Nov 18, 2021
Bonding $EWD to Carbon Credits
Exploration
The plan for EWD is to become the hub of decentralized Carbon Credits trading on EnergyWeb Chain. To do so, there needs to be a concentrated effort to build a pool with deep liquidity.
The problem:
Carbon Credits are still pretty novel and it might be hard for market participants to correctly price different types of carbon credits. Moreover, trying to build liquidity for a plethora of projects might result in thin liquidity in each pool and poor trading experience. On top of this, Carbon Credits might come in different forms like the standard ERC-20, but also NFT tokens like ERC-721 and ERC-1155, which aren’t well suited for a liquidity pool.
The proposed solution:
Create a protocol that enables locking in Carbon Credits of different type and form and mints a new generic Carbon Credit token (let’s call it $CARB) that represents 1 metric ton of CO2.
That protocol would be a converter between Carbon Credits <> $CARB.
Users would need to bond $EWD token to the Carbon Credit in order to create the new $CARB token that can be pooled and fractionalized. When un-bonding $CARB, users would get back both the Carbon Credit and the $EWD tokens. The amount they would get back would be determined by a specific formula that takes into account the total $EWD in the protocol and total Carbon Credits locked.
This process would effectively lock $EWD tokens with C02 credits and as the liquidity pool grows, it would also create extra demand for $EWD token.
The bonding/un-bonding from traders capitalizing on arbitrage opportunities would generate tax revenues for the EWD DAO.
To decide which Carbon Credits are accepted in the $CARB protocol, the DAO would need to vote on proposals. The idea is to start with $CRC tokens from CarbonLand Trust. There would be a basic $EWD premium on top of that $CRC credit bond in order to create a $CARB token. Say a 1% fee is the standard fee the DAO has decided is needed to bond and create a $CARB token.
Example:
$CARB token is 15$, and let’s assume $CRC credit are also valued at 15$.
Users need to bond 1% of that value in $EWD in order to create $CARB.
1 $CRC + 0.15$ worth of $EWD = 1 $CARB
If another project comes along with a different token representing 1 Metric ton of Carbon Credit and wants to be integrated to the protocol. That new type of Carbon Credit is of a lesser quality, but could still be integrated if the DAO votes for a higher premium to bond.
Example:
$RUX token want to be integrated to the protocol, but is of a lesser quality than $CRC. DAO decides $RUX token requires a 15% $EWD bond in order to create $CARB. $CARB is still trading at 15$.
1 $RUX + 1.5$ worth of $EWD = 1 $CARB.
As more types of Carbon Credits are onboarded and with different premiums, it creates a dynamic environment for traders. On top of that, Liquidity Providers in a CARB-USDC pool for example, can make decent returns on the trading fees generated. For investors looking at long-term exposure to Carbon Credits, this can generate extra yield from trading activity.
