Solid World is taking a step toward financializing carbon credits on the blockchain by opening the first forward carbon asset pool on an automated market maker and backed by Polygon, the company said in a press release today.
In the liquidity pool, projects can essentially presell future carbon credits at a price set by an automated market maker, said Solid World CEO Stenver Jerkku.
A number of blockchain startups like Solid World, which aim to provide financial and technical tools to mitigate the effects of climate change, have grown in size in recent months. Entrepreneurs hope that blockchain can bring transparency and increase financing for climate-positive projects.
The Solid World pool will focus on carbon mangrove restoration projects aimed at developing ecosystems of small trees and shrubs growing in coastal brackish waters. According to the WWF, mangroves can store up to four times more carbon than other tropical forests and also protect coasts from storms and sea level rise.
Liquidity pools perform a similar function in crypto markets as market makers do in traditional finance. Users pool their funds to facilitate the buying and selling of assets. Futures contracts specify the purchase or sale of an asset at a future date and are often tied to parameters such as price.
Such contracts are often used in hedging strategies, but in Solid World’s case, they can provide security for long-term carbon credit projects. The liquidity pool will provide key funds to the mangrove projects “while providing structured inventory to traders looking to sell high-value carbon credits,” the release said.
The Solid World pool will value carbon credits based on an artificial intelligence-based risk framework that considers climatic, legal, political and economic factors when assessing the risks associated with carbon project financing.
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