Solid World takes a step towards financialization of carbon credits on the blockchain with the opening of the first forward carbon assets pool on automated market maker Polygon, the company said today in a press release.
In the liquidity pool, projects can essentially pre-sell future carbon credits at a price determined by an automated market maker, said Solid World CEO Stenver Jerkku.
A breed of blockchain startups like Solid World looking to provide financial and technical tools to mitigate climate change impacts has grown bigger in the last few months. Enterpreuners hope that blockchain can bring transparency and boost funding for climate-positive projects.
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The Solid World pool will focus on mangrove restoration carbon projects, which look to develop ecosystems of small trees and shrubs growing in coastal brackish waters. Mangroves can store up to four times as much carbon as other tropical forests, according to the WWF, and also protect coastlines from storms and sea level rise.
Liquidity pools serve a similar function in crypto markets as market makers in traditional finance. Users pool their money to enable the buying and selling of assets. Forward contracts specify the purchase or sale of an asset at a later point in time, often tied to parameters like price.
Such contracts are often used in hedging strategies, but in the Solid World case they can bring certainty to carbon credit projects with long horizons. The liquidity pool will bring key funding to the mangrove projects “while providing structured inventory to distributors seeking to sell high-quality carbon credits,” the press release said.
The Solid World pool will score carbon credits on a risk framework powered by artificial intelligence, which takes into account climate, legal, political and economic vectors in assessing the risks associated with financing carbon projects.