By Michael Kelly, OFP Co-founder and Chief Protocol Architect
Very often people don’t know which box to put Open Forest Protocol (OFP) into. Are we a dMRV tool for greasing the wheels of future carbon assets? Or are we an asset issuer and credit creator, increasing the supply of nature based carbon credits? Actually — both, but probably not in the framework that initially comes to mind. Being a protocol creates entirely new possibilities for the Voluntary Carbon Market (VCM), that we are only just starting to publicly unveil. This includes (1) whitelabel potential,(2) infrastructure for carbon forwards, results-based financing, and insurance, and (3) a mechanism for offloading fresh credits to a purpose-built digital auction house, for sale to market makers.
My goal in this article is to make this boring product architecture exciting as a collaborative, win-win solution, for the future of the VCM. We have said this from the very beginning, but especially most recently:
For almost any stakeholder in the future of the VCM, all roads lead to, or through OFP.
Hopefully that becomes clear by the end of this piece.
My origin story for launching Open Forest with Fred actually began back in 2018. A professor of sustainability approached me on behalf of a reforestation initiative working with the government of Pakistan, interested in securing $160 million dollars in funding from the World Bank.
The problem: No one trusted, or had recourse, to actually proving that the money leaving the World Bank, and going to Pakistan would actually be used for putting and keeping new trees in the ground.
A common scenario that ultimately leads back to a coordination failure between multiple different stakeholders, lots of money, and untrustworthy middlemen. What kind of a product could build a solution to such a problem? Would we have to build it all ourselves, or could we eventually open-source it so the carbon development consultants of the future can utilize and ‘whitelabel’ the solution for their own benefit? In my mind, this was the gold standard (no pun intended) of a future disruptor to the legacy VCM.
Fast forward to today: white labelling on OFP will soon become a reality. We often get asked if we are ‘competing with Verra’ or if we aspire to be the new ‘Verra’ of a digital VCM. I like to say, we are not competing with Verra at all, and are more positioned to be the ‘AWS’ of the VCM, but crypto style. You’re probably thinking, how the hell does that make any sense? Let’s get boring on a protocol level, so you can see for yourself what the prospects for whitelabel are in the future of OFP.
“The AWS of the VCM?”
Back in April I had the opportunity of introducing OFP to MIT, and the above slide was my favorite reference to the infrastructure of OFP. On the left, we see the pillars of MRV — data collection, data verification, and asset creation. In the middle we see these long ‘pillars’ which I refer to as verticals, connected to our decentralized network of validators. Above that (and based on the result of the validation mechanism) we have our asset issuance / offloading infrastructure — to create digital carbon credits.
The idea of ‘white label’ has to do with the ‘data collection layer’. I’ll give you a synopsis here then use a slide to break it down further:
Anyone, whether it be a legacy player like a Verra or Gold Standard, a new startup, or a corporate that wants to to manage and own its carbon development projects, can design, build, and implement their own ‘vertical’ onto OFP such that it can leverage OFP’s validation network and asset issuance infrastructure to issue its own unique digital environmental asset. On the protocol level, this entire process is 100% free, except for the protocol fee, set for all assets created (currently at 8%).
This is the ‘once and for all’ description of how OFP is, and forever will be, a fundamentally collaborative solution. Any company, team, or organization can spin up and connect their vertical to OFP — providing the parameters for data collection and a relevant methodology for asset issuance — from which they can then monetize that service, without paying OFP anything at all, except for the protocol fee when assets are issued.
In the above picture we see a mangrove vertical, a biodiversity vertical, probably multiple afforestation / reforestation verticals and so forth. The bet here is that on-chain dMRV via OFP can foundationally restructure the quality, transparency, and trust in any asset created to the extent that everyone using OFP is seen as a legitimate asset issuer or project developer. On-chain dMRV means that all assets created are data backed, on-chain, recorded on-chain, and eventually off-set — on-chain. Fostering complete traceability into all assets minted, traded, and eventually offset.
Whitelabel of this Model Means the Following: Anyone can create a vertical on OFP to -
Just to give you some examples:
The power of a protocol is that the incentives for verification and issuance run on a token level, and simply require that 8% fee paid after an asset is created. Beneath the surface, automated execution leads to the verification of data, creation of assets, and distribution of such assets. The whole rest of it (basically all of the dMRV) can be picked up and ‘white labeled’ by anyone for their own specific context or benefit.
Because we have the technology to make all of this recurring, transparent, and value-imbued, we can keep the most important ‘trust parameters’ for getting buy-in to the value of the asset created.
Going back to my OFP origin story in trying to find a solution to get trees in the ground in Pakistan: If OFP had existed, our small team of consultants could have worked with the Government of Pakistan to secure that money from the world bank, and then either using an existing vertical live on OFP or through creating our own, could have implemented a solution within 3 months for the digital verification of all of their new forest plots. This solution would have worked inception through the coming decades — and we would not have paid a dime to any service provider except for the 8% on the tailend of my asset’s issuance. Further, we would have owned the IP related to the unique vertical and used this as the basis for replicating the model in other countries.
Welcome to the future of the VCM — OFP is like a ‘Digital Verra’ but it also holds out a hand to any legacy player interested in the opportunity to digitize for almost no cost.
This next section is equally relevant to the whitelabel discussion, it just approaches it from a different angle. Because all data uploaded onto OFP is recurring (no matter which vertical), we build historicity into each project on-chain. Stage 1, Stage 2, and so forth.
Now let’s imagine that we could use smart contracts to hold value in escrow, and only release that value to a project (or receive generated value from a project) pending a certain validation outcome.
So imagine this scenario: I am the Norwegian Sovereign Fund, and I have 1 billion dollars ready to invest in reforestation, but like the above scenario I don’t trust carbon developers to actually use my money to put trees in the ground. With this financing mechanism, I can put 2 million dollars into an escrow contract that connects to the protocol and tells the project: “After each data upload is successfully verified, please release $100,000 to the project. Do this for each data upload in the next 20 years. If the data upload is denied, do not release any money.”
We are essentially building the rails for money to flow into carbon development projects, and value to flow back to financiers. This time however, we are doing this using our on-chain infrastructure where data and proof is required before money is transferred.
The really cool thing though, is that this infrastructure is also open-source and open to whitelabel! So any carbon forward company, results-based financing body, non-governmental organization, environmental foundation, entrepreneur, and so forth, can build their own proprietary custom financing solution on top of the financing rails, to re-sell to their own market of clients at their own rate.
Some examples of what this enables:
Most commodities are not sold directly from producers to buyers. They are aggregated in a single place and sold via auction to market makers who then resell their purchased commodity for a markup to other suppliers and distributors. We realized that we can solve this problem for all of our projects and verticals on OFP, because they were all connected via the same protocol.
In the normal state of affairs, every carbon development project is on its own to find its own buyer. On OFP, every project, from any vertical, has the option to toggle the ‘auction’ function in their project dashboard (the point of data collection), to tell the protocol essentially the following:
If my data that I upload is approved by the verifiers, and an asset is created for my data, please automatically send these assets to the auction mechanism with a minimum price per asset of Z dollars. Then once the asset has been purchased, send me the cash!
This does two things, for two different stakeholders:
The powerful thing about OFP’s auction mechanism is that, like the vertical development and financing components, it is also open-source. This means that any stakeholder can potentially be whitelisted to buy these assets in bulk, from which they can then resell or utilize such assets in whatever manner or business model they devise.
Some examples of where this might go:
Wrapping this up, I hope I have been able to make clear the power of whitelabel on the Open Forest Protocol. We are poised to stimulate exponential growth in three directions:
These three components operate harmoniously. Meaning, a Verra Vertical on OFP, would be able to leverage results-based financing, insurance, and auctioning of issued assets on a protocol level, all subsumed beneath the Verra Label. That is a pretty great opportunity for Verra to digitize at low costs and with high benefits.
I really cannot emphasize OFP as a tool to be used in collaboration with existing entrepreneurs, legacy companies, and NGOs. A protocol needs a community of stakeholders to thrive, as it also needs a culture of support, collaboration, and innovation. A protocol is for everyone and anyone. In this case, OFP is both for upcoming VCM players, as well as the incumbent players, as foundational infrastructure.
While we are only just preparing to launch these three white label products, there will be many upcoming hackathons and outreach events to get builders to start thinking about consumer or business applications on top of these three pillars of our protocol. We aim to be in a position in the coming five years to have everything we need to result in a multi-gigaton issuance of creditsand usher in a new era for the voluntary carbon market.