Bridging ESG and DeFi, how DOVU will unlock the next generation of carbon retirement.

15 Dec 2022,

The marketplace, a year on.

Over the last year, DOVU has onboarded and sold out new carbon from farms all over the world. Now,  with a healthy pipeline of 9000 projects from a variety of partners, the future is bright. 

Our platform provides an end-to-end ESG (Environmental Social Governance) carbon tokenisation solution from onboarding to the retirement of credits. We’ve built out our entire audit trail technology on top of Hedera’s Guardian. In order to give back to the community, we open-sourced many of our tools with thorough documentation. This allows any team to easily create carbon credits, reducing the time to market from months to days. 

This opens endless opportunities for DOVU, allowing us to onboard external projects. DOVU has created a full audit trail through our system for external projects, allowing them to receive credits in exchange for timestamped and verified carbon data. The solutions and tools that DOVU delivered are utilised by a diverse range of ESG projects. Our use case in the Global Blockchain Business Council VEM V2 document is insight into our position within the market.

We have created a global voluntary carbon marketplace at scale for tokenised carbon credits to help organisations achieve net zero. This introduces a number of opportunities and challenges that need to be addressed: 

  • A marketplace of non-retired carbon credits for buyers and sellers.
  • A trust layer that ensures that every credit is fully transparent.
  • A mechanism for retirement of existing, unretired carbon credits.

The carbon offset challenge

Corporates invest considerable time and effort to ensure that offsets are purchased to meet their ESG goals. Despite these efforts, they face a disparity of real-world outcomes between cost and quality. 

This gap originates from the considerable challenges that corporations face when purchasing carbon credits. The main challenge is identifying carbon credits with a prescribed methodology that is followed with checkpoints proving net negativity attributes such as additionality. Other challenges include double counting, which could lead to potential greenwashing, which can result in damage to social and brand capital, as has been shown for BP and Volkswagen for misleading consumers with lower emissions. 

In many cases, buyers are unable to face these challenges as they lack the time, knowledge, and resources to research and purchase carbon credits directly from a supplier, which results in significant monetary overhead.

In recent months, another major obstacle has emerged. The carbon space has seen increased demand which can not be served in the short term. This has outlined another major challenge for the DOVU team, that built a system based on instant retirement of carbon. To tackle this challenge, we have been working on the decoupling of carbon retirement at the point of purchase. This will allow customers to hold carbon credits in their wallet and paves the way for carbon token trading.

DOVU is building the carbon retirement protocol

We are building a public utility retirement protocol, which would enable anyone to retire their carbon credits with an immutable timestamp proof and provide in-depth analytics of carbon token transactions and retirements. This protocol is only possible with a DLT (Distributed Ledger Technology). Smart contracts on Hedera Hashgraph help DOVU develop a foundation for our vision. This protocol enables an ecosystem of services which focus on simplicity and accessibility of carbon tokens.

Stripe for carbon offsets 

Consider the following flow:

  1. An entity purchases carbon tokens on any Hedera-based carbon marketplace.
  2. The entity chooses not to retire the tokens, but rather store them in a wallet as a digital commodity.
  3. At any point, the tokens could be kept as tokens or retired at the entity’s discretion.

Let’s look at the process of retiring non-retired carbon tokens (point 3 above):

  1. Carbon offset tokens are deposited into the retirement protocol.
  2. A simple, one-click service retires the carbon and provides proof of retirement and generates a certificate.
  3. Retired carbon metrics and analytics are presented to the entity for transparency and compliance purposes.
  4. The public can audit the offsets through the protocol of a given entity/business/enterprise as a public utility. This could aid in detecting greenwashing and misalignment of ESG/SDG goals of a corporation.

Using DOV in the retirement protocol

DOV will be the fuel to the retirement protocol, as an exchange of value is required as an economic incentive for the protocol to run in perpetuity. Smart Contract Rent on Hedera will need to be paid to sustain the contract. For users, this flow will be as simple as interacting with a smart contract through Hashpack, or any other Hedera-compliant wallet. Without a fee structure, there would be a risk of data loss to the consumers of the protocol without aligned incentives for financial maintenance from the custodian of the protocol deployer treasury.  As we evolve and scale on both the demand and supply fronts, we’ll revisit this fee structure, potentially mirroring the fixed fee approach for HBAR on the Hedera network. 

Ultimately, the protocol will be part of community governance for the DOVU DAO; those that participate in the retirement protocol early will be rewarded. Consumed DOV through our services will be distributed to the treasury making the staking programs sustainable for the long term. 

We are excited to bring this protocol to life. Starting in Q1 2023, we will be running internal hackathons to get from zero to one quickly, to generate a proof of concept, and to further understand the complexity of the process.