# Introducing Carbovalent Bringing Regenerative Finance (ReFi) to Solana Carbovalent’s mission is to accelerate the advent of a Net-Zero future by unlocking scale for the Voluntary Carbon Market (VCM). Carbovalent is building technology to power carbon assets and their regenerative finance (ReFi) applications on Solana, an environmentally-efficient proof-of-stake network. We aim to integrate the carbon market on-chain and provide unrestricted access to carbon assets through transparent means of sourcing, bridging, trading, and retiring tokenized carbon credits. **Carbon credits are highly complex and unconventional assets. Unlike any other asset class, credits combine all the features below:** * **They have a vintage (expiry) date** * **They have one-off retirement redeemability** * **They are deflationary and regenerative assets** * **They are highly heterogeneous assets** To truly represent carbon assets and their unique features we have curated the Carbovalent Protocol, serving as the proposed infrastructure that can introduce carbon assets to the Solana blockchain. The protocol modules are designed to gradually create exposure for carbon assets and their derivatives, optimize their ReFi application and ultimately achieve a highly liquid and transparent *Carbon Economy* housing standard-approved carbon assets. Overview of the [Carbovalent Protocol](/the-carbovalent-protocol) modules: * Initial screening and review of carbon credits according to the[ Sourcing Standard](/sourcing/web3-sourcing-standard), a comprehensive assessment matrix determining credits’ validity, quality, and eligibility for bridging. The standard ensures that only high-quality, integrity, and impact credits enter the ecosystem. * Standard-approved carbon credits are deployed onto the Solana blockchain using the [Morpheus Carbon Bridge](/bridge/morpheus-carbon-bridge). An on-chain portal that allows anyone to tokenize carbon credits bringing them into the ReFi realm. * SPL Reference NFTs are minted representing bridged credits, they can be fractionalized into tradable or redeemable SPL tokens. * Carbon credit index tokens and other derivative tokens can be traded on the [Carbovalent DEX](/trading-carbon-assets/dex) powered by [Serum's Central Limit Orderbook (CLOB)](https://docs.projectserum.com/introduction/serum-ecosystem). * Carbon credits' project information, organic heritage, vintage, verification status, transactional history, ownership, mercury rubric score, and other relevant information are displayed on the Carbovalent Dapp, accessible by connecting a Solana-compatible wallet to the Dapp. **Using Web3 we can bring transparency, accessibility, and scalability to the VCM. Our goal is to synergize the efforts of developers, climate experts, carbon projects, and the rest of the population while rewarding their contributions to our battle against climate change.** ### Disclaimer *All claims, content, designs, algorithms, estimates, roadmaps, specifications, and performance measurements described in this project are done with the author's best effort. It is up to the reader to check and validate their accuracy and truthfulness. Furthermore, nothing in this project constitutes a solicitation for investment.* # The Carbovalent Protocol Overview of the Carbovalent Protocol ### Protocol Summary At the core of the Carbovalent protocol is the [Morpheus Carbon Bridge](/bridge/morpheus-carbon-bridge), which enables the tokenization of carbon credits as SPL tokens. The bridge allows for the migration of carbon credits from traditional registries[ ](https://verra.org/)to our on-chain meta-registry subject to meeting the predefined criteria. Once carbon credits are bridged they become represented as a newly minted reference SPL NFT, which bundles and stores the bridged credits along with their information as metadata. The NFT can either be traded on Solana NFT marketplaces like [Magic Eden](https://www.magiceden.io/) or fractionalized into reference SPL tokens called **Solana Carbon Tonne or SCT** - each SCT token represents 1 carbon credit (equal to 1 [CO2e](https://www.coolerfuture.com/blog/co2e) tonne). Fractionalization is completely customary, a Reference NFT representing a batch of 1000 carbon credits can be fractionalized into 600 SCT tokens and a 400-credit NFT or 1000 SCT tokens. **Note: The metadata from the Reference NFT is preserved by each SCT token and can be traced back to its source registry via the distributed ledger by checking previous transactions. This data includes carbon credits attributes.** After fractionalization, SCT tokens can either be retired to offset emissions or deposited into the Carbon Vault in return for liquid SPL index tokens (BCC or FCC) via the Deposit+Recieve mechanism. This process is governed by a unique set of rules and configurations that verify which SCT tokens are being deposited and return an equal amount of index tokens of the same carbon credit type. This process is also reversible and allows users to alternate between illiquid and liquid carbon assets as desired for the use case. Trading of liquid index tokens (BCC or FCC) is facilitated by the Carbovalent DEX. The DEX is powered by Open Book a community-led fork of Serum V3. The DEX aims to support instant and permissionless trading of various carbon assets such as carbon index tokens, derivative tokens, and leveraged tokens. To offset carbon emissions, users retire allocated SCT tokens using the retirement mechanism on the Carbovalent Dapp. The retirement process burns the allocated SCT tokens from circulation and returns the retirement data to be stored on the blockchain. This allows for publicly accessible carbon accounting that can incentivize the community.
# Building A Carbon Economy ## Core Problem: Climate Change The main issue remains **climate change** and how we can collectively address it. The problem at hand is that we are running out of time to limit global warming to 1.5°C which is the target level needed to prevent climate change from getting out of hand. The IPCC report recommends a pathway to "Net Zero" by 2055, to limit warming to 1.5°C and avoid a rise in temperatures to 3.2°C which we could see this century. While repeated outcries for action have instigated the following: * 2015 Paris Agreement, a legal-binding framework for fighting climate change (191 countries signed) * 44 Nations declaring they will go "Net Zero" by 2050 Efforts for decarbonization including carbon reduction and removal solutions are not being promptly incentivized. Among the many roadblocks carbon markets face, they are currently inaccessible to the majority of the public. This lack of widespread access has limited public knowledge about the carbon markets which in turn limited overall market participation. Over the years, all these factors have inhibited the formation of a sustainable and growing carbon economy, that ideally supports project developers and rewards other action-takers. Carbovalent recognizes the deficiencies that plague the carbon market and cause its shortcomings, with that, we aim to use Web3 and its inherent properties to eliminate the limitations of a Web2-based carbon market. With an adequate infrastructure in place, we can eventually establish an ecosystem housing a carbon economy that will proactively address, normalize, and incentivize decarbonization across communities.

C02 levels over the last 800,000 years | Source: Nasa

## Leveraging Web3 for Access At the core of the Carbovalent Protocol lies **inclusivity**. We firmly believe that in order to accelerate the advent of climate action, everyone should have unrestricted access to a moment in time when carbon credits and offsets are freely understood, utilized, and integrated into our innovations and financial incentives. Carbovalent democratizes the carbon market by bridging the gap between sequestered off-chain registries and Web3's open-source nature, creating decentralized access through interoperable on-chain registries and on-chain carbon credit trading. When credits exist on-chain their accessibility is maximized with the only requirement being a Solana-compatible wallet. Apart from tackling accessibility, Web3 can play a major role in developing a community-driven carbon credit network. Web3 solves all data-storing requirements needed to create transparency around ownership, trading, and retirement of credits. This transparency can mediate huge awareness about the carbon markets and provide the fundamentals needed to establish a **carbon economy**, with the race to "Net Zero" underway. ## Creating Value For What We Value We value our environment as much as the global markets value it. However, it is evident that the global markets have failed at servicing the financial instruments that are essential for the longevity of our future. This is inherently due to the limitations of Web2 and its capacity to host the carbon market. By understanding the complexities that make carbon credits unique and valuable, we understand that they are very much different from traditional assets and cannot be truly represented on Web2. We also recognize that carbon credits require a highly robust and flexible infrastructure that can accommodate their high variability and truly represent them as digital assets. The Carbovalent Protocol proposes an infrastructure that harnesses the true value of credits on Web3. By establishing a foundation for the carbon market on-chain we can enable major scalability and adoption. This is achieved as communities pursue the use of carbon credits to power their innovations and ensure all their future endeavours on Web3 are climate-positive. To further unlock value for carbon credits we believe in delivering regenerative finance (ReFi) applications to the Solana community. This entails creating use cases with real-life impact using carbon credits as the primer. Examples of ReFi applications for credits include developing climate-positive payment systems, using carbon as collateral for borrowing, and using carbon credits as currency to purchase fractional ownership contracts in sustainability projects. With many other unimagined ReFi applications we can galvanize the utilization of on-chain carbon assets to adequately support carbon projects and reward their measurable impacts. ## Carbon Life Cycle Optimization While it may be perceived that carbon credits only exist to be retired. The useability of credits between the duration in which they are sourced until they are retired is widely underestimated. By nature credits are deflationary assets, as they are retired or expire over time, they are also regenerative as they continue to be generated over time. This alone makes them highly lucrative financial instruments. Their true merit, however, is that they create a direct link between carbon projects and capital flow harnessed from outstanding markets. We anticipate that Solana's informed community will recognize the opportunities credits offer, and together Solana's rapid infrastructure and immense volume will support credits and all those involved in the carbon life cycle. The Carbovalent Protocol allows us to witness the value carbon credits can derive from current financial systems as they enter the Web3 space. To achieve this we believe in creating the most possible exposure to carbon credits between the duration in which they are sourced until they are retired. # Why Solana? Fact: An average Solana transaction uses 508 Joules — or less energy than two Google searches. The Carbovalent protocol will be governed by smart contracts deployed on Solana; a performant, secure, and energy-efficient blockchain running on a hyper-consensus mechanism that utilizes both proof-of-stake and proof-of-history. Solana is designed for mass adoption due to its extremely low fees and intuitive user experience. Furthermore, Solana programs are composable by nature, which creates an interoperable ecosystem where protocols can talk to each other as if they were native. As a mission-critical decentralized protocol, Carbovalent will focus on building a scalable carbon market on top of a blockchain that can support NASDAQ and Visa-level throughput. Not to mention that Solana produces a fraction of the energy (Joules) when compared to other major blockchains. Further, the Solana foundation offset all carbon emissions for the validator network, making the chain carbon neutral. Solana is the ideal blockchain for the Carbovalent protocol and the goals it aims to achieve.
Energy Impact (Joules) Diagram of The Solana Blockchain

Solana Energy Usage in Joules

# Legal Disclaimer *By using the Morpheus Carbon Bridge or associated Liquidity Pools, you accept that doing so is strictly at your own risk. We assume no responsibility or liability for any errors or omissions made during the deployment or use of the Morpheus Carbon Bridge or associated Liquidity Pools or for any other errors or omissions contained on this site. The Morpheus Carbon Bridge, the associated Liquidity Pools, and all other information contained on this site are provided on an "as is" basis with no guarantees of completeness, accuracy, usefulness, or timeliness*. *In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data, revenue, or profits arising out of, or in connection with, the use of the Morpheus Bridge, the associated Liquidity Pools or this website.* *All claims, content, designs, algorithms, estimates, roadmaps, specifications, and performance measurements described in this project are done with the author's best effort. It is up to the reader to check and validate their accuracy and truthfulness. Furthermore, nothing in this project constitutes a solicitation for investment.* # Carbon Credits ## The Emergence of Carbon Credits CO2 is the primary greenhouse gas (GHG) emitted through human activity making up 79% of all GHG emissions, therefore being the biggest contributor to climate change. The emergence of carbon credits resulted from the consensus that in order to offset Earth’s CO2 emissions we can’t halt all CO2 emitting practices as this will be detrimental to our societies and economies. Instead, we must offset Earth's CO2 emissions with an equal amount of CO2 removed or reduced from the atmosphere, hence the assets of interest: carbon credits. **One carbon credit or offset represents the measurable and verifiable removal or avoidance of one tonne of carbon dioxide equivalent (t CO2-e) from the atmosphere.** The term "carbon dioxide equivalent" refers to the summation of multiple greenhouse gasses based on each gasses' global warming potential (GWP). The Global Warming Potential (GWP) was developed to allow for comparisons of the global warming impacts of different types of gases. Specifically, it is a measure of how much energy the emissions of 1 tonne of a gas will absorb over a given period of time, relative to the emissions of 1 tonne of carbon dioxide (CO2). ## The Purpose of Carbon Credits Carbon credits connect carbon projects with consumers that purchase and retire credits to achieve their climate targets while supporting project developers and their workforce in return. Credits are a valuable tool that can allow us to account for hard-to-abate emissions, emissions that may be difficult to eliminate completely with current technology. The purchase of credits is key to facilitating measurable and accountable emissions reductions, to achieve “Net Zero” or "Carbon Neutrality". **Note: Credits should not be treated as an alternative to reducing emissions, but rather as a means to offset unavoidable emissions.** They should only be used temporarily, to avoid delaying society's transition to a low- or zero-carbon economy (UNEP, 2020). The Science-Based Targets Initiative (SBTi) released its [guidance](https://sciencebasedtargets.org/resources/files/SBTi-criteria.pdf) for using offsets as part of a robust corporate emission-reduction program, contributing to a growing debate over what “carbon neutrality” is and is not. There have been efforts to strengthen carbon offsetting methodologies in recent years under the International Carbon Reductions & Offsetting Alliance (ICROA). ## Carbon Credit Attributes Differentiation in Carbon Credits: * **Type of credit**: removal vs. avoidance/reduction * **Accounting** taxonomy: ex ante or ex post * **Project type**: includes the different methods to reduce greenhouse gases such as renewable energy (solar, wind, hydro, geothermal), soil carbon, reforestation, protecting forests from deforestation, methane capture, or carbon capture projects. * **Country**: Credits from certain countries might be perceived to be of higher quality, as well as credit costs differ depending on the country of origin. * **Certifying standard**: Some certifying bodies adhere to a more rigorous criteria that includes collecting additional data points and critically analyzing metrics such as additionality and permanence. * **Co-benefits**: Include community economic development, biodiversity protection, reduced air pollution, national energy security, reduced fuel costs, employment possibilities, soil and water quality. ## ICROA Quality Assurance in Carbon Offsetting [ICROA: The International Carbon Reduction and Offsetting Alliance](#icroa-quality-assurance-in-carbon-offsetting) * **Real**: All emission reductions and removals – and the project activities that generate them – shall be proven to have genuinely taken place. * **Measurable**: All emission reductions and removals shall be quantifiable, using recognized measurement tools (including adjustments for uncertainty and leakage), against a credible emissions baseline. * **Permanent**: Carbon credits shall represent permanent emission reductions and removals. Where projects carry a risk of reversibility, at minimum, adequate safeguards shall be in place to ensure that the risk is minimized and that, should any reversal occur, a mechanism is in place that guarantees the reduction or removals shall be replaced or compensated. The internationally accepted norm for permanence is 100 years. * **Additional**: Additionally is a fundamental criterion for any offset project. Project-based emissions reductions and removals shall be additional to what would have occurred if the project had not been carried out. * **Independently verified**: All emission reductions and removals shall be verified to a reasonable level of assurance by an independent and qualified third party. * **Unique**: No more than one carbon credit can be associated with a single emission reduction or removal as one metric ton of carbon dioxide equivalent (CO2e). Carbon credits shall be stored and retired in an independent registry. [Source](https://www.icroa.org/code) # Carbon Markets ## About Carbon Markets The objective of carbon markets is to reduce greenhouse gas (GHG, or “carbon”) emissions cost-effectively by setting limits on emissions and enabling the trading of emission units, which are financial instruments representing emission reductions. Trading enables entities that can reduce emissions at a lower cost to be paid to do so by higher-cost emitters, thus lowering the economic cost of reducing emissions. There are two types of carbon markets: compliance and voluntary. The compliance markets are governed by public policy in individual and/or multiple countries, e.g. the European Emissions Trading System (ETS). The voluntary carbon market (VCM) is international and governed by standards institutions that set certification criteria, as well as organizations that regularly publish best-practice and monitor the market. The International Carbon Reduction & Offset Alliance (ICROA), is a non-governmental organization that has played a key role in the VCM over the past two decades. Additionally, organizations which develop standards and certification schemes such as Verra and Gold Standard are critical for onboarding the supply of carbon offsets into the VCM. ## Carbon Standards Carbon standards govern the methodologies which define how credits are created and verified. Every carbon project needs to follow these methodologies to show that it meets the minimum quality criteria. Once a project’s impact has been verified, standards bodies issue carbon credits to the project. Carbon standards play a key role in ensuring carbon credit quality, integrity, and impact. Currently, [Verra](https://verra.org/) and [Gold Standard](https://www.goldstandard.org/) are the two most trusted entities setting carbon standards. Smaller standards bodies issue less than a quarter of the voluntary market carbon credits each year. ## Carbon Credit Registries The carbon markets are facilitated by carbon registries, which are off-chain ledgers that host lists of projects that have been issued carbon credits. Each standard body maintains its own carbon registry which runs on a centralized database. Such systems track ownership and when a credit is retired, this is shown in the registry. In theory, carbon markets are non-existent without registries. While this demonstrates the importance of registries, it is important to note that off-chain registries suffer from the following: * Lack of Accessibility and Inclusivity: limited access to registries through brokerage, trading, and registry accounts - often granted to corporate entities at increasingly high fees. Individuals are not granted direct access to said registries. * Lack of Innovation: minimal efforts to attain the growing demand for open-source infrastructure to host carbon markets * Lack of Transparency: obscure practices and means of conducting the carbon markets This is where the [Carbovalent Protocol ](/the-carbovalent-protocol)comes in! Our infrastructure allows us to onboard credits from various centralized registries onto our on-registry. This will allow anyone to participate in the carbon markets, welcoming developers and other builders to explore brand-new use cases for carbon. # Web3 Sourcing Standard ## Functional Unit of Carbon Markets Although the Voluntary Carbon Market (VCM) has existed for more than 15 years, the lack of transparency coupled with limited pricing data has made it challenging for credit buyers to know whether they are paying a fair price, and for suppliers to manage the risk they take on by financing and working on carbon-reduction/removal projects. This has affected the progressive growth and efficiency the VCM was anticipated to achieve in terms of quality regulations, capital flow, accessibility, and widespread participation. The problem that exists today is that with a lack of focus on quality assurances and how to constantly innovate and improve them, pricing has become the main quality indicator for carbon credits. However, we firmly believe that the core functional unit of the VCM is quality assurance and the trust it garners. Without confidence in the quality and integrity of credits, scaling up the VCM is not possible. We emphasize the importance of a highly critical and transparent **carbon standard** that combines efforts from leading 3rd parties involved in the most innovative and effective technologies available for carbon grading, remote sensing, and other validation methodologies. With a community-driven open-source carbon standard, we can periodically curate a framework that will ensure the continuous onboarding of high-quality and integrity credits to power the upcoming carbon credit network. **We initially aim to migrate carbon credits from off-chain registries to our meta-registry with confidence in already established standards (e.g. Verra Standard, Gold Standard, etc). Looking forward we envision that we can curate governance models for decentralized carbon standards that can screen and directly impact sustainability projects.**
# Remote Sensing for Forest Carbon ## Proposed Carbovalent Standard Criteria Remote sensing combines various technologies that aid in the monitoring, reporting and verification (MRV) of carbon offsets. Technologies include and are not limited to geospatial monitoring, stereo satellite imaging, P-band radar, hyperspectral imagery, and single photon LiDAR. Collectively these technologies aim to serve standard criteria by revealing: additionality, baseline, leakage, verification, and permanence, all of which function as a framework for assessing the offsets of forest carbon projects to evaluate quality, integrity, and impact. **According to Renoster's Mercury Rubric, the following are the five main principles that determine a score for forest carbon projects, every principle has subcomponents that are either graded on a "good/medium/fail" scale or "pass/fail", or "yes/no", or with a numeric figure.**
### **Project Scoring** The grades of all five principles and their subcomponents determine the project’s score. The score is an assessment of the value of each tonne of carbon. The project score is assessed in two ways. First, any failing criteria above immediately results in a score of 0.0, because it can be assumed that credits from this project are at risk of being not legitimate, or in severe danger of reversal. Second, a project’s score is equal to the following: `Baseline Ratio (BR, Section 2.2) = Standard baseline outcome / Project baseline outcome` `Ti-s = Time window between the start date and last issuance` `Tp-i = Time window between the last issuance and present` `Credits that should have been issued (Csi) = BR * Credits Issued Ti-s - (Deforestation Observed Ti-s - Deforestation Accounted For Ti-s)` `The Ratio of Credits Properly Issued (Cr) = Csi / Credits issued Ti-s The proportion baseline deforestation since last issuance = (Baseline forecast Tp-i - (Baseline Deforestation Observed Tp-i - Deforestation Anticipated For Tp-i)) / Baseline forecast Tp-i` `The Proportion of New Credits Deserved (Cd) = The proportion of baseline deforestation since the last issuance * BR` `Project Score =Time weighted average of {Cr Ti-s, Cd Tp-i}` **A score of 1.0 equals one tonne of genuine carbon removals. Scores above 1.0 indicate that the project may be overly cautious, and should perhaps be issued with more credits. Scores below 1.0 indicate that the project has potentially been issued with too many credits. Carbovalent aims to onboard credits with a score greater than 1.0 to avoid the potential of over-issuance. By following this assessment we can ensure those relying on carbon credits as part of their sustainability strategy are protected from unreliable credits which have disastrous impacts on climate change.** [Source](https://www.renoster.co/) # Morpheus Carbon Bridge The Morpheus bridge allows anyone to bridge carbon offsets from traditional Web2 registries such as Verra & Gold Standard to our on-chain meta-registry. ### Summary The Morpheus Carbon Bridge facilitates the tokenization of carbon offsets by bringing them onto our on-chain registry. This process is powered by smart contracts deployed on the Solana blockchain. By leveraging the inherent properties of distributed ledgers, we are able to bring transparency, programmability, fractionalization, accurate price discovery, and inclusivity to the carbon markets. As well as integrating a thriving Defi ecosystem with the carbon markets. Ultimately, the bridge is at the helm of an infrastructure powering a climate-positive economy on the Solana blockchain. ### How Bridging Works The bridging process starts with retiring carbon credits on the source registry before bringing them on-chain. This is done to guarantee that double counting/double bridging does not occur as it is now verifiable that each token is unique. Moreover, burning a carbon token is the same as retiring a carbon credit, except without the need for a legacy centralized registry. The inherent deterministic properties of the Solana blockchain are a better solution than traditional registries in terms of transparency, efficiency, and verifiability. \----------------------------------------------------------------------------------------------------- Read the subsections below to understand the process of bridging tokens from a Web2 registry onto Carbovalent. In summary, it starts with checking for [prerequisites](/bridge/morpheus-carbon-bridge/prerequisites-to-bridge), [eligibility](/bridge/morpheus-carbon-bridge/prerequisites-to-bridge/eligibility), [retiring](/bridge/morpheus-carbon-bridge/how-to-retire-credits-on-source-registry), [updating reference NFT](/bridge/morpheus-carbon-bridge/update-reference-nft), [approval](/bridge/morpheus-carbon-bridge/confirmation), and [fractionalization](/bridge/morpheus-carbon-bridge/fractionalize-greater-than-tokens). # Prerequisites to Bridge Basic requirements to tokenize carbon credits. Carbon offsetting projects need to meet certain criteria in order for them to be verified on the Carbovalent Registry. #### 1. Verified Carbon Units (VCUs) in the Verra/Gold Standard registry You will need to have access to the registry account or a partner who has the authority to retire VCUs on your behalf, indicating that they are to be bridged on Carbovalent. Moreover, it is important to make sure that you are retiring carbon credits of the same vintage and project on the same reference NFT. Also, check this [section ](/bridge/morpheus-carbon-bridge/prerequisites-to-bridge/eligibility)out to see if your credits are eligible for bridging. *\~Failure in one of the steps could lead to a permanent loss of funds.* #### 2. Solana Wallet You need to have a Solana wallet (eg: [Phantom](https://phantom.app/)) as a browser extension (mobile coming soon). Also, you will need to have some Solana to pay for the gas fees, which is roughly 0.00025$ per transaction. It is also important to note that you cannot interact with the Carbovalent protocol through a centralized exchange. #### 3. Attention to detail Bridging carbon credits to the Solana network is a permanent process, and errors could result in the permanent loss of Solana or carbon credits. Take your time and be cautious! We will update the documentation with detailed video tutorials on how to safely bridge your credits using the Carbovalent protocol. **Excellent work! After you've completed all of the prerequisites, you can begin the bridging process.** # Eligibility Carbovalent will only bridge carbon credits that have been issued within 10 years of the vintage end date. #### For example: a vintage is from 1st of January 2010 to 31st December 2010. Only credits that have been issued on or before 31st of December 2020. # Wallet Solana Wallet As soon as the Carbovalent UI is live, users can sign in by connecting their Solana wallet. This [video ](https://www.youtube.com/watch?v=zI-Xd9vVnwY)is an easy tutorial on how to set up a Solana wallet using the Phantom browser extension. # Initiate Bridge Create an empty carbon reference NFT on Solana, which will represent a tokenized batch of carbon offsets retired in the source registry. To start the bridging process, you will need to use the Carbovalent DAPP to mint a non-fungible token (NFT), a carbon reference NFT. As of right now, the reference NFT is initialized as an empty state and lacks any carbon offset-related metadata. However, every NFT has a unique token address, which will be used as a verifiable link between the carbon credits and non-fungible tokens. As mentioned earlier, a reference NFT is required for each project and vintage of carbon credits that are retired in the source registry. Hence, the person conducting the bridging process may need to mint multiple reference NFTs, along with supplying multiple NFT token addresses in the retirement notes on the source registry. After retiring the carbon offsets on a registry, a permanent link between the retirement event and the NFT will be solidified by the information provided in the Retirement Details. The source registry account owner must provide: 1. **Carbon Credit Owner,** a Solana wallet address that was used to mint the reference NFT. 2. The **token address** of the reference NFT used for this specific retirement event. (Make sure the credits are of the same project and vintage) # How to Retire Credits on Source Registry A step-by-step tutorial on how to retire carbon offsets on the Verra & Gold Standard registries. Coming soon... # Update Reference NFT Submit the serial number generated after the carbon offsets have been retired on Verra/Gold Standard. A unique serial number is generated when a batch of carbon offsets are retired in a traditional registry such as Verra. This serial number contains important information pertaining the carbon offsets, which include the number of offsets, country, project identifier, vintage, certifying standard organization, and more. For reference, the serial number generated by the Verra registry follows this format:
Verra Serial Number Taxonomy
Next, you must update the empty *reference NFT* you minted on our dApp with the serial number generated by the source registry. This will create a permanent link between the off-chain registry and the on-chain Carbovalent registry. To recap, the retirement entry in the source registry (eg. Verra) must have the *reference NFT* token address and the *reference NFT* has the serial number embedded in the metadata. **It is also to be noted that double counting/double bridging is now impossible as we use the serial number/token address to ensure it doesn't happen.** **Note: some retirements, particularly those made through EMA, occasionally return multiple numerous serial numbers. Our dApp will allow you to input more than 1 serial number by clicking** `add additional serial number`**.** Moreover, the serial number attached to the *reference NFT* metadata will be used to update the NFT with project specific information such as vintage, project identifier, source registry, and more. Some of this information will be stored on-chain, while the rest of it will be stored as metadata on [IPFS](https://ipfs.tech/). # Confirmation As soon as the Reference NFT is updated with a serial number, Carbovalent's verification department will approve the information to prevent fraudulent action from taking place. Moreover, our R\&D team is currently looking at methods to optimize this process by automating the process of managing disputes and validating information. Once the verification team validates the correctness of the serial number and token address. The NFTs state will change to active as it holds the group of tokenized carbon credits. # Use Cases An overview of the different use cases of tokenized carbon credits. Tokenizing carbon offsets allows us to introduce many different use cases for the credits. In addition to bridging the gap between carbon assets and Solana DeFi enabling its integration into decentralized applications. #### NFT Marketplace Users can list their reference NFTs which hold a certain amount of carbon credits on an NFT marketplace like Magic Eden or Open Sea. #### Fractionalization Reference NFTs can be fractionalized into project-specific SCT tokens. #### Offset Emissions SCT tokens can be used to offset carbon emissions through a process known as burning #### Collateral -> Borrow Index tokens can be used as collateral on DeFi lending platforms. #### DEX Index tokens can be swapped for other SPL tokens on decentralized exchanges. #### Reserve Currency Use the Carbovalent index tokens as reserve assets for DAOs. #### Metaverse Metaverse integration. # Fractionalize ->Tokens Mint carbon tokens from Reference NFT ### What is it? The bridging process is completed once the Reference NFT metadata is updated with the serial number generated from retiring carbon offsets on the source registry. This means that the NFT now holds the equivalent amount of carbon credits retired. After that, the user can decide if they want to fractionalize their NFT by minting SPL tokens called `SCT` (Solana carbon tonne) that represent the carbon credits in a tokenized form. For instance, an NFT representing 1000 credits can be fractionalized into 1000 `SCT` tokens by minting them on our dApp. ### Metadata After fractionalization is done, the SCT token smart contracts carry the metadata from the NFT, meaning that they trace back to the project-specific attributes such as vintage, country, project name, and more. This is vital as carbon credits in the voluntary market trade at different prices according to their project-specific attributes and metrics such as additionality, baseline, permanence, and more. However, this causes a problem as there isn't enough liquidity to facilitate the trading of these credits. To tackle this issue, we have created Carbon Pools, which aggregate liquidity to index tokens where every carbon token is treated equally. # Burn Offset your carbon emissions by burning carbon reference tokens. The burn feature is set in place for whenever a business or induvial wants to offset their carbon emissions using tokenized carbon credits. The burn module in the Carbovalent ecosystem will take care of the details regarding the carbon compensation claim by validating whether the SCT tokens were burned. It is also important to note that burning your carbon credits will permanently remove them from circulation to prevent reselling, double counting, and double retirement. Furthermore, the credit tokens that are used to offset emissions are recorded on the Solana blockchain permanently, which allows businesses to employ accurate carbon accounting and to keep track of which carbon projects they supported. # Introduction An array of project-based tokenized carbon credits are bundled in order to back a liquid index token. ## Index Carbon Assets Carbon credits are a heterogenous asset as each credit has a different set of attributes affecting the price of the credit. Moreover, the inconsistent nature of offsets in relation to vintage dates, location, type, and other attributes results in a highly differentiated market. As a result, treating carbon credits as a differentiated product will only result in a segmented market. Furthermore, the lack of price signals and transparency in the market disincentivizes investors to speculate on carbon projects. The Carbovalent protocol will initialize index tokens that are backed by bundles of credits of the same type (blue carbon, forestry, etc.). With that said, the Carbovalent protocol will standardize those attributes in a common taxonomy. Thereby shifting the focus of the market on the quality of credits. Bridging to index tokens incentivizes developers to fund carbon projects as they don't have to worry about project differentiation and can rely on a market with deep liquidity. Index tokens enable scaling by aggregating liquidity to a collection of carbon assets bound by the same carbon type. Carbovalent is designed with the vision to align incentives between investors and developers, which will in turn create an inclusive carbon-neutral economy, a goal that is crucial to the health of capital markets long-term. "The pace of global warming is accelerating and the scale of impact is devastating - the time for action is now." \~ Eliot Spitzer (Former Governor of New York) **Every index token is backed exactly by 1 SCT in the pool smart contract \~ equivalent to 1 carbon credit.** ## Segmented Liquidity The current state of the voluntary market lacks sufficient liquidity to facilitate efficient trading, mainly because interoperability doesn't exist in Web2 Carbon Marketplaces. Furthermore, the Web2 marketplaces are in a state of segmented liquidity, which means that the marketplaces do not share liquidity and cannot satisfy buy/sell orders on other marketplaces. The Carbovalent protocol solves this issue by aggregating the liquidity locked on-chain by hosting a DEX on Solana's central limit order book, also known as [Project Serum](https://www.projectserum.com/). # DEX The Carbon DEX is built on-top of Project Serum on-chain central limit order book (CLOB). ## Carbon DEX The Carbon decentralized exchange (DEX) will be built on Project Serum's underlying infrastructures, which support full limit order books, swift order placement, cancellation, and fund management. Our vision is to bring a centralized exchange like-experience while remaining fully trustless, transparent, and decentralized. Ultimately, the Carbon DEX will be powered by an on-chain order book and matching engine enabling a low latency and high throughput Carbon market to operate efficiently. Users can create an account instantly on the carbon DEX by simply connecting their Solana wallet on our dApp. Index carbon tokens can be bought or sold instantly on the DEX by trading with or against a trading pair such as BCC/SOL or BCC/USDT. Furthermore, building on Project Serum will bring a centralized exchange-like experience by enabling market and limit orders on a DEX. It is also important to mention that an orderbook-backed DEX is better suited to handle large transactions as the risk of slippage is low when compared to an automatic market maker (AMM) trading model. ## Central Limit Order Book (CLOB) Order books serve as the engine that powers financial markets. It's the model used by the New York Stock Exchange (NYSE) and other financial institutions to track and transact the bids and asks of the traders. On the other hand, an on-chain order book compiles the list of all the bids and asks, as well as the fill orders as the asset price moves. The CLOB has a matching engine, which simply is a mechanism for connecting buyers and sellers. Moreover, the asset price is determined by computing the price convergence between the lowest bid and highest ask, also known as the bid-ask spread. Furthermore, the smaller the spread, the greater the liquidity of the given asset. An order book is an important tool for traders as it enables them to view all market activity for a particular asset, which will help them make more informed decisions about their trades, and as a result, increase their chances of success. From a value add perspective, an orderbook-backed DEX is designed to promote transparency, stream real-time market activity, and power a trustless VCM. ## Orderbook vs Automatic Market Maker Order books and AMMs are two of the most popular trading models in DeFi. They mainly differ in their structure and underlying principles. In the simplest terms, an order book organizes the list of traders who submitted buy or sell orders and subsequently stores them on a database. However, in the case of a CLOB, the list of bids and asks is stored on the Solana blockchain. On the other hand, AMM is an automated trading model that employs two-sided liquidity pools, while in an order book, both buyers and sellers serve as the liquidity custodian. The structure of an order book appeals to centralized exchanges as it enables intermediary intervention and control of manual components. In terms of working principles, an order book is only initiated when there are overlapping orders regarding the same value and quantity of a traded asset. In that case, the matching engine connects buyers by matching them first by price and then prioritizing orders that came first. ## Advantages - CLOB #### Overview of the advantages of using CLOB to power the Carbon DEX: * Users have the option to specify the price, quantity, and direction of their transactions. As a result providing **deep liquidity** by matching orders based on price, time, and priority. * The Carbon DEX will have true **composability**, meaning that other Defi protocols can interact with Carbovalent by providing services such as matching orders and bootstrapping liquidity. * The fast **throughput** and **low transaction** costs of Solana are essential for minimizing capital inefficiencies and liquidity segmentation. * **Cross-chain** asset swaps are supported on the Carbon DEX, meaning that users can trade assets built on Ethereum or Polkadot. The Carbovalent protocol will essentially facilitate a multi-chain carbon market in order to aggregate liquidity from other blockchain protocols. * The Carbon DEX will feature a **derivatives** market for carbon assets. The DEX will support various **option/future contracts** for tokenized carbon assets (index tokens). * **Fully non-custodial**: tokenized carbon assets are only transferred between user wallets and on-chain programs which behave deterministically. ### # Index Carbon Assets ### Blue Carbon Credit- BCC One method of slowing climate change impacts is to incorporate coastal wetlands into the carbon market. The oceans and coasts have natural mechanisms to reduce the impact of GHG on our atmosphere. For example, sea grasses, mangroves, and salt marshes all act as a "carbon sinks" due to their ability to sequester carbon. Subsequently, these carbon offsets are called Blue Carbon, as blue alludes to the color of the ocean. According to a 2019 Sustainable Ocean Economy [report](https://www.wri.org/insights/turning-tide-ocean-based-solutions-could-close-emission-gap-21), protecting and restoring marine ecosystems, alongside seaweed farming, could reduce emissions by as much as 1.4 billion tons of CO2-equivalent emissions annually by 2050. In addition to recognizing the scale of BC on coastal countries. For instance, 20% of GHG emissions in Indonesia are released from mangroves as they covert to aquaculture. Furthermore, developing countries like Kenya, Senegal, Suriname, Sumatra, Colombia, India's Sunderbans, and Madagascar have pledged to reduce their emissions by conserving mangroves. Although coastal systems are smaller in size than forests, they sequester carbon at a quicker rater and for a longer period of time, implying a longer vintage than other credits. For example, the carbon released from 1 hectare of mangroves produces as much emissions as 3-5 hectares of tropical forest. The goal of blue carbon is to incentivize coastal habitat conservation, protecting biodiversity, and growing communities. When an ecosystem is damaged, the carbon sequestered is emitted back to the atmosphere, which can slow down our climate change efforts. Thereby, preserving the health of coastal ecosystems provides benefits such as community employment opportunities, improved energy access, enhanced air or water quality, biodiversity, and better access to medical health care and public education. ### Forest Carbon Credit- FCC Forest Carbon Credits enables communities to generate long-term revenue for protecting the forests in their territories. Preventing forests from being harvested and cut down through better forest-management techniques prevents sequestered carbon from going back into the atmosphere. With that said, forest-related projects can generate credits using the following methods: * Avoid deforestation or degradation (e.g. reducing the logging rate) * Improve forest management (e.g. implementing an ecosystem-based management system to optimize/reduce the frequency of logging) * Afforestation (e.g. plant a forest on a plot of empty land) * Reforestation (e.g. plant a forest where there once was a forest) High value forest conservation projects must meet the Carbovalent standard, which assesses a project based on a set of well-defined ESG criteria. To learn more about our carbon credit sourcing standard, go to [Remote Sensing for Forest Carbon](/sourcing/remote-sensing-for-forest-carbon). The monetary value of forestry carbon projects depends on the quality of standards under which they are issued. Consequently, projects with high-quality standards are called "charismatic" as they are usually unique and have numerous social, environmental, and sustainability co-benefits. As a result, institutions are willing to pay a premium price for "charismatic" credits to improve their environmental and social justice reputation. With that said, at the core of the Carbovalent protocol is a sourcing standard whose purpose is to facilitate a market that exclusively hosts high-quality credits that have a true positive impact on our sustainability goals. # Carbon Derivative Market Overview of the Carbon Derivative Market ### Overview Derivatives are an integral financial instrument in the carbon markets. Companies under carbon compliance regulation use carbon derivatives to meet their emission quota and hedge risk in the most cost-effective way. Investors can also use price signals from carbon derivatives to spot opportunities and effectively manage portfolio risk. The carbon derivative market plays an essential role in unlocking scale and enhancing transparency for the VCM. A functioning carbon derivatives market incentivizes long-term investment by providing forward information on the price of carbon. In addition, derivatives can be used as a tool to hedge "transition risk" to a net-zero economy by reducing uncertainty over future prices. In doing so, they have the ability to transform unpredictable cash flows into expected returns, which is essential to secure funding for GHG offsetting projects. Most importantly, a functioning derivatives market incentivizes long-term investment, which is required to meet ambitious sustainability obligations while satisfying corporate and social responsibility (ESG) goals. Ultimately, the Carbovalent protocol is committed to scaling the VCM by building the market infrastructure to do so. #### Applications of On-Chain Carbon Derivative Market * Boost ESG ratings * Reduce exposure risk to carbon pricing * Facilitate transparent price discovery and signals * Hedge "transition risk" to the carbon economy * Hedge against inflation * Act as an anchor price for the VCM * Incentivize long-term investment * Inclusive trading landscape * Efficient capital allocation toward sustainability projects ### Carbon Forward (Future) Contract The asset-agnostic definition of a future contract is an agreement to buy an asset at a predetermined date (expiry) at a predetermined price (strike) but to be delivered and paid for later. In the case of a fungible carbon forward contract, the offset provider commits to deliver emission reductions to the buyer at a certain strike (price) and expiry (date). It is also important to note forward contracts can either specify a fixed or proportional amount of tokenized carbon credits. For both custodians (provider & buyer), a forward future eliminates market price risk and secures the desired transaction price, even though the actual sale of credits may not happen for months or years. As a result, investors who buy carbon futures are protected from price volatility and a shortage of volume in the future. #### Graph of EU Allowance (EUA) futures that represent the carbon credits traded in the EU Emissions Trading Scheme (ETS).

Source: carboncredits.com

# Deposit <-> Receive A high-level overview of the different components that govern the the conversion of SCT to index tokens. ### Index Token Configuration Each index token has a unique configuration and a set of predetermined rules that protect the integrity of the index asset. #### 1. Token Validity This filter only allows valid SCT tokens to be deposited in the tokenized carbon vault, which is done by whitelisting valid token smart contract addresses. The reason for this filter is to prevent users from depositing custom tokens into the pool. #### 2. Type Check Each carbon pool only accepts tokens of similar attributes that are compliant with our standards. For example, a user cannot deposit forestry carbon tokens in the Blue Carbon Credit (BCC) vault. Examples of types of Carbon Pools: * `country = Bahamas` - a pool that only accepts SCT carbon tokens from the Bahamas. * `type= Blue Carbon -` a pool that only accepts SCT carbon tokens from Blue Carbon projects. * `vintage > 2018 -` a pool that accepts SCT carbon tokens from 2018 and later. * `compliance market = certified emissions reduction (CER) -` a pool that only accepts SCT carbon tokens that were migrated from the compliance market. For instance, the Blue Carbon vault would be created with a token called `$BCC` Blue Carbon Credit. This vault would only carry carbon offsets captured by the world's ocean and coastal ecosystems. ### Deposit <-> Receive Once the carbon credits have been successfully bridged and fractionalized into SCT tokens, users can deposit their tokenized carbon credits into a carbon pool. **Note: the user will have to pay a transaction fee to the Solana network as a method to support the economic design of the blockchain.** Once the SCT tokens have been validated by the index token vault configuration rules, they become eligible for deposit. After the user signs the transaction to deposit their SCT tokens, they become locked in the vaults smart contract, and an equivalent amount of index tokens (e.g. Blue Carbon Credit) is and sent to their wallet. The carbon vaults are a two-way bridge, as they allow users to redeem their index tokens for the original SCT tokens, in order to retrieve, retire, and offset their GHG emissions. **Every index token is backed exactly by 1 SCT in the pool smart contract \~ equivalent to 1 carbon credit.** # Reclaim A short guide on how to redeem index tokens to reclaim the SCT tokens in order to retire them. Once the index tokens are in the wallet, you can sign in our dApp to reclaim the original SCT tokens you deposited. This will allow users to retire project-specific carbon credit in order to achieve their net-zero goals. It is also important to mention that **only** SCT tokens can be retired to offset emissions - Index tokens can only be redeemed for SCT tokens. We do this to keep track of the project-specific credits that have been retired by updating the meta-registry. **Note: A more detailed guide will be available once the Carbovalent protocol is open to the public.**