Joint HFC-23 Cleanup Operation with KlimaDAO

This is great!

It goes without saying that quality matters in carbon markets, but I’ve always defended BCT, and I still see it as Toucan’s flagship product. To be honest, I have been a bit disappointed to see some representatives in ReFi distancing themselves from BCT publicly.

We shouldn’t have to! Ultimately, a fair & liquid market would not be complete without a realistic price floor. A Base Carbon Tonne. Unfortunately, because of the inclusion of these deprecated credits, BCT does not currently represent a realistic price floor. The inclusion of these credits make it harder to market BCT as a viable low-cost infrastructure for on-chain offsetting.

This cleanup operation, along with the updated BCT inclusion criteria, would send a strong message to ReFi and to the carbon market at large! We own our mistakes, we collaborate, and we invest in the additionality and positive climate impact of our respective protocols. As KlimaDAO continues to bring new off-chain demand, the legitimacy of BCT and all other carbon pools will only continue to increase.

14 Likes

Great proposal. The clean-up operation is a necessity, and the time to do it is now.

8 Likes

Great proposal, thank you :slight_smile:

Note, it’s not possible to sent to the 0-address, but we are ideating to implement a direct burn mechanism for these fraudulent credits that takes them out of the supply tracking mechanism used by block explorers.

5 Likes

I support this proposal. It would be right thing to do. Would increase credibility of BCT and onchain carbon market. How would Toucan finance this? Should they market buy the needed BCT tokens?

4 Likes

I support this proposal to collaboratively destroy the aforementioned HFC-23 credits and regenerate BCT pool quality. Even though BCT was initially designed for KlimaDAO, it still is Toucan’s flagship product that has significantly helped in pushing the development of the on-chain carbon market since last Oct. This collaboration between the two big players of on-chain carbon - Toucan and KlimaDAO - would send a strong positive signal to the legacy players that we are truly walking the talk of building quality and meaningful ReFi in Web3.

6 Likes

Fantastic proposal.

Let’s do what we can to move forward and clean this up together

6 Likes

I’m very happy to see this initiative. I didn’t know much about the HFC credits until I saw a few media mentions about them. If Toucan and KlimaDAO can work together to clean up the BCT pool, they should!

6 Likes

this is amazingly well written. exciting to see KlimaDAO leading from the front on these initiatives and I’m pretty sure Toucan will be excited to join in!

9 Likes

I think we can all agree that destroying the HFC-23 credits would be a positive outcome. It would lend credibility to the onchain carbon market and signal our dedication to improving the quality of carbon credits in general. The proposed joint cleanup operation is an excellent opportunity for collaboration between KlimaDAO and Toucan Protocol.

5 Likes

Supportive of this initiative and hoping we can generate some positive media coverage on this type of collaboration in ReFi!*

5 Likes

This is a no-brainer. Let’s get it done, Toucan.

4 Likes

Awesome work @MarcusAurelius putting this proposal forward. It’s great to see such a clear opportunity to collaborate emerge between Toucan and Klima. It’s also great some of the Klima core who I haven’t seen in a while!

I’m all for getting rid of HFC-23 credits and it’s great to see Klima putting it’s treasury behind it; however, I wanted to share some alternative considerations.

Given I no longer work at Toucan, this sentiment purely expresses my own personal opinion.

There is a risk that Verra comes out with some kind of statement that honors some of the retired tokenized carbon credits and not others. I don’t have any direct evidence to support this, but given Verra is the seal of credibility that comprises a majority of the market, we should consider their actions in this decision.

While I do understand @Atmosfearful’s sentiment about a need for an asset that tracks the base price of ex-post carbon, there is a question as to second order consequences of this decision, as we’ve seen with the large influx of so-called ‘zombie’ credits when price allows arbitrage.

What if on-chain carbon set a much higher threshold for quality than off-chain carbon? What signal would that send?

I know it’s not feasible for a variety of reasons, but imagine if we got rid of BCT all-together and set NCT as the floor for on-chain carbon?

Since there are large volumes of floating of credits older vintages, I am concerned that by continuing to maintain BCT (at the expense of nearly $2M between Toucan and Klima DAO) this continues to drive capital away from financing future emission reductions and removals that we critically need to stabilize our climate.

It’s clear to all of us here that the future of carbon is in forwards contracts and pre-purchasing. We haven’t done enough to date, and the stability of our climate depends on actions we take in the future. It’s not about building markets to capitalize on the assets that represent actions of the past.

→ I’d rather see $2M (or more) go towards a membership to Frontier than towards burning HFC-23 and maintaining BCT.

→ I’d rather see $2M (or more) towards supporting web3-native MRV and on-chain registries.

I know that Klima’s treasury is mostly comprised of BCT and therefore the carbon-backed reserve currency narrative is upheld by this asset in large parts. It’s important to acknowledge this financial interest and the impact it has on the on-chain carbon market (given Klima is by far the biggest holder).

My personal take is that far more people would get excited by on-chain carbon if we leap frogged the traditional market and went straight towards durable removals and high-integrity nature-based solutions with web3-enabled dMRV.

Don’t get me wrong: It’s great to see the Klima community initiating these collaborations to rally around quality and integrity. This is awesome.

If Toucan does decide to go halves on this, it’d be a positive milestone for on-chain carbon.

Is it the best use of this capital? I’m not sure…


As someone who invested significant amounts of personal capital in BCT at launch ($10 / ton) and have large unrealized losses through the KLIMA I acquired through bonding, my vote is for using as much capital to finance the solutions that will stabilize our climate in the future as the efforts we have made to date are clearly insufficient.

We experienced an incredible launch together and catalyzed the emergence of hundreds of actors experimenting at the intersection of climate and crypto. Now is time to explore new narratives and demonstrate the power of web3 and mission-driven communities can do what legacy market and it’s institutions cannot.

Given we have stopped onboarding new people in January, I think this may be a sign that we need to change our narrative and our direction of capital flows.

Improving the quality of BCT might be a key shift in narrative, but I suspect it’s going to take something much more.

→ Web3-native carbon with scaleable dMRV focusing on high-integrity nature-based solutions and durable removals

Lastly, if we want to capitalize on the next bull run, we need to do it with the global majority at the table—where people have lived experience of climate change and possess a cultural identity that recognizes our deep connection both to each other and to the planet.

I so appreciate what ya’ll have done with the Love Letters and think this would hit home even further if we can surface the stories of people on the ground who are fulfilling the acts of regeneration made possible by our collective commitment to the future.

We’ve got time and money to build… let’s use it wisely.

We’ll be beyond 1.5°C warming before we know it.

1 Like

Given we have stopped onboarding new people in January, I think this may be a sign that we need to change our narrative and our direction of capital flows.

I think you’ll find this trend has affected most DAOs and projects since November… given the recent macro action in crypto and equities. I don’t think its wise to abandon ship on BCT – especially when there are roughly only 347 holders of NCT.

5 Likes

I appreciate your sentiments and agree it will take more than just a BCT cleanup to bring more off-chain demand. Everyone at KlimaDAO is giving their blood sweat and tears to make this happen. We’ve sold more tonnes on-chain than anyone, and learned a lot along the way. Big products and improvements in the pipeline!

I disagree on a few points, mainly against “leap frogging the traditional market”:

Whether we like it or not, prices matters most to a lot of buyers. If cheap tonnes don’t come on-chain, people will just buy them off-chain. In fact, I’m not convinced that “Zombie credits” are even a thing-- these HFC credits, however fraudulent they might be, may very well have been sold to other buyers, as indicated by the enraged brokers who appeared in the Toucan email inbox when that methodology was banned and their credits were stranded. I wouldn’t even be opposed to a bBCT pool - “Below Base Carbon Tonne”.

Making on-chain retirements the defacto norm for all carbon credits will only bring greater clarity into which credits are the cheapest, who is buying them, why, how much, and so on.

  1. Cheap does not always mean bad. The lowest-hanging fruit for climate action is emissions avoidance, not removal! From a macroeconomic perspective, it makes more sense to tackle the best-value reductions first. Some expensive credits, like Direct Air Capture, are an outright waste of money (personal opinion). Given the debate surrounding which credits really are “best”… we should just let markets decide.

I’ve always argued that we should leave MRV and standards to the pros, and avoid trying to play gatekeeper. Of course, to your point, we still have to decide where pool boundaries are drawn, and I’ve had to eat my own words a few times, now that some questionable credits made it into our DAOs treasury via BCT. For this reason I still wholly support cleaning up BCT. Nevertheless if we really succeed in doing our jobs, and if the promises of ReFi are to be believed, then the market would ideally flush out bad actors and bad credits on it’s own, and in a few years from now we won’t have to take actions like these :slight_smile:

4 Likes

Agreed :slight_smile:

Okay. Either way, Verra risk is realized at this point and we’re now aiming to lead by example and clean up problems inherited from the traditional VCM

Right… we are talking about so-called ‘zombie’ credits now. HFC-23. The question is how to clean them up, and if Toucan wants to help. Are there any specific questions? Please elaborate.

A strong one. What if on-chain carbon traded transparently, with every transaction recorded in perpetuity via blockchain? I’d argue we are already at a far higher threshold for quality and we are trading the same tonnes on chain that we were off chain last year.

Okay, well, then let’s nip this in the bud and stay in reality? Not sure where the place for this is, but it’s probably not going to be very constructive here

I think this is where we fundamentally diverge and disagree wholeheartedly.

It is completely about building infrastructure and tools to improve the present markets. Building on “actions of the past”. We are missing the forest for the trees here John.

We can improve the current VCM by homogenizing credits and trading them on-chain.

We can work on building more tools and systems that reduce friction and increase transparency.

We can bridge higher quality credits and facilitate a diverse range of assets that represent true environmental improvements.

You raise questions, questions that can be talked about. All of this is happening. But it’s not what we are talking about in this proposal John.

We are talking about HFC-23 zombie credits, and how we are going to move forward, clean them up, and lead by example.

:heart:

4 Likes

Thank you for the proposal @MarcusAurelius, and everyone else for the input. We’re excited by the proposal, and support the initiative to clean up the BCT pool.

We’d like to put our support behind the initiative in the following ways:

  • We will put all the burn fees collected from BCT selective redemptions towards retiring HFC-23 credits in the pool, until they are completely cleared out.
  • We will waive fees for HFC-23 credit redemptions, so anyone can participate in cleaning up the BCT pool.
  • We’re introducing a new method onto the BCT contract — redeemAndBurn. This function redeems and burns a provided credit without tracking it as a retirement in our contracts, so callers cannot claim any environment benefit. The only credit that will be redeemable using the new function is the HFC-23 TCO2. This functionality is being audited right now, and will share more on how to use the method as soon as we can (in the next few weeks).
  • We’d love the community to participate in the clean-up. Anyone can call the redeemAndBurn function, or you can just send BCT to the fee burn address (0x222aAdfAF8FfA6CC7D89F7E99cf94963b121ADbf) and we’ll burn the HFC-23 credits for you.

A small technical note: it is important that these TCO2 tokens be burned and NOT sent to the 0x0 address as Marcus proposes. The reason: we want to make sure these credits are removed from circulation and not included in any queries of “active credits”. People less familiar with crypto won’t know that tokens held by the 0x0 address are effectively destroyed. We need to redeemAndBurn all the HFC-23 tokens.

These steps will significantly reduce the burden of cleaning out HFC-23 credits.

Why isn’t Toucan committing to market-buying BCT to clean up HFC-23?

We serve as an infrastructure provider to the on-chain carbon markets. Toucan didn’t decide the BCT gating criteria — the pool was designed for the needs of KlimaDAO. This situation highlights one of the key issues of the voluntary carbon market to date: even the most trusted registries and standards bodies cannot guarantee the quality of all credits on their registry. This is an intrinsic risk that everyone has to take if they launch a pool that accepts credits from a standards body.

We support actions that improve the integrity and quality of carbon credits on-chain. However, we don’t feel it’s appropriate to dedicate considerable resources to cleaning up one particular pool over other (future) pools.

For these reasons, we feel the best action is to optimize Toucan infrastructure to channel substantial resources into the clean-up effort, and to work closely with and support our community to clean up the pool.

This path strikes the balance between owning mistakes and making sure resources are directed towards highest impact, as JE pointed out.

(PS — I’m John X, I lead strategy and ecosystem work here at Toucan. I’ve been closely involved with the protocol since before launch.)

1 Like

Thanks for the response John,

While I’m glad that Toucan will enable fee-free burning of the HFC-23 credits and utilize the accumulated BCT burn fees for this purpose, I’m also disappointed to hear that Toucan is not willing to dedicate resources toward this important initiative.

Toucan’s bridging infrastructure (independent of the BCT pool) played a key role in allowing these credits to be brought on-chain in the first place, since it was Toucan contributors that manually approved the batch containing these HFC-23 credits.

As for the BCT pool requirements: Toucan has made much fanfare over the bridging and market activity of BCT, and so I must admit I’m confused as to why Toucan feels no responsibility toward BCT as a Toucan product.

As an on-chain infrastructure provider, the closest analogy would be with a traditional software provider. It would be very strange if I partnered with a software provider to deploy their software customized for my needs, and then that provider promotes the activity of my deployment in their marketing materials - while publicly denouncing the software configuration they deployed for me and refusing to allocate resources to support it.

In any case, if Toucan will not equally share the burden of responsibility for this cleanup operation, KlimaDAO will take the lead engaging the community, and put forward a KIP to propose allocating treasury BCT to this important initiative to ensure integrity in the tokenized carbon ecosystem.

7 Likes

I would have liked to see Toucan take more responsibility on this, but I guess it is a start.

4 Likes

Thanks for the response Marcus. I appreciate the critiques, and want to expand on a few points. Overall this kind of open discussion is really valuable :pray:

The BCT gating criteria were designed for the requirements of KlimaDAO to suit their narrative and theory of change. We do feel a sense of responsibility over BCT and the carbon credits held on the Toucan Registry, which is why we want to work with you to support this cleanup initiative.

Absolutely. We’re excited and proud of the success of Toucan’s launch, which did a huge amount to jumpstart on-chain carbon markets. BCT was a successful demonstration of what is possible with on-chain carbon, which we celebrate. At the same time, it’s important that we are honest about mistakes we’ve made and aware of how we are perceived by the broader market.

At launch our role as bridge approvers was to confirm that the bridging procedure was done properly from a technical perspective. We didn’t play the role of assessing whether a verification methodology is scientifically rigorous. This is why we connected the Toucan Bridge to Verra — they’ve done the work to curate a set of methodologies and maintain a list of verifiers to certify carbon impact.

The HFC-23 case is unique in that Verra had “phased out” those projects, but left the credits live on their registry. As live credits, they met the technical criteria to be bridged onto Toucan. As soon as we discovered that people were bridging them, the extraordinary action of blocklisting them at the bridge was taken.


This is a unique and tricky situation. We’re all learning — how to build, how to operate, and how to respond and improve. We feel that optimizing our infrastructure as I described above is the right path forward. We’re grateful that Klima wants to take this initiative forward, and will continue to support it within the bounds we’ve set out. We’ll also be sharing more soon on lessons we’ve learned and Toucan’s path forward.