In late May, Web3 startup Flowcarbon announced the closing of $70 million in funding. Of that, $32 million was led by a16z crypto, with participation from companies such as General Catalyst and Samsung Next; the other $38 million came from a token sale called Goddess Nature Token (GNT). Flowcarbon’s founder is Adam Neumann, who is also the founder and former CEO of office-sharing company WeWork. After WeWork’s IPO failed in 2019, Adam Neumann was kicked out of the company.
Flowcarbon, Adam Neumann’s newest company, operates at the intersection of voluntary carbon markets and Web3, using blockchain technology to scale climate change solutions.
A carbon credit is a permit that allows users to emit a certain amount of carbon dioxide. One carbon credit is equivalent to one ton of carbon dioxide emissions. Carbon credits are generally divided into two categories: One is Voluntary Emission Reduction (VER), which can be used for the over-the-counter or voluntary market for credit transactions; the other is Certified Emission Reduction (CER).
To address the problem of global warming, countries have begun to shift to a low-carbon economy, and the carbon credit trading market has also grown rapidly. However, despite the growing demand for carbon credits, the trading mechanism in the market is not yet mature, the market in different countries is fragmented, transactions are opaque and liquidity is low. It is difficult for many companies that need carbon credits to trade them.
When a company or individual wants to buy carbon credits, it encounters different rules and restrictions from local governments. If you do not have a good relationship with the government or related institutions, not only is trading difficult but even opening an account is very troublesome. And companies selling carbon credits need a middleman to get them, which takes a lot of time and is extremely hard to reduce the relative cost.
The characteristic of Web3 is “decentralization,” which may fit well with the characteristics of the carbon credit market. Companies can offer their decentralized products and services to customers via blockchain technology. Because of the concept of decentralization, customers only need to trust the underlying algorithms to trade the products more freely.
Flowcarbon issues GNT tokens via blockchain technology and links them to carbon credits due to these issues in the carbon credit trading market. Simply put, sellers can “upload” their excess carbon quotas into tokens and buyers can purchase them for two purposes: 1. they can wait for the token’s value to rise, as in stock speculation; 2. they can “unlink” the token and transfer carbon credits back to offset their own emissions reduction deficit.
However, carbon credit trading markets are extremely fragmented around the world. If carbon credit conversion is to be traded in different regions, it must be recognized by different carbon markets, which has also become an obstacle for the startup company Flowcarbon.
Nicole Shore, a spokeswoman for Flowcarbon, said the link between GNT and carbon credits follows global carbon market standards and is currently supported by a major carbon credit registry. Flowcarbon’s innovation is that it is faster and less expensive than the general carbon market transaction process. To sell carbon credits in the traditional way, the project party must negotiate a sales agreement through an intermediary, and the cost is up to 30% of the transaction price. With token sales, these projects only have to pay a 2% fee, which significantly reduces transaction costs.
Tokens linked to carbon credits will greatly increase market liquidity and significantly increase trading volume compared to traditional over-the-counter transactions. Projects that reduce or eliminate carbon emissions can use their carbon credits over a five-year period to exchange GNT for fast-track financing. However, Anil Madhavapeddy, associate professor of computer science and technology at the University of Cambridge and director of the Cambridge Carbon Credit Center, believes that the current problem with the carbon credit market has nothing to do with how to trade more efficiently. The bigger problem is that there’s not enough supply.”
Although Flowcarbon’s business model has been questioned, if Flowcarbon can make its concept a reality, GNT could be the key to making the carbon credit trading market accessible to the masses.