Here’s how DeFi startup OffsetFarm is addressing climate action through NFT tokens
With the climate clock ticking, businesses are hastening up to reduce their carbon footprint. This year, the market has seen the emergence of standardised carbon pricing and purchase operations. Hence, it’s time to consider carbon offsets as a credible revenue source for projects.
DeFi (decentralised finance) startupis offering a hint of optimism by addressing climate action through financing.
Founded in 2021 by Saurabh Saraf and Ankit Mathur, both alumnus of Delhi College of Engineering, OffsetFarm is building on the Polygon blockchain and enables investors to pre-finance climate projects that are listed on the platform. The investments are represented by NFT’s called SPROUT, and the firm has also introduced OFFSET token which is backed by a carbon credit and it is equivalent to one tonne of CO2 saved.
“Since we were from the same alma mater, it was easier to connect, and we’ve been good friends since long,” Saurabh tells The Decrypting Story.
Both the co-founders kick-started their careers in the carbon market. “In 2010, Ankit co-founded Greenway and I co-founded Reap Benefit,” says Saurabh. Despite working in different firms, both of them shared similar passion.
In 2020, Saurabh and Ankit decided to fuel their passion further and teamed up to develop carbon projects. While developing the projects, they realised the need for capital for the developer to work on the project.
“By the end of 2020, we discovered that financing carbon projects are tough, especially in the early stages, and hence we wanted to offer a platform for both project developers and investors,” Saurabh further explains.
As a result, OffsetFarm was launched. Led by Indian co-founders, the Singapore-registered startup has a seven member team, including the founders.
The startup said it aims to help developers and investors in the carbon market by leveraging the use of blockchain.
While developing projects, Ankit and Saurabh identified the need to address climate action by catalysing finance. However, they aimed for forward financing of carbon projects to get money to the hands of project developers.
Climate action by catalysing financing
OffsetFarm uses DeFi to enable global transactions. “To develop such carbon projects without employing technology is a bit of a hassle. The project becomes traceable just by linking the token to the project and one can avoid several complexities. Today, with the help of technology, a trade can be closed in less than a minute,” Saurabh says.
When asked about the idea behind the name SPROUT, Saurabh explains, “SPROUT is symbolic to any small budding plant and our Sprout token grows and offers users carbon credit. Investors who buy SPROUTs essentially secure OFFSET supply at a heavy discount to market price. We looked into how we could tokenise the project’s carbon credits and offer them to investors.”
Saurabh further explains that SPROUT tokens act as a pre-paid financial instrument. By purchasing Sprout tokens, users have exclusive access to all project-related information and the tokens are customisable as well. “You can design the NFT the way you want, and there is flexibility in contractual product. NFT will act as a certificate or acknowledgment of your investment. When carbon credits are issued, we issue offset token that is pegged to real carbon credit.”
Addressing information asymmetry in the market
Contrary to popular belief, carbon markets are exceedingly opaque and OffsetFarm intends to address the same. The company aims to tackle the information asymmetry in the market and believes that carbon markets can be fixed through better transparency.
“Historically, we have seen information asymmetry in the carbon market. Most deals that take place in the carbon market are OTC (over the counter) and costs are extremely high to verify. Since there is a possibility that someone may take advantage of the same.” In an effort to maintain the transparency of the project, the firm intends to share project related information with the investors, all of which can be verified.
Carbon assets are inaccessible to many investors because the trades are bi-lateral and dominated by intermediaries, and the deal size could be an entry barrier for many investors. As a result, the company aims to make these initiatives accessible to everyone.
Carbon projects are becoming popular and companies are vowing to support them. Saurabh says, “By 2030, the world has some grand targets to meet and the demand for Carbon offset is going to increase 10x times.”
In recent years, several new ventures including Pachama, Cloverly, Carbon Interface, and Cooler.dev have emerged in this space. “At OffsetFarm, we’re attempting to resolve the issue from the standpoint of supply, ensuring the supply is met,” Saurabh adds.
The company claims that the outcomes are multifaceted. There is a focus on climate mitigation which is tracked by (Sustainable Development Goals) SDG-13 — as goal 13 aims to combat climate change and its impacts by taking immediate action.
“We want people to view carbon project as an asset class. Gold is an asset class and carbon credit is an alternative asset class. All we can hope for now is for it to become a stable asset class,” Saurabh says.