Tokenizing Real-World Assets: The Opportunity and Impact of Carbon Credits as Financial Tools

The tokenization of real-world assets (RWAs) is one of the most enduring use cases for blockchain and digital assets. According to recent reports, Boston Consulting Group puts the total estimated value of the tokenized RWA market at upwards of $16T by 2030

Tokenizing a real-world asset refers to the process of placing the ownership of tangible assets – including equities, bonds, precious metals, investment funds, real estate mortgages, carbon credits, and other financial instruments – on blockchain ledgers as digital assets. This enables 24/7/365 buying and selling of those assets and unlocks significant liquidity from many of the world’s most valuable and often illiquid asset classes.

Tokenizing Carbon Credits

Carbon credits are one promising tokenization use case to not only increase liquidity, transparency and open new revenue streams, but simultaneously support the reduction of carbon emissions and contribute to a greener, more sustainable future.

A carbon credit is a tradable unit that represents one metric ton of carbon dioxide equivalent gas that has been reduced or removed from the atmosphere. It is a financial tool that provides its seller with capital to scale their ecological project and allows the purchaser to offset one metric ton of pollution that has been emitted in the atmosphere. There are two types of carbon markets: the regulated carbon market driven by compliance, and the voluntary carbon market.

The voluntary carbon credit market today is extremely fragmented with many intermediaries extracting value, opaque and slow verification of claims, and complex transactions and market access. The market currently lacks efficient, accurate and reliable ways to define, monitor and verify carbon credits. While carbon credits can play a vital role in the transition to a nature-positive world, today’s inefficiencies paralyze buyers, and new projects struggle to obtain financing.

Blockchain technology is well suited to solve some of these persistent pain points for carbon markets. Many of the basics—or primitives—required to make that real-world-to-chain connection already exist today. This includes knowing how blockchains operate, understanding how to enforce rules for decentralized transactions and how to issue and represent tokens on-chain. 

Tokenized Carbon Credits as Financial Tools

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