Partner with KlimaDAO to jointly fund a ReFi cleanup initiative: remove the problematic HFC-23 credits from the BCT pool and properly dispose of them.
Per the KlimaDAO Tokenized Carbon Dashboard’s BCT page, there are approximately 672 thousand tonnes of TCO2 in the BCT pool bridged from Verra’s deprecated HFC-23 methodology (Phasing out of HFC-23 projects - Verra), AM0001:
While many have rightly pointed out that these credits should never have been retireable within Verra’s registry - which would have prevented them from being bridged - they met BCT’s initial vintage and methodology criteria and were de-facto allowed into the pool. Once the problem was identified, Toucan promptly excluded the methodology from the BCT pool requirements (Blocklist - Toucan).
The ReFi community has taken efforts to prevent the use of HFC-23 credits by excluding them from the no-fee automatic redemption function on Toucan’s TCO2 contracts, so anyone trying to consume the HFC-23 credits would have to pay the steep selective redemption fee. They have also been disabled in the KlimaDAO retirement aggregator. However, the presence of these credits is still a limiting factor for the integrity, demand and adoption of BCT as a ReFi building block.
As part of the fee structure for BCT, Toucan has committed to utilize 80% of the redemption fees for regeneration of the pool, first and foremost to remove the HFC-23 tonnage from circulation: Expediting bridge approvals, BCT quality and selective redemptions.
To speed this regenerative process, KlimaDAO proposes to split the cost of this cleanup operation equally between the two largest stakeholders in the BCT pool (KlimaDAO and Toucan).
Taking the total number of HFC-23 credits (672,248.9993) and dividing by 2, each party has a burden of 336,124.49965 tonnes.
So far, there are ~2858.759 tonnes of BCT in the Toucan regenerative fee multisig wallet: Contract Address 0x222aadfaf8ffa6cc7d89f7e99cf94963b121adbf | PolygonScan. In addition, Toucan would need to procure ~333,265.75 BCT for the remainder of their share.
If Toucan agrees to the terms of this proposal, KlimaDAO would put forward a KIP to utilize the necessary amount of BCT from the treasury reserves to redeem half of the HFC-23 tonnes and properly dispose of them. Assuming that KIP passes, the required BCT would be withdrawn from the treasury and the HFC-23 TCO2 tonnage redeemed via the KlimaDAO multisig and then destroyed.
NOTE: Since these credits are no longer recognized as legitimate, the TCO2 should NOT be properly retired, but rather sent to the 0x0 address directly to prevent future use without claiming the credit as a retirement.
Toucan exempts itself and KlimaDAO from the selective redemption fee for the purpose of extracting the problematic credits from the BCT pool at minimal cost.
Split the burden of cleaning up the HFC-23 credits 50/50 between Toucan and KlimaDAO. If the terms of the proposal are agreed:
- KlimaDAO proposes a parallel KIP to utilize BCT from the treasury reserves for this operation.
- Toucan utilizes the BCT that has accumulated so far in the regenerative fee multisig and acquires the remaining BCT required.
Each party redeems the appropriate amount of BCT for the HFC-23 TCO2 using the no-fee redemption mechanism, and sends them to the 0x0 address.
If Toucan is unable or unwilling to partner with KlimaDAO on this initiative, KlimaDAO will be forced to bear more of the burden - either the additional cost of the redemption fee, or half the tonnage, or both.
For reference, KlimaDAO unilaterally cleaning up the HFC-23 tonnage with no assistance from Toucan would require nearly 3 times as much treasury BCT to be utilized:
- ~670k tonnes total of HFC-23 TCO2
- +25% additive fee => to selectively redeem 670k tonnes, the user must provide ~33% more tonnage
- => ~900k BCT required for KlimaDAO to unilaterally clean HFC-23 credits out of BCT
Example calculation from KlimaDAO selective retirement interface:
Discuss amongst the community over the next week or two, finalizing terms so KlimaDAO can put forward a KIP.
Assuming the KIP passes the 6 day KIP process (3 days on the forum, then 3 days for Snapshot vote), coordinate execution of the cleanup operation - ideally by the end of June 2022.
- SushiSwap pool: USDC-BCT | SushiSwap Analytics
- HFC-23 Verra Article: Major Win for the Climate: Voluntary Market Closes Door to HFC-23 Projects - Verra