The Century Ahead: Natural Capital on Blockchain

The transformation in how we understand money and value has accelerated since the creation of Bitcoin and Ethereum. To someone who has not dabbled with ‘cryptocurrency’ or ‘utility tokens’ the confusion is understandable: How does ‘internet money’ enable better monetary and financial primitives for everyone else? How does the programmability of value on a blockchain via smart contracts revolutionize core economic primitives like transaction costs, property rights, and the rule of (code) law? 

It’s taken about seven years for blockchains to mature from clunky and expensive ‘truth machines’ to scalable, high capacity ledgers capable of recording and storing large amounts of data. In parallel with these improvements, the ‘product’ stack has evolved across blockchains: Better token standards exist with more robust smart contract libraries, and improved on-ramps and custody options have made it easier for traditional companies to access the on-chain world. You could say that the industry has matured: In 2017 ‘blockchain for Supply Chain solutions’ raised tens of millions of dollars before quickly running into basic cost, access, and capacity problems resulting in little to no traction. Today in August of 2024, a company can build their own blockchain based supply chain dApp for less than 50k. 

A subtle narrative shared by many crypto-natives is that ‘crypto’ will eat the worl, by steadily tokenizing and improving more diverse industries beyond the world of internet finance. As this logic goes, it starts with native digital tokens, moves to finance (since digital value is the home field of a blockchain), finds product market fit with capital markets - from which better data tools (Oracles), better validation mechanisms (prediction markets), and better hardware (IoT) enable use cases firmly in the physical world: DePin, Tokenized Real Estate, Ticketing and Event Marketing, Supply Chain Asset Management, and so forth. 

While this vision has slowly played out - with all of the volatility characteristic of early stage markets - the underlying programmability of a blockchain has left many seismic opportunities beyond traditional finance. In the context of this article, these include better certification systems for food quality to sustainably sourced products and the capacity to tokenize and represent Natural Capital on a single immutable ledger. 

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Natural Capital and Carbon Credits

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When people hear ‘natural capital’ they usually think of it in reference to either carbon credits or Charles Eisentein’s book Sacred Economics. The philosophy of natural capital is simple enough: Nature provides a number of both quantifiable (clean air, clean water, resources, medicine ingredients, etc.) and unquantifiable (scientific, artistic, and spiritual) benefits that hold value to every human being. But since John Locke’s Two Treatises of Government, the ownership of private property in line with natural law omitted any economic obligation or value to the natural world. The enlightenment and subsequent industrial revolution sprouting from the liberal tenets of private ownership, virtue ethics, and human rights also overlooked how such tenets might impact the natural world on an extended time horizon. 

Environmentalists and philosophers writing on the Tragedy of the Commons have unraveled the implications of this omission: Without a place for nature in economics, we find ourselves in a ‘race to the bottom’, with misaligned incentives destroying extremely valuable swaths of the natural world (the Amazon), and polluting watersheds and ecosystems that support healthy human communities. Instrumental reason and the economically rational agent of business fails to plan beyond immediate time horizons, despite it being common knowledge that clean water, air, and healthy forests are essential for human and animal flourishing. 

Carbon credits have emerged in the 21st century climate change discussion as a mechanism for drawing down carbon emissions. But more generally, I see carbon credits as the first step towards creating a financial market for natural value: Corporations and governments buy carbon credits to ‘offset’ their negative impact on the climate elsewhere. This is done sometimes through obligation and other times through voluntary actions. In the case of nature-based carbon credits the purchase of these assets directly contributes to the upkeep, conservation or regeneration of key natural ecosystems around the world. That’s the theory at least! 

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The Nature of Value and the Value of Nature: A Unique Opportunity for Natural Capital 

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Blockchain transforms the programmability of value. With scalable and highly performant blockchains (Like NEAR Protocol, for example) we can create entirely new systems for quantifying, tracing, and issuing value for large portions of the natural world. This is the core vision of Open Forest Protocol: To enable any stakeholder to create high quality, data-backed assets representing natural value in the physical world. 

With the transformation of how value can be programmed, comes an opportunity to transform the way nature is valued and imbued in a free market. In other words, the nature of value is revolutionizing the value of nature. While we talk about carbon credits and corporate emissions today, we have a unique opportunity to tokenize and hard code the conservation of biodiversity hotspots around the world into our economic systems of the future. For the first time in our short human history, we have a technology that can connect the long-term time horizons of nature's growth and benefits, with the short term instrumental time horizons of modern business and finance. 

Today, we can finally create novel systems that incentivize the conservation, stewardship and regeneration of the natural world, as a core part of productive economic activity. We can correct John Lockes’ omission on the value of nature or our obligation to the natural world through hard coded programmable systems of internet money. 

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‍Open Forest Protocol: A Future for Natural Capital

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Open Forest Protocol (OFP) is a platform with a 100 year time horizon: We aspire to create a network for the creation of natural value, such that natural capital can flourish on blockchains and eventually spill over into larger capital markets and fiat currency systems. If Open Forest Protocol is successful, we will reconnect the natural world with larger economic systems such that there are long-term incentives to conserve and regenerate nature, as opposed to the existing fragmented short term incentives to pollute and destroy. 

Our vision for accomplishing this mission is to start with the voluntary carbon market (VCM), and find product market fit for a number of different methodologies among large corporations, governments, and retail. What do I mean by this? 

Every natural asset is currently issued according to a methodology. This defines the conditions and parameters for how a natural asset may be issued. On OFP, we have released one methodology for Afforestation and Reforestation Credits (ARR). But the protocol is designed to accommodate any number of methodologies from any number of project developers. As a protocol OFP is designed to enable any existing certifier or developer, as well as any future certifier or developer to create a natural asset with their own custom methodology. Our system is open, free-to-use, and always transparent (every asset is traceable back to its origination upload and validation).  

The free market can then decide which assets are a better representation of captured natural value and of improved quality than another. Over time, better assets can be priced higher and imbued into larger financial systems (lending, stable coin backing, credit markets, pre-financing), while poorly designed methodologies or low quality natural assets are put out of business. 

Future methodologies can go beyond what currently exists in the VCM to truly capture the long-term vision of tokenizing nature in all of its complexity. We have working blueprints for a methodology for ‘old growth forests’ and have done preliminary research into the unit economics of ‘biodiversity hotspots’ and ‘conservation zones’ globally. There is a clear pathway to bringing over 1 billion hectares of natural capital onto blockchains in the coming decades. 

Practically, this means that there has never been a better opportunity for a climate entrepreneur or a government to create a system that incentivizes the conservation and stewardship of their natural assets. The tools for such a system are finally available and freely accessible! 

As Bitcoin has become referenced as a potential ‘reserve currency’ for a debasing US Dollar, and Ethereum and other L1 Networks have found value as blockchains that power the future of finance, we see OFP and its accompanying token - $OPN - as the fundamental platform for Natural Capital Reserves. 

Currently OFP has 5 governments working to onboard government sponsored projects totalling over 200,000 hectares of land. Within 5 years, OFP will have over 500,000 hectares of nature on the platform, generating over $200 million dollars of assets per year. 

Our hope is that by 2035, OFP becomes the Natural Capital standard of the world, with more than 80 governments and 200 large corporations using the protocol for their natural asset needs and climate commitments. This expectation is feasible, as OFP exists as the only on-chain natural asset issuer, with the $OPN token as the only carbon yielding asset in the world. 

We hope that the many different environmental activists, NGO’s, governments and corporations - hungry for a future that includes natural capital and proper incentives for environmental stewardship - reach out to purchase the first credits on the protocol, support the network by running a validator, or onboard their own carbon development projects to the platform. OFP is a new beginning for how humans can value nature, and it runs on a new layer of the internet that promises to make such natural capital instantly accessible, globally available, and independently valuable.