By Michael Kelly, OFP Co-founder and Chief Protocol Architect

Very often people don’t know which box to put Open Forest Protocol (OFP) into. Are we a dMRV tool for greasing the wheels of future carbon assets? Or are we an asset issuer and credit creator, increasing the supply of nature based carbon credits? Actually — both, but probably not in the framework that initially comes to mind. Being a protocol creates entirely new possibilities for the Voluntary Carbon Market (VCM), that we are only just starting to publicly unveil. This includes (1) whitelabel potential,(2) infrastructure for carbon forwards, results-based financing, and insurance, and (3) a mechanism for offloading fresh credits to a purpose-built digital auction house, for sale to market makers.

My goal in this article is to make this boring product architecture exciting as a collaborative, win-win solution, for the future of the VCM. We have said this from the very beginning, but especially most recently:

For almost any stakeholder in the future of the VCM, all roads lead to, or through OFP.

Hopefully that becomes clear by the end of this piece.

Section 1: Whitelabel:

My origin story for launching Open Forest with Fred actually began back in 2018. A professor of sustainability approached me on behalf of a reforestation initiative working with the government of Pakistan, interested in securing $160 million dollars in funding from the World Bank.

The problem: No one trusted, or had recourse, to actually proving that the money leaving the World Bank, and going to Pakistan would actually be used for putting and keeping new trees in the ground.

A common scenario that ultimately leads back to a coordination failure between multiple different stakeholders, lots of money, and untrustworthy middlemen. What kind of a product could build a solution to such a problem? Would we have to build it all ourselves, or could we eventually open-source it so the carbon development consultants of the future can utilize and ‘whitelabel’ the solution for their own benefit? In my mind, this was the gold standard (no pun intended) of a future disruptor to the legacy VCM.

Fast forward to today: white labelling on OFP will soon become a reality. We often get asked if we are ‘competing with Verra’ or if we aspire to be the new ‘Verra’ of a digital VCM. I like to say, we are not competing with Verra at all, and are more positioned to be the ‘AWS’ of the VCM, but crypto style. You’re probably thinking, how the hell does that make any sense? Let’s get boring on a protocol level, so you can see for yourself what the prospects for whitelabel are in the future of OFP.

“The AWS of the VCM?”

Back in April I had the opportunity of introducing OFP to MIT, and the above slide was my favorite reference to the infrastructure of OFP. On the left, we see the pillars of MRV — data collection, data verification, and asset creation. In the middle we see these long ‘pillars’ which I refer to as verticals, connected to our decentralized network of validators. Above that (and based on the result of the validation mechanism) we have our asset issuance / offloading infrastructure — to create digital carbon credits.

The idea of ‘white label’ has to do with the ‘data collection layer’. I’ll give you a synopsis here then use a slide to break it down further:

Anyone, whether it be a legacy player like a Verra or Gold Standard, a new startup, or a corporate that wants to to manage and own its carbon development projects, can design, build, and implement their own ‘vertical’ onto OFP such that it can leverage OFP’s validation network and asset issuance infrastructure to issue its own unique digital environmental asset. On the protocol level, this entire process is 100% free, except for the protocol fee, set for all assets created (currently at 8%).

This is the ‘once and for all’ description of how OFP is, and forever will be, a fundamentally collaborative solution. Any company, team, or organization can spin up and connect their vertical to OFP — providing the parameters for data collection and a relevant methodology for asset issuance — from which they can then monetize that service, without paying OFP anything at all, except for the protocol fee when assets are issued.

In the above picture we see a mangrove vertical, a biodiversity vertical, probably multiple afforestation / reforestation verticals and so forth. The bet here is that on-chain dMRV via OFP can foundationally restructure the quality, transparency, and trust in any asset created to the extent that everyone using OFP is seen as a legitimate asset issuer or project developer. On-chain dMRV means that all assets created are data backed, on-chain, recorded on-chain, and eventually off-set — on-chain. Fostering complete traceability into all assets minted, traded, and eventually offset.

Whitelabel of this Model Means the Following: Anyone can create a vertical on OFP to -

1. Offer dMRV services to carbon development projects.
2. Build custom dMRV services for existing clients.
3. Pioneer new natural assets, and types of projects, based on collecting data in new ways.

Just to give you some examples:

• Example 1: Verra builds the Verra vertical, still requiring on-the-ground verification by a Verra certifier, but now uploading all data to the network for historicity and asset issuance. The asset issued would be a Verra Credit, sent back to the vertical operator or the project operator. The difference is that this credit is fully on-chain, data backed, and offset on-chain as well.
• Example 2: A startup has a custom and proprietary data collection package for Peatlands specifically in the UK. They build a vertical ‘closed-source’ to be able to verify and issue a ‘Peatlands’ credit from their proprietary data collection technology. They can then either (1) sell their tech to carbon development projects interested in monetizing peatland in the UK, or (2) run the projects themselves and sell the credit allowance they yield.
• Example 3: An ‘old growth forest’ vertical is developed to safeguard specifically old-growth (primary) forests around the world. With a pioneering ‘Old Growth Forest Asset’ being issued for verified stewardship and conservation. As an entirely new asset, the vertical grows into monetizing the ecosystem resilience, biodiversity, and carbon sequestration benefits of old growth forests. This vertical could be operated by a non-profit foundation, and open-sourced for any other carbon developer to leverage to their clients for a small annual fee.

The power of a protocol is that the incentives for verification and issuance run on a token level, and simply require that 8% fee paid after an asset is created. Beneath the surface, automated execution leads to the verification of data, creation of assets, and distribution of such assets. The whole rest of it (basically all of the dMRV) can be picked up and ‘white labeled’ by anyone for their own specific context or benefit.

EVERYONE WINS.

Because we have the technology to make all of this recurring, transparent, and value-imbued, we can keep the most important ‘trust parameters’ for getting buy-in to the value of the asset created.

Going back to my OFP origin story in trying to find a solution to get trees in the ground in Pakistan: If OFP had existed, our small team of consultants could have worked with the Government of Pakistan to secure that money from the world bank, and then either using an existing vertical live on OFP or through creating our own, could have implemented a solution within 3 months for the digital verification of all of their new forest plots. This solution would have worked inception through the coming decades — and we would not have paid a dime to any service provider except for the 8% on the tailend of my asset’s issuance. Further, we would have owned the IP related to the unique vertical and used this as the basis for replicating the model in other countries.

Welcome to the future of the VCM — OFP is like a ‘Digital Verra’ but it also holds out a hand to any legacy player interested in the opportunity to digitize for almost no cost.

Section 2: Finance Infrastructure

This next section is equally relevant to the whitelabel discussion, it just approaches it from a different angle. Because all data uploaded onto OFP is recurring (no matter which vertical), we build historicity into each project on-chain. Stage 1, Stage 2, and so forth.

Now let’s imagine that we could use smart contracts to hold value in escrow, and only release that value to a project (or receive generated value from a project) pending a certain validation outcome.

So imagine this scenario: I am the Norwegian Sovereign Fund, and I have 1 billion dollars ready to invest in reforestation, but like the above scenario I don’t trust carbon developers to actually use my money to put trees in the ground. With this financing mechanism, I can put 2 million dollars into an escrow contract that connects to the protocol and tells the project: “After each data upload is successfully verified, please release $100,000 to the project. Do this for each data upload in the next 20 years. If the data upload is denied, do not release any money.”

We are essentially building the rails for money to flow into carbon development projects, and value to flow back to financiers. This time however, we are doing this using our on-chain infrastructure where data and proof is required before money is transferred.

Cool, right?

The really cool thing though, is that this infrastructure is also open-source and open to whitelabel! So any carbon forward company, results-based financing body, non-governmental organization, environmental foundation, entrepreneur, and so forth, can build their own proprietary custom financing solution on top of the financing rails, to re-sell to their own market of clients at their own rate.

Some examples of what this enables:

• Example 1: Exchange fees going to sustainable reforestation. An exchange like Coinbase decides that they want to invest 0.5% of their revenue into sustainable reforestation projects. The value is automatically sent into a financing pool on OFP via smart contract, and then automatically distributed to a massive Amazon based forest project after each data upload. Coinbase could also automatically receive a certain percentage of all carbon created by the project for every upload they finance.
• Example 2: Insurance for failed projects. A legacy insurance company builds a custom dApp on the financing rails of OFP, to offer recovery funds to projects that lose their forest or natural land to fire, flood, or disease. The funds are locked in escrow, and only released if the data upload is denied. Projects pay this company for the duration of their entire project, as a safeguard against a natural disaster.
• Example 3: Consulting for the Norwegian Sovereign Fund. A small consultancy works with the Norwegian Sovereign Fund (or any NGO / Foundation) and guarantees that the money they donate to reforestation can be demonstrably proven to be used for putting more trees in the ground. The consultants build their own interface / explorer for their clients to check in on the status of their projects, and then use OFP to ‘results-based-finance’ the forest projects in question. No one ever figures out the consultants are using OFP, so they can charge a premium for their services!
• Example 4: A carbon forward company. A carbon forward company sells forwards for projects they have financing agreements with in return for getting a fixed percentage of their credits. When the data upload is approved and the asset is issued, the percentage of the asset is automatically sent to the forwarding company, while new forwards are created for the next data upload.
• Example 5: A Government. One of the 115 nations that have made ecosystem restoration commitments under the UN Decade on Ecosystem Restoration wants to ensure that it meets its goals. It does so by providing upfront funding smallholder projects within its projects to obtain seedlings and put trees in the ground. During the project’s early years, while trees are small and carbon uptake minimal, the government releases credit-based capital for the project’s successful data uploads through year 5. Starting in year 6 and thereafter, the government begins taking 5% of all credits issued over a 25 year repayment term. Both credit deployment and repayment is executed automatically by smart contract, based on parameters defined by the investor, in this case, a national government.

Section 3: Offloading These Shiny New Environmental Assets

Most commodities are not sold directly from producers to buyers. They are aggregated in a single place and sold via auction to market makers who then resell their purchased commodity for a markup to other suppliers and distributors. We realized that we can solve this problem for all of our projects and verticals on OFP, because they were all connected via the same protocol.

In the normal state of affairs, every carbon development project is on its own to find its own buyer. On OFP, every project, from any vertical, has the option to toggle the ‘auction’ function in their project dashboard (the point of data collection), to tell the protocol essentially the following:

If my data that I upload is approved by the verifiers, and an asset is created for my data, please automatically send these assets to the auction mechanism with a minimum price per asset of Z dollars. Then once the asset has been purchased, send me the cash!

This does two things, for two different stakeholders:

1. First, it gives projects a much easier route towards monetizing their assets, without ridiculous markups and middlemen helping them find a buyer. This especially benefits smaller projects who can aggregate credits together, making smaller volumes less of an issue for going to market.
2. Second, it gives carbon purchasers a reliable mechanism for purchasing natural assets in bulk and then reselling them or using them for their own interests! Optimally, this paves the way for a deeply liquid VCM in the near future.

The powerful thing about OFP’s auction mechanism is that, like the vertical development and financing components, it is also open-source. This means that any stakeholder can potentially be whitelisted to buy these assets in bulk, from which they can then resell or utilize such assets in whatever manner or business model they devise.

Some examples of where this might go:

• Example 1: The Institutional Carbon Market Trader. An existing platform has a host of institutional clients who are interested in buying and trading carbon credits. The platform whitelists into the OFP auction house, buys up hundreds of thousands of credits and then re-sells them to an existing list of corporate clients with a 10% arbitrage.
• Example 2: Carbon-Backed Stable Coins. A stable coin of the future is backed by a basket of assets, including carbon credits (so as to pioneer a carbon-neutral currency). The stable coin protocol, automatically buys up X credits for Y price routinely, and adds the assets to their vault for improved backing of their stable value system.
• Example 3: Offsetting Tools for Airlines. A massive business application offsets the carbon footprint of 80% of the airline industry. They have spent decades cultivating and building these relationships. Now, they just buy up the credit amounts they need, or that the airlines think optimal, and re-sell these fresh credits directly to the airlines in a timely and supply satisfying manner — without needing to compromise on quality.
• Example 4: Point of Sale Integration. By integrating with point of sale systems and software automating the calculation of carbon footprints associated with the purchase and delivery of various products, credits can be purchased and retired automatically through API to the auction house or through retirement of credits produced through pre-financed projects.

Conclusion: Exponential Growth in 3 Directions

Wrapping this up, I hope I have been able to make clear the power of whitelabel on the Open Forest Protocol. We are poised to stimulate exponential growth in three directions:

1. Carbon project development, via open-source whitelabel of verticals connecting to the protocol.
2. Carbon project financing, via open-source financing rails for forwards, results-based financing, and insurance.
3. Carbon and Natural asset offloading, via whitelisted auction mechanism and protocol wide aggregation of credits generated on OFP.

These three components operate harmoniously. Meaning, a Verra Vertical on OFP, would be able to leverage results-based financing, insurance, and auctioning of issued assets on a protocol level, all subsumed beneath the Verra Label. That is a pretty great opportunity for Verra to digitize at low costs and with high benefits.

I really cannot emphasize OFP as a tool to be used in collaboration with existing entrepreneurs, legacy companies, and NGOs. A protocol needs a community of stakeholders to thrive, as it also needs a culture of support, collaboration, and innovation. A protocol is for everyone and anyone. In this case, OFP is both for upcoming VCM players, as well as the incumbent players, as foundational infrastructure.

While we are only just preparing to launch these three white label products, there will be many upcoming hackathons and outreach events to get builders to start thinking about consumer or business applications on top of these three pillars of our protocol. We aim to be in a position in the coming five years to have everything we need to result in a multi-gigaton issuance of creditsand usher in a new era for the voluntary carbon market.

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