How DeFi on Near is assisting in the fight against climate change

 

Prior to the Proof-of-Stake platforms, blockchain technology, and climate action all appeared to be bound for worlds apart. NEAR, the world's first carbon-neutral PoS ecosystem, has become a hotspot for how different worlds might collide and, in the process, help tackle climate change.

DeFi is currently reshaping money for millions of people. Its inventive new solutions have disrupted the borrowing and lending industries, providing much-needed momentum to one of Web3's — and NEAR's — core pillars: giving people power over their money.

While NEAR's DeFi sector has recently thrived thanks to a lightning-fast and secure blockchain, we're continually thinking about what industries DeFi could transform and affect next. Even at this early level, we can see the potential for DeFi to play a role in financing climate-change-related initiatives.

Climate Change Initiatives as a Resource

DeFi climate investment, according to Yessin Schiegg, Chief Financial Officer of NEAR Foundation, would likely borrow some of the industry's existing tools and adapt them to carbon credits and other climate-related assets.

“Smart contracts could automatically retire carbon credits when C02 exhaust is produced, and DeFi mechanisms could plug in directly,” explains Schiegg. "Investors can hedge carbon offset obligations, speculate on price movements, and earn yield on carbon offset measures that are pre-financed."

When carbon credits are retired — that is, when assets representing carbon emissions are removed from the market and can no longer be exchanged – blockchain can give flexibility.

The method of retiring carbon credits is now primarily manual and centrally managed, which means it is done in bulk. When matching exhausts to the credits supposed to represent them, it also requires confidence and isn't completely correct.

“Smart contracts could automatically retire carbon credits at the same time they are created, and DeFi mechanisms could plug in directly,” Schiegg argues. "Money is created, in a sense, by the burning of energy" (melting rocks to get the gold out or mining bitcoin). It would be fantastic to see more innovation in the area of money creation, such as through CO2 offsets or other forms of social action such as tree planting or battling hunger and disease.”

Kendall Cole, Head of Product at NEAR Foundation, predicts that tokenized carbon credits will be utilised as collateral for loans, derivatives, and other products throughout the DeFi space.

"The increased liquidity and utility of these products should contribute significantly to market efficiency," he says. "It will also introduce them to a new pool of investors."

In older, more established sectors, other DeFi climate investments could be utilised. Raiz is employing NFTs to support its vertical farms as an alternative to traditional agriculture, which is a major contributor to global greenhouse gas emissions. Raiz is an NEAR and Mintbase project that creates optimal growing settings for crops for local communities and restaurants by establishing small, vertical farms in under-used urban locations.

Not all DeFi climate efforts will aim to generate financial assets. Hillridge, a software business tackling low rates of insurance for extreme climate events, was awarded a US$200,000 grant by the NEAR Foundation on November 1st to develop a blockchain-based parametric insurance platform for tropical storms. The platform will be tested during typhoons in Vietnam, one of many tropical countries where millions of people are covered by disaster insurance.