori released their ‘litepaper’ for their upcoming NORI token launch this week. Read it here.

The inside scoop? I helped them write it 💪. 

I was at brunch with Nori’s CEO Paul yesterday in Miami where he articulately described the next phase of Nori’s development as equal parts focused on carbon price discovery as building out their carbon marketplace and onboarding more carbon removal supply.

That’s what the NORI token is for. When I first covered Nori last year, the token was still a ways out on the roadmap. Now, it’s only months away and will soon become integral to completing Nori’s flywheel.

Currently carbon removals are sold in Nori’s marketplace at a fixed price. For carbon markets to scale however, it’s critical that they feature universal prices that reflect real time market supply and demand. Why? Here’s my shot at an even more distilled 10 steps about how the token works + potential key benefits:

1. Most carbon removal transactions today are ‘ad-hoc’. Large scale buyers engage consultants and brokers to source supply for them from a bunch of different carbon removal suppliers.
2. Overall carbon removal supply is thus also fractured across countless sources (whether suppliers or different marketplaces) and removal methodology types. 
3. Standardizing supply in a marketplace (as Nori has done) is the first step. Then, you can start to create a liquid market with more seamless transactions.
4. To do so however, you also need a tradable instrument that’s separate from the carbon removals themselves. 
5. If you trade the underlying asset, it inevitably leads to double counting, which has been a scourge of carbon markets.
6. The NORI token fixes this. While redeemable 1-1 for carbon removals, the token itself is a step removed from the underlying asset. 
7. This means it can be actively traded and enable price discovery while still serving as a faithful carbon removal reference price (given its redeemability).
8. Price discovery that’s reflective of actual market supply and demand dynamics is critical for all kinds of things, e.g. for suppliers to make better forecasts for their businesses.
9. Similarly, paying suppliers in an asset tied to carbon removal prices allows them to participate in marketwide price increases, aligning incentives to onboard more supply. 
10. Buyers can also use the NORI token to secure future carbon removal supply (i.e. even if the removals haven’t happened yet), hedging against price increases and stimulating the supply side of the market in the process.

To tie this back to where we started, it’s all important to note that Nori’s entire marketplace is built on the premise of a highly rigorous vetting & verification process for the carbon removals it sells. Which distinguishes it significantly from the offsets in question in the Bloomberg piece we first touched on.

There’s no point to a crypto layer if the underlying assets are junk.   

For lots more? Again, read the litepaper! 

It was an honor distilling the Nori mission + NORI token value proposition and token dynamics with the Nori team. Lots more to come on this front in coming months.