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Startup Series: Making Carbon Markets More Accessible Using Blockchain with Flowcarbon
Today's guests are Dana Gibber, Caroline Klatt, and Phil Fogel of Flowcarbon.
And today’s episode is hosted by Jason’s partner at MCJ Collective, Cody Simms.
Flowcarbon is using blockchain to make carbon markets more accessible. They're seeking to tokenize the voluntary carbon market to aid in price discovery, transparency, and access. We were looking forward to this conversation as Flowcarbon has been in the news a lot. They just raised significant capital from A16Z and other notable investors; the day after their raised was announced, Verra — the largest voluntary carbon marketplace — made a substantial position statement regarding blockchain; Flowcarbon was incubated by the family office of Adam and Rebekah Neumann of WeWork renown; and blockchain is a controversial topic in climate circles generally. So across all of this, we had a ton to discuss.
Cody Simms: If you're a crypto skeptic, hopefully this helps you understand more about how they believe their approach can be additional to the climate movement. And if you work in the regenerative finance space at the intersection of climate and crypto, hopefully you gain some insight into their specific approach. And even if you choose not to agree with them, I hope you find the conversation insightful. I certainly learned a lot. I don't know how all this will play out and don't know how lubricating the demand side of the carbon markets will impact the quality and volume of carbon sinks that we so clearly need to protect and continue to grow. But I enjoyed learning how Dana and team are attempting to approach it. Dana, Caroline, Phil, welcome to the show.
Dana Gibber: Thank you. Thanks for having us.
Caroline Klatt: Thanks for having us Cody.
Phil Fogel: Yeah, good to be here.
Cody Simms: Well, it's been a huge week for you all in Flowcarbon land. Obviously, you had your big funding announcement of the new $70 million round that came together. There was the announcement, I think the day after from Vera with a whole bunch of new news in terms of their position on the voluntary carbon market and how they're approaching the crypto space. And then I'm sure there's just been a ton of social media activity, some positive, some critical, uh, and probably more inbound than I can imagine. How's it going?
Caroline Klatt: It's been a busy week. Um, it's, it's been a busy and exciting and very fun week.
Dana Gibber: We actually were in Barcelona for much of the week at the IETA, which is the International Emissions Trading Association of which we are members. The IETA, European Climate Summit where I spoke on, on digitization and tokenization. So we were there and that was busy and super productive and fun. And then we also had a lot of this happening in the background. So definitely been, been a week.
Phil Fogel: Yeah, it was super fun 'cause our funding announcement actually dropped in the middle of Dana's panel.
Cody Simms: Oh wow. It may have been in the background for you, but from where I sat on Twitter, it was very much in the foreground of the [laughs] conversation this week. So congrats on everything.
Dana Gibber: Thank you. I appreciate that.
Cody Simms: You know, we've got three of you here, so, uh, we can, you can take turns, but I'd love to hear just each of you a little bit about your backgrounds. What led you to care about climate in the first place. Like me, like Jason, uh, I think each of you are fairly new to the climate space and then of course, you know, Dana and Caroline, I just learned, I think you're actually sisters and repeat co-founders and there's a ton of history here. So walk us through how you got here.
Dana Gibber: Yeah, we-
Caroline Klatt: Absolutely.
Dana Gibber: Confirming, we are 100% sisters. [laughs] And co-founders previously together.
Caroline Klatt: Yes.
Dana Gibber: So our journey really starts together. We come from a family, uh, with a dad in particular, who's always been very environmentally conscious. He developed these values in the '70s long before it was common or even widely understood. Uh, and he wasn't even a person who had been steeped in nature or surrounded by a rural environment. He grew up in a row house in Queens, New York, but he's, I think a very smart guy and a bit contrarian. And so he's always been very conscious of environmental values and issues for as long as we can remember.
Caroline Klatt: Yes, we, we grew up with a lot of rules about single use prat- plastic and recycling long before they were in Vogue, if you will.
Dana Gibber: And these kinds of values I think are very meaningful and impactful for kids. You really absorbed them through osmosis. So we grew up with that consciousness and our dad actually eventually translated this into his professional life by helping build companies in the sustainability space. He worked with a company doing geothermal and storage systems for power, uh, a company that produced solar panel electronics and then finally he actually helped build and lead Soda Stream, which was really cool because it was a widely known consumer brand that really did elevate people's awareness around the anti-plastic movement and personal plastic consumption habits. And this was very, very formative and really meant that we were always conscious of the potential for solutions to happen, not only in one's personal behavior, but also at a business level, which is both where much of, uh, GHG emissions happen, but also where a lot of solutions can be born. Um, especially where there's a market for a particular solution, a sustainable solution.
Um, you see how incentive mechanisms work to bring talent and resources and capital into that area. And so that can enhance and up level the entire ecosystem and lead to accelerated innovation. So I think that's really been in our blood for a long time. Now, professionally, we do, we, we start out with different journeys ...
Phil Fogel: Sure-
Dana Gibber: ... the two of us. My own background is that I'm a lawyer. I worked in the US federal court system focusing on national security and technology cases, which was fascinating, very interesting line of work. Then together with Caroline, we co-founded a software company in 2015. So do you wanna talk about your journey before.
Caroline Klatt: I started my career at McKinsey, different from Dana, not, not a legal path. Um, I worked at, um, and McKinsey focused on corporate finance and consumer. And I then went to a large startup called fab.com, which I guess if you were at Techstars surely you were aware of Fab. Really med- mediocre rise and then, then a fast implosion and it was a, a really incredible experience. But while I was there, I focused on, on operations and marketing interestingly and the chat and SMS space was emerging as sort of a, an up and coming space for digital marketing.
And we founded a company called Headliner Labs where we, it was an enterprise solution for retail companies. So we, we provided chat solutio- chat software for large retailers and brands like Saks Fifth Avenue, Cohan, Kenneth Cole and lots of great direct-to-consumer brands. And it was a really rewarding and, uh, formative experience. We spent five years building Headliner, which we ultimately sold to a private equity group called the Stagwell Group, which owns many digital marketing agencies and s- technologies and has integrated them into a really powerful digital marketing powerhouse really. And so we were at the Stagwell Group as co-chief innovation officers, really as COVID hit. And we, we then were thinking about what's next like many, many entrepreneurs do.
Dana Gibber: Yeah-
Caroline Klatt: And we're doing it, doing it together, actually.
Dana Gibber: Yeah. We got to really think broadly about the power of new technology to solve long standing market challenges, um, in that role, which was great. And that really brought us to Flow.
Caroline Klatt: I will say something really important to both of us was that we had a really rewarding experience with our first company and certainly felt like what, a- if we did this again and, and intended to it should be something with real impact, real world impact that was measurable and that we can look back and feel really proud about the impact we had on the world and can do something great for, for our children and the next generation inhabiting this planet. And so that was really important to us.
Cody Simms: That definitely resonates with me. I mean, that was sort of right at the start of COVID that I also really started go- diving in earnest in, into my own personal climate journey. So, uh, I think a lot of us locked in [laughs] our, uh, in our homes or wherever used that time to really do a lot of reflection.
Caroline Klatt: Yeah. It was, it was sort of in some ways, a really unique opportunity to, to think and be introspective and I think was a really valuable experience or, or important moment for us to be able to found Flowcarbon.
Dana Gibber: Yeah. And to, yeah, to focus on longstanding values that maybe had been dormant for a while, uh, during the grind of everyday life. I'm sure that's a relatively universal experience during the pandemic.
Cody Simms: And then sounds like Phil came into the picture somewhere here.
Dana Gibber: Yeah, yeah, yeah. Well, uh, so-
Caroline Klatt: Who's-
Dana Gibber: ... no, I'm just kidding. [laughs] Um, yeah. So in 2020, um, I got a call from a close person in our network who was working at a family office and asked if we wanted to do a deep dive into the, uh, into environmental philanthropy and how carbon revenue supplements philanthropy efforts. Together with Caroline, we spent over a year really learning and immersing ourselves in the voluntary market, talking to everyone we could from nonprofits to the standards, industry participants, a lot of stakeholders. And what evolved from that is Flowcarbon.
When we had the chance to explore the market and saw some of the challenges that it faced, I came to feel that this was an incredibly important market in many ways. It's a very elegant, ethical financial mechanism for funding the protection of our natural carbon sinks and the restoration of our natural carbon sinks, and we'll talk more about this market later. And we also realize that a lot of the challenges, um, in the market right now and of which there are many, and we can, we can delve into them, Web3 provides a uniquely well-suited technology infrastructure for solving some of those key challenges.
And so we called a longtime friend, who's an expert in Web3 who already had specific experience at the intersection of climate and blockchain, and that was Phil. So that's where Phil comes into the story, Phil. [laughs]
Phil Fogel: So to go back to childhood, um, like Dana and Laney's parents, I grew up in Queens and I'm a product of the New York City public school system. And there was actually a major focus then on environmental science and environmental protection and I went home and was like, "We have to start recycling." And started sorting newspapers and sorting plastic and glass and taking bottles back to recycling centers and doing all sorts of that and, and, you know, I, I very much felt that that was part of my upbringing and part of like the formative education that I received. I then went to school, went to business school, started a FinTech company, and then got in, exposed to Bitcoin in 2012 and started going down a very deep crypto rabbit hole, um, over the course of the next few years. And by 2017 had sort of started seeing the environmental footprint of Bitcoin as being a problem.
And especially as more and more cryptocurrencies were being created and more and more layer one blockchains were starting, the idea that more of these needed to be proof of work seemed e- to be problematic to me. And so I started a company, um, along with a k- a friend that was actually focused on how do we make more, how do we bring proof of stake to the forefront and move away from proof of work? Um, and so we started that company ar- around amassing our coins and proof of stake and trying to help people to set those validator nodes up and bring those networks up to speed.
There was a one specific project that we got very involved with, which at the time was called Bitcoin Green. And it started off purely as an academic exercise, just to prove that you could recreate the economics of Bitcoin using a proof-of-stake master node consensus mechanism, without needing the proof of work, environmental damage that ca- came with it.
And so got involved with that project. The master node craze was fast and furious in 2018 and as with the rest of the crypto markets sort of went away very quickly, um, sort of the craze of it went away very quickly, but my desire to do something in blockchain and impact did not. And so that project stayed around for a few years and in 2020 in DeFi, during DeFi summer, one of the things that I started working on was I had just read Sacred Economics. And so was really inspired by the idea of that what you back a currency with actually is the most valuable thing in the world and what we currently back the US dollar with is warships and airplanes. And so that's what's the most important thing to the United States right now and how do we change that and how do we t- sort of like create something else?
So I was looking at how do you build a green stablecoin and what assets could you put behind that that were natural capital that were currently on chain? And so that's when I c- like really discovered carbon credits and went down a deep, deep rabbit hole about carbon credits because at the time what I was seeing was this was an amazing use case for blockchain. Carbon credits are an intangible. They are, and have always been a digital asset, right? Carbon credits exist today in SQL databases and only in SQL databases, that's the only way they exist. And so if people wanna access them and want to use them and have self sovereignty over them, they really should be blockchain assets.
And once you start looking at the entire value chain for carbon credits, you start to see that blockchain solves almost all of the problems that currently exist in the voluntary carbon market. And if you use blockchain technology correctly and apply it here, you can actually have a massive unlock. Um, and that's sort of when, you know, about a year after that, deep down this rabbit hole, I got a call from Laney who was like, "Do you know what to think about carbon credits and blockchain?" I was like, "Oh my God, yes, let's talk." And we started spending, first it was an hour a week together during [laughs] their deep dive, and then over time we started spending more and more time together on this.
Cody Simms: I love the thought exercise, which is very, no- not a thought exercise these days very much playing out in, in real time of what is currency, if it's not backed by essentially military force, which it has been for almost all of humanity. And, you know, even Bitcoin you could argue is the, one of the first major experiments where currency is backed by something else, which in that case is compute power and energy. And I think the, the notion of the ReFi movement where, you know, could you back currency by nature-based solutions i- is fascinating.
I mean, it just feels like the whole soul of money is to some extent up for debate right now f- in a unique way that really we're seeing play out in front of our eyes. [laughs] Well, I, I'd love to, we could wax philosophical for a long time, but I'd love to understand kind of diving into the work that you all did as you got to build a hypothesis for Flowcarbon, what is your view of, of the carbon markets today? Somewhat crypto aside, what's working? What's not? What needs to change? Ho- how do you see the markets playing out and, and where are the big holes that need to get fixed?
Dana Gibber: Fundamentally as a, um, a matter of philosophy and first principles, right? There are tremendous economic incentives for destroying and degrading our natural carbon sinks. You know, we, we don't have to talk about them, they're obvious. Agriculture, lumber, timber grazing, et cetera. We need a counterbalancing economic incentive to keep them protected and restored. If we don't have that, then we see their destruction at the astronomical rates that we do see. The famous stat is that there is one soccer field worth of rainforest destroyed every six seconds. So really powerful economic incentives to destroy and degrade nature. And you need counterbalancing economic incentives to keep them protected and restored. Very fundamental. Now reliance on philanthropy capital definitely is not the answer, not scalable, not reliable. And so the voluntary carbon market by creating this asset called a carbon credit that provides revenue back to projects that have a carbon impact is a very fundamentally, a very elegant and ethical solution to this if done properly and credibly.
We believe, and I think science and math has proven, that our natural carbon sinks provi- uh, really are the most scalable and cost-effective solution to climate change. It's one of the most immediate, scalable, cost-effective solutions to climate change that we have and a carbon credit as the means of financing the preservation of our natural carbon sinks is a, a very, very powerful thing. And so I often hear this a- a- and so, so we really believe in the carbon offset market, basically. Fundamentally for this reason, especially as it pertains to nature-based projects or nature-based solutions.
Think of large scale conservation, afforestation, reforestation, improve forest management, et cetera, um, mangrove restoration, blue carbon. We're very passionate about it. And fundamentally believe in the underlying animating principles of the voluntary carbon market. Now, of course, this relies in huge part on the credits being issued for real measurable credible carbon impact. And that is probably the number one challenge in the market right now. It's a very real challenge. It's a very important challenge, but criticism that is leveled at the offset market or the voluntary market they're, you know, relatively one and the same, that says, "Don't buy offsets."
We think is, or, or the, the voluntary market should be abandoned, we think is irresponsible and not productive at all. What like the conversation should be and needs to be and, and really is for the people that are working on this in a profound way, around how do we ensure that the carbon credits are issued for projects that really do have a carbon impact? Uh, an analogy I heard that I like a lot is you bring a kid into a China shop, your kid starts breaking all of the China and you run behind the kid, gluing it back together without removing the kid from the China shop.
Of course, first you would remove the child from the shop. You'd stop breaking and destroying everything in the store before you start gluing it back together. And that's really akin to, to what we need to do, right? We need to stop destroying our natural carbon sinks and this is really fundamentally the way of financing that. So really believe in this market, believe in the carbon markets and think that there's a lot of really productive and valuable work happening now, around ensuring credibility, ensuring that there's really good MRV, around the issuance of credits and that those are the credits that are brought to market. And again, you know, this is a, a relatively nascent market in the sense it's not entirely new, but it was a very small market for a long time. I think it was a $300 million market in 2018. I've seen reports that, that say that.
And because of that, there weren't really market forces coming to bear in the way that they are now. The market has seen rapid growth and so there's a lot of activity whe- when a market grows in size so quickly, you have just a lot of market forces coming to bear very fast that are very valuable for correction, for innovation, for accelerating transparency, and we're seeing that happening now and I think the narrative, there's still a lot of problems for sure. There's, there's a lot that needs to be addressed, but I think there's a lot of really productive work that's happening to address them and make sure that the, basically that every carbon credit actually represents one metric ton of carbon that was removed from the atmosphere or that was prevented from being emitted in the first place.
Cody Simms: Yeah. And I think it's interesting clearly listen to you how much you're leaning in on the nature-based solutions on the credit side. The carbon markets are obviously mostly born out of renewable energy projects, right? And actually getting those deployed and rolled out and we've seen, it seems like we've seen a shift in that happen in the car- voluntary markets over the last maybe three or four years to move more toward nature-based solutions, restorations, reforestation, d- preventative deforestation, et cetera. Any unpacking of that that's worth, that's worth mentioning?
Dana Gibber: Yeah, I think they're, like I said before, they are the most scalable and immediate and cost effective solution. Meaning these projects can have carbon impact that in, in volume far exceeds what we can do with tech-based solutions, even with nature-based removals. So when you start planting trees, which is a phenomenal effort, it does take a while for those trees to actually get to a size where they can effectively remove carbon from the atmosphere and keep it sequestered.
Cody Simms: So within the subset of nature-based solutions, what is not working today? Like what are, what, what's, what's broken, again, crypto aside, what's broken in the market from your perspective right now, or what needs to be improved, maybe?
Phil Fogel: So one of the things is price transparency. It's a very opaque market. So we, we are big on using analogies here and I'm, I'm starting to test this new one, which is the way that it feels like you're buying carbon credits in the market today is if you went into a ce- a supermarket to buy cereal and every box of cereal had a radically different price on it. And then you walked into another supermarket and every box of cereal had different prices than the last supermarket. And that was true at every supermarket you walked into, buying cereal would be incredibly difficult. That's what it's like to buy carbon credits today. It's really difficult. No one knows what the actual price is.
And it's not that no one knows it's that the person going to buy them in one moment in time has to do a tremendous amount of work to find out if the price that they're getting is what the market accepted price is. So bringing the transparency, a- and that's one of the reasons why we wanna bring this on chain and have sort of the ability for this to be a liquid market on chain is that it brings price discovery and price transparency, as well as quality discovery and quality transparency. So you can actually see the price difference between really high quality, nature-based projects and lower quality projects. And projects that have more permanence and more additionality versus other ones.
Dana Gibber: I'll add to that and say that the, the quality question is the biggest question in the market right now, and specifically that centers around the additionality, the permanence and the leakage associated with projects. There's a lot of great work happening on that front. There's tech innovation that's being introduced to, y- you know, u- use remote sensing and geospatial imaging and IOT to better monitor natural major based projects basically. There's the methodologies themselves that the main standards are being tightened, there's a lot of startups that are focusing on those questions. There's third party ratings, um, startups or companies that are doing really deep dives, and then putting standardized ratings on projects like silver and Bzero. So there's a lot of innovation happening to get these projects to a place where the credits being issued are credible and really do represent the carbon impact that they claim, and that's phenomenal.
That's exactly what this market needs and it's happening fast. Again, there's still work to be done. No question. I think, I think that this goes hand in hand with demand. So there's a lot that I've seen that questions like, "Is it the right time to tokenize carbon credits and expand demand for an asset that is still being sort of reviewed e- for credibility?" Meaning let's get the credibility to a, a perfect place and then unlock demand. But my response to that is as follows. So why does tokenization unlock demand? We can get into that, it's, it, there's, you know, I can, I can talk about that for three hours about how this market is accessed right now. And I think, I think we should, but sho- should I start there, Cody-
Caroline Klatt: So you have two extra hours. [laughs]
Dana Gibber: Yeah. Should I start with just how, how this market is accessed right now? Is that ...
Cody Simms: I mean, from what I under- I mean, you can go into that. What, my understanding is that demand is not the problem here. The, the problem is quality of supply and maybe that's a misunderstanding, but I guess that's the, that's the b- the big question I would have is how do you believe that tokenization helps drive quality of supply and consistency of supply. And by supply, I mean, good actual work in the real world that actually removes carbon from the atmosphere.
Dana Gibber: There's a lot of ways to answer this. I think Flowcarbon specifically is active both at the project finance level, which we can talk about a little bit and there, we can have more of a hand in actually affecting supply. Tokenization of carbon credits, what it does is it's really intended to create a spot market for carbon credits that is liquid, that has price transparency, and that is accessible. And accessible means that there are huge potential demand side participants who are not engaging right now with this market because they can't. And namely that's individuals, it's small businesses, it's mid-market corporates and it's basically all of Web3. A lot of protocols that wanna be climate responsible, wanna offset, but need a tokenized solution to do it.
For them, the tokenized-specific solution is important. For the other ones, they're just locked out of the traditional market, which is predominantly done either over the counter or on centralized exchanges, because the barriers to participate there are very high, expensive, requires a lot of, you know, legal expertise, carbon expertise to start trading these things. So by tokenizing, you unlock a lot of demand. Again, dema- there is already a lot of corporate demand, although hasn't necessarily all come online yet, a lot of corporates have made commitments. They aren't necessarily yet buying. They are slowly. Lot of demand, tokenizing unlocks even more demand. What increased demand does is puts price pressure on what is a supply-constrained market, which means that pricing goes up for credits, which fundamentally means more revenue going back to projects so that they can expand and project developers can do more projects and you get more supply coming.
So it, it just becomes a more efficient cycle of supply and demand, but the market itself becomes much bigger. And we all know that when you have a bigger market, you have a lot more of an incentive for talent to come into this market, for innovation to come into this market, for oversight, just a lot more attention on the market, which means a lot more oversight. And those markets, markets that are dynamic and that are growing are the ones that correct, and that have the resources and the talent and the tech and the innovation to address problems that in a small market that isn't growing are kind of left unaddressed. And I think that's what we're seeing right now.
So tokenizing by unlocking demand, especially when done, I, this is very important to say, tokenization needs to happen in a very thoughtful, methodical, responsible way. And we've spent a tremendous amount of time, energy and resources on our tokenization design and the, the entities and organizations and stakeholders that are doing this with us and that we're bringing into the, the process with us, but when done properly and responsibly, we think it should happen concurrently with the, the efforts to address credibility, which are absolutely essential as well.
Cody Simms: Yeah. So I, I'm, I'm hearing for the most part, the tokenization is a demand side stimulus in that it will create pricing transparency, it'll create ways for new participants to engage in the carbon markets, both in terms of directly buying credits, um, as well as finding new ways to build liquidity products on top of those credits, at least I think. And, um, I'm curious on the supply quality side, 'cause that's where I'm hearing a lot of the criticism of the space in general, how those, I heard you say that it's gonna incentivize new supply coming online because there's greater demand, which makes sense. How do you see the quality measurement, the reporting side of things, and maybe the answer is, hey, tokenization, doesn't do that, which is also fine to, to say. I think it, I think just that's b- been where a lot of the questions I've heard have come from, and I'm curious how you all are thinking about that side of things, not to say you have to solve the whole problems of the, of the marketplace, but it, it, it's interesting to hear your opinions on it.
Phil Fogel: Yeah. So tokenization in and of itself doesn't solve that problem. But the problem that does get solved by tokenization is it allows for the market to have standards in it. And you can see the price difference amongst different quality, much more transparently. And it also helps to on the demand side, as we talked about, raise the price of carbon and as the price of carbon goes up and you see the bigger difference between lower quality credits and much higher quality credits that are, and you see that there's more demand for higher quality credits, that more projects come online, right? So you will see as supply, as a supply demand imbalance increases, more supply will be created because the price is higher for higher quality credits.
So basically the, the whole thing that we're designing here is how do we let normal economic capitalist systems help to solve this problem by creating efficient markets and transparency around it that will, the solutions will just happen because of that.
Dana Gibber: I wanna add one thing which is tokenization doesn't necessarily mean tokenizing any carbon credit. So inherent in our project or inherent in any tokenization project is the ability to draw a line and say, "We're tokenizing these kinds of credits and not those." Right? And if the project is successful, then it's, uh, an important signal to the market. So with our first token, we have drawn some lines in the sand. We are only tokenizing credits from a standard that is market recognized and established. So there's a lot of new projects that are trying to become their own new standards or issuing credits in the first instance. But we are, at the moment, our first token is restricted to longtime established standards. It's also restricted to nature-based methodologies, and there's a age limit that is a rolling five-year age limit.
So they're only from projects that are nature-based and only from issuances from the last five years. And that we think strikes a good balance initially in weeding out a lot of older credits when methodologies weren't that stringent, when there were more questions, again, still questions, we totally acknowledge that this is an ongoing, evolving, evolving ecosystem, but at least it draws a firm line that says anything older than five years, anything from a project that isn't nature-based, a- certainly anything from a standard that isn't mar- market recognized is not, is not being tokenized here. Yeah, no, go ahead, Cody.
Cody Simms: Yeah, I was gonna say, and you know, there's, there were some media reports, not about Flowcarbon, but in general on the space that, you know, some of the earlier efforts to tokenize carbon actually created negative incentives and that they, they basically brought back from the dead credits that no one had been paying attention to for years and years and ascribed new value to them in a way that caused things to be issued, that one would argue don't have much carbon removing or carbon sinking value. And so it sounds like your criteria there to some extent are trying to avoid that phenomenon happening.
Dana Gibber: Exactly right. We made this determination a long time ago actually about this criteria for our first token. And I think that does really lead to avoiding anything like that, essentially.
Cody Simms: First of all, I just wanna acknowledge that you all are playing in such an explosive space. Right? You've got, on the one hand you've got, it's, it's very polarizing, right? You've got a group of people in the climate space who no matter what the solution is, are gonna say, "It's crypto, it's bad, doesn't matter." And then you've got a completely different community of people in the climate space that almost are fervorous about mass coordination problems require mass communication tools like ReFi and crypto is the answer. How does this all evolve in your perspective? I mean, ho- how do you, how do you answer the critics? How does it make you feel as founders? Like how are you navigating this just as, as humans as this is playing out in real time?
Dana Gibber: Yeah. I'll talk about the, the crypto, the, the criticism, and then Phil, maybe you could talk about ReFi. So what I'll say is this, I think that this is an incredibly important market, but really any effort that's undertaken in the climate space is very high impact, meaning it needs to be done incredibly responsibly. And I think there are a lot of voices out there from people who have a lot of expertise. These are people who care deeply, have spent a lot of time studying climate. Like we really appreciate and acknowledge and understand that there's a lot of very, very smart people in, i- in climate in general, and the voluntary market, specifically. Critics, proponents, et cetera. And we spend a tremendous amount of time speaking with as many people as we can and hearing these views. I think fundamentally we believe in the voluntary carbon market if done properly.
I, you know, I spent a while earlier talking about that and all we can do is listen to as many smart people with deep expertise who've been, you know, the, the voluntary carbon market has been around for a little while. It's gone through ups and downs. It's had, it's had issues and there's people who've been in the market for a long time and we particularly are very, very focused on bringing those voices to bear having those conversations, talking with those people, bringing them on board in various capacities, et cetera. And so the, the community of people that may look at a project like this and look at a crypto project that is trying to do good in climate, where it's coming for a pla- from a place of deep experience and expertise, we absolutely wanna have those conversations and do have those conversations and encourage anyone to reach out.
There's a very specific criticism level that crypto, that just says emissions, it's a very emissions-heavy industry. And that it's, you know, it's largely focusing on the proof of work, blockchains, Bitcoin and Ethereum. And, you know, we can, tha- that's, that's a conversation that is sort of easy to address, which is to say, we build our solutions on proof of stake blockchains. We support those layer one blockchains that are innovating and that are proof of stake and that's how you address that argument. But more, more holistically, I would say we really value those voices and understand that we're in a polarizing space and, and appreciate that.
Phil Fogel: Yeah. And, and the crypto space has been like this for a decade now where there's just a lot of people who are leveling a lot of criticisms against it. And the best way to combat that is to be heads down and build and show people how it can be beneficial and where the real value can come from. And in the ReFi space, I think there's an even bigger effort to do that because you can show real world impact fairly quickly. And if you continue to do that, you're gonna be able to bring more and more people in. We're building this with a very big tent approach. Like as Dana said, we wanna bring everyone who's been in this market for 20 years around the table to help build this and to take their experience and their insight, and to design a system that will work to really solve problems, right?
At the end of the day, what we're actually trying to do is democratizing access to the carbon markets. And democratizing how the carbon markets are built and scaled. And if you think about it, if Vera you were to be created today as a new entity, right? Instead of 20 years ago, it would most likely be in the form of a Dow because it is a coordination problem of how do you pick methodologies and standards and get buy-in for them and do it in a public way with a community that is looking at how do they make the best decisions and make those in public. And so that's sort of what the opportunity set is to recreate is this open source way of building the carbon markets on chain.
Cody Simms: And one thing I'll, I'll acknowledge for, for anybody, no matter how you feel about crypto, ReFi, anything to do with climate, one thing that I, I think is impressive about companies building in this space is the transparency. And one thing I would encourage anyone to do, who's listening to this is if you have questions about Flowcarbon, you have questions about other projects in the space, any company building in this space has all their docs publicly available on their website. Most of them have Discords that you can join where you can engage in the community and you can learn. I mean, I'm, uh, you know, just a shout out to, to all of you on how much is in your docs that's just right there on your website in terms of both your vision for what you're building, as well as the technical approach for how you're planning to build it technical and financial approach.
Phil Fogel: Yeah. And, and our DMS are open. PE people should feel free to reach out to us directly on Twitter, on Discord and have a conversation. Like we, we want the comm- we wanna build trust in the community.
Caroline Klatt: I think you're right. Framing of the question was sort of what's broken and how are we fixing something? And I would say it's more about expanding, expanding solutions here. And so being collaborative, working with, with every stakeholder, from community members in our own Discord to players who have been in this space for, for a long time, our approach has always been one of collaboration and working together with others so that we can collectively find solutions to a problem that's, that's much bigger than just us or Flowcarbon.
Dana Gibber: Yeah, this isn't, this also isn't just lip service. We, we've emerged publicly a bit more in the last week, but we've actually been operating for and working on this company for over a year and a half and ...
Caroline Klatt: Or over a year, years almost.
Dana Gibber: Yeah. And we are a very, very active of IETA's task group on integrity and digital climate assets. We are joining a number of the task groups that the standards have recently put out for e- looking at tokenization. We are very, I mentioned, I spoke at IETA's conference this week. Together with a coalition, um, we responded to the White House's request for information on the executive order that was looking at crypto. We've been very, very active and collaborative for a very long time in thinking about these issues deeply with a lot of the really key stakeholders in the voluntary markets, specifically quite well known in those circles and have a lot of relationships and our, our, work on them very hard.
And that has informed our tokenization architecture also. There's a lot of different approaches that a project can take towards tokenization. These are very important decisions. We don't have to get into the nuances here. It might be two in the weeds, but we've designed our entire tokenization architecture together with those partners and stakeholders. Um, and so, yeah, we, we, don't just say we like to collaborate, it's been an absolutely foundational ethos for us since, since day one.
Cody Simms: I do plan to dive in at least a little bit into the architecture with you all 'cause I know we have some folks here are gonna want to, he- hear, hear are some of those details that are listening. But before we do, we'd love to hear your thoughts and maybe your description and then your thoughts on what Vera announced this week in terms of Vera being the largest voluntary carbon market that's out there, you know, sort of announced a much anticipated direction in their part on how they're approaching tokenization of carbon credits and would love to hear your reaction to that.
Dana Gibber: For anyone who doesn't know what Cody's talking about, Vera put out an announcement this past week that basically said two things. One is that you can't tokenize retired Vera credits, meaning what a carbon credit fundamentally is, each carbon credit represents one metric ton of carbon that was reduced or removed from the atmosphere and the right, it confers the right to claim an offset when the credit is retired. And that, that is, you know, fundamentally what it represents, each Vera-issued credit, which is called a VCU.
And so they announced in the, in this release that you cannot have credits retired at the Vera registry and then create a tokenized representation of the retired credit. So that was one big part of the announcement. The second part of the announcement was that if you do wanna tokenize a Vera credit, you should partner with Vera. And I think the announcement makes a lot of sense. The tokenization, our, our approach, our longstanding approach has been to, to tokenize unretired credits our, our GNT token, which is our first token, is a tokenized representation of unretired credits, which means that the token holder at any time can retire the, the token itself, which means permanently alter it to a retired state, which triggers a response to our team to retire an underlying credit at the registry where it's housed. These carbon credits are digital, intangible assets that are, they live in the registry of the standard that created them.
Cody Simms: Maybe let's use that to gui- dive into from sort of a high level description on your end of what is Flowcarbon. Now that we're 40 minutes into the interview. Um, [laughs] what is, what is Flowcarbon? How does it work? What is the Goddess Nature Token? What is GCO2? How is everything governed? That's like six questions in one, but maybe just give us the overview of your system and how it functions from a product perspective.
Dana Gibber: Yeah. I'll try to keep this concise. And so essentially our tokenization, we do a number of things, but I'll talk about our tokenization. So what we do is we have partners on the, what we call the supply side, which is, uh, namely project developers who have been issued credits, carbon credits and want a immediate, effective, transparent way to sell them. Right now, they often will transact with intermediaries who will either buy the credits for them at some price, and then flip them for a profit or will sell them on their behalf and take a cut. These, this is often extractive. Again, the market is full of well-intentioned people. A lot of them are our partners. Sometimes this is extractive. We've seen rates up to 30% extraction, not going back to the project, but instead taken by the intermediary or layers of intermediaries.
So instead, the alternative we provide is as follows, those projects who have credits deposit them into our registry account. So they're all custodied. Then a one-to-one representation of every single carbon credit is minted in tokenized form. Those are the GCO2s. One-to-one representation of an individual carbon credit. Those are then deposited into a smart contract that represents a-
Cody Simms: Let me, lemme back you up real, real quick. Just to make sure I understood the custody portion. So the credits themselves are when they're moved on chain by a buyer, by someone on the demand side, you are essentially holding the physical credit in custody yourself that is then reflected in this, this token that you're issuing, this GCO2 token?
Phil Fogel: Yeah. Except it's not moved onto train by the demand side. So it's someone who has existing credits goes and deposits them at our registry account and then out the other side pops a one-for-one representation GCO2 token of the credit that they just deposited. So the, the analogy here is that we are like the circle of carbon credit circle, which is the issue of USDC. You give them a dollar, they give you one USDC.
Cody Simms: So the new token holder, to some extent, trusts you, that you're doing the right thing with those credits that you're holding?
Phil Fogel: C- correct. And, and, and we don't expect them to just trust us. There is, there are audits that are done there every single token that's created has a checksum of the serial number of the credit added into it and so there's no trust expectation.
Dana Gibber: Then we have in a big US accounting firm that's doing regular audits of the account. Like the account is owned by an SPV that is professionally managed, et cetera. We've put everything we possibly could in place to create trust in that account.
Cody Simms: And if it isn't demand side, it's not the corporate buyers who are doing this bridging activity, who's doing this? Like, if you can, if you can disclose who are the people who are actually moving credits today in your system from a real world, Vera or wherever registered credit onto the b- onto the blockchain?
Phil Fogel: It's gotta be someone who has those credits today. So either a project proponent who actually is the one who created the credits in the first place or a broker or someone else who has bought those credits and is holding them and now wants to tokenize them. So we have partners across the spectrum that are gonna bring credits on chain, but to date, we are bringing the first batch of credits. We've been going out into the market, buying credits on behalf of people and that's sort of, part of the fundraise that got announced was we've been doing this at scale for, we did about 38 million, almost $40 million worth of sales in terms of just selling carbon credits that will be delivered in tokenized form for people. So we can help get that done.
Cody Simms: Then there's a buyer on the crypto side, who, which is where the demand side comes into play, and they're not buying these individual tons. They're buying, my understanding is a wrapped bundling of these tons, which is I think what the Goddess Nature token represents?
Dana Gibber: Exactly right.
Cody Simms: Explain more about all that.
Dana Gibber: Those GCO2s are the one-to-one representations of carbon credits are permissioned. Those belong to the entity that owned the carbon credits in the first place, right? And they deposit them into a smart contract, that represents the bundle, right? And the bundle, it just means we're aggregating carbon credits that have similar criteria that we've established. And so those are the criteria for, for the GNT token. Those are the criteria that I described earlier. So if, which means nature-based methodology, as- established standard, five years or younger. If you own a carbon credit that meets those criteria, you can tokenize them with us and then deposit them into the GNT smart contract and get back out a GNT token.
And there's a one-to-one ratio from all of this. So the exact number of carbon credits that are deposited into the SPV account becomes the exact number of GCO2 tokens, right? They're one-to-one representation. The exact number of GCO2 tokens that are deposited into the GNT bundle smart contract are the exact number of GNT tokens that are, you know, fundable ERC-20 tokens that are minted. And so every GNT token ultimately represents one, it goes back to one carbon credit. And when you retire the GNT token, you are effectively retiring both the GNT token and one credit at the registry is being retired on, on your behalf.
Cody Simms: And I wanna make sure I can fully understand and can unpack incentives here. So I'm hearing two different actors. There are those who are buying the original bridging over, um, or I don't know if they're buying or what, what their transaction looks like to bridge something over. And then there's the buyer side that is actually buying bundles of tokens in bundles of, of nature to- Goddess Nature Token, and trying to understand their incentive for doing it in, in the crypto world versus where they would've just been buying them as vera buyers. And I think what I understand is these people weren't approved Vera buyers in the first place, so you're opening up the aperture of demand.
Dana Gibber: Yeah, there's more to say on that though. The way to access carbon credits right now is so difficult and expensive and opaque that there's a lot of people that, people and entities that are just simply not doing it. Even for us, we have deep expertise and are in this market very a- proactively. It is the absolute worst experience possible to try to buy carbon credits. First of all, you do, in order to custody them, you do have to have a registry account, and those are very limited. You also, if you wanna trade them on the exchanges, like buy on the exchanges, which is where there's some liquidity now, you have to have an exchange account. These are bought and sold in very fractured batches that go back to the individual project levels. So you need expertise on what each project is and whether you wanna buy it.
And there's no price discovery. Like you are either pinging a bunch of brokers or looking at a bunch of individual bid asks on an exchange, and you have to know what these things are, know what the pricing is for them. Then when you actually wanna buy, you have to, there's no standardized contracting in this industry right now. And so you're signing individual purchase agreements with every different broker or different counterparty. And often you're, by the way, reconciling different legal jurisdictions. And this often takes four to six weeks and you have no idea if you're paying a good price. We can talk all day about what we've seen in the market. We've been pitched the same batch of credits, you know, by different, uh, different counterparties at totally different prices on the same day. We, we've seen a lot that goes on in this market as would be expected in a super, super opaque market.
Phil Fogel: Even settling a trade can take months. We, we just c- bought some carbon credits the other day that we got, we bought like three months ago and we just got them delivered the other day.
Dana Gibber: Yeah, yeah, exactly. And we, and again, we can only get them delivered 'cause we have an account.
Cody Simms: My dumb brain is like, you know, people criticize blockchain 'cause they're like, "Well you can do all that with Visa." But what I'm hearing Bi- Bitcoin, 'cause they say, "You can do all that with Visa." What I'm hearing here is, no really these transactions actually take months to process otherwise. This isn't an instantaneous digital transaction that just has another non-Web3 format.
Phil Fogel: Right. And that's because they're stored, l- like when you think about what happens on Visa, Visa has created a massive network that allows for consumers to access the network and move value across it. The registries, which is where these carbon credits are stored today are running very simple SQL databases to store them and do not have, tha- that cannot scale up to the ability of letting anyone in the universe who wants to touch the asset, touch it…