This conversation was sparked by our intial deep dive on KlimaDAO as a solution to climate change, which has its own podcast episode and related show notes.
The aspiration is laudable. But we want to achieve this aspiration of reducing carbon emissions and sequestering carbon in the most effective and efficient way possible. Klima does not achieve this.
If you are creating a special purpose vehicle for buying carbon offsets, there are really significant exchange fees. You are essentially converting dollars into crypto, and then converting crypto back into dollars to buy carbon offsets, and then hold them on your blockchain based on Ethereum which has quite high transaction fees. While it's not completely clear what the transaction costs are, one would have to guess that for every dollar going in, you're not able to buy even close to $1 of carbon offsets certificates. So at the basic level of what it's trying to do, it seems highly inefficient.
As an individual you can go to the market and invest in things that KlimaDAO would invest in directly without going through a hypervolatile speculative asset and DAO indirection layer.
A reserve currency is something a large group of people on an international scale adopt, because goods and services of their major trading partners are denominated in that currency. The whitepaper keeps referring to Klima token as a reserve currency, but in reality it cannot function as a currency.
Firstly, the insane price volatility means Klima can't function as a currency. The price of Klima peaked at around $3600, well above the intrinsic value of one ton of carbon. It has since collapsed, losing around 99% of its value over 1 year - it's now trading at around $20.
The notion that it can be a reserve currency, when nobody's denominated any kind of goods or services, seems to be an irreconcilable contradiction inherent in Klima.
Like many other crypto projects it seems to be a piece of financial engineering that at the bottom sits nothing but some appeal to narrative and the faith that “number go up” by creating artificial scarcity of a digital speculative asset; so it is not a currency.
Something that makes Klima exciting is this price volatility and the potential to raise a lot of money based on this price volatility. But ehy not just raise the money at the beginning and then shut down the thing and just buy carbon offsets and hold on to them?
Governance tokens are available to be purchased by any actor. What's to stop say Exxon from buying up all the governance tokens? The answer: nothing. Exxon would therefore be able to take over the management structure of KlimaDAO.
The total market cap is currently $35,624,946.00 of an illiquid crypto token. This is insignificantly tiny even if we believe this market cap number. There are some €53 trillion AUM in ESG funds.
One might argue that Klima is still new and it is at the beginning of it's journey. However, there is no clear narrative of how it's going to grow from being funded by the crypto bubble and being smaller than most philanthropic efforts surrounding climate change, to get to the scale that they aspire to. Rather than investing so much time, energy and money into this route, this money could have been put into simply buying carbon offsets directly.
Climate credits are effectively a form of indulgence where you pay for the right to pollute the environment by paying off the damage via some future project or activity. You're not seeking to solve the problem, but rather to mitigate it. It doesn't seek to fix the root of the problem: that we're burning fossil fuels. Buying tokens that represent tree planting in the future will not solve climate change.
People will and can exploit these mechanisms to maximize their capacity to pollute. Secondary markets for carbon credits are driven by bizarre corruption. Tesla has made a lot of money on secondary markets trading carbon credits.
Mark Carney proposed to COP26 to allocate $130 trillion to help address solutions to climate change. The money to fight climate change absolutely exists, but sufficient funds is not the issue. The problem is doing supranational coordination of solutions and allocating resources to those projects.
Unfettered capitalism is a process of commoditizing everything, privatizing the commons and destroying that which has no value and converting everything into private profit. Crypto assets are an extension of that program to an even more extreme level.
Our system will continue exploiting fossil fuels so long as the private costs to capitalists are much lower than the societal cost. Vague appeals to new mechanism designs and appeals to absolute free markets about “aligning incentives” can’t conceive of solutions outside their own capitalist logics.
Technosolutionism via the financialization of everything is a common theme within web3 rhetoric: let’s turn the abstract idea of fighting climate change into a fictitious commodity to be traded on the market.
This is a distraction from actual solutions, of which there is no financial silver bullet. It is just adding an additional layer of complexity to fighting climate change. Such a project absorbs time, money, and runs on proof of work which requires a large amount of energy. All these resources could be better allocated.
Looks like the algo stable coin part isn't going so well.
KlimaDAO are asking an important question: how can we tackle climate change using human cooperation? But the white papers aren't addressing how this question is to be addressed.
The aspirations are beautiful. The initial manifesto resonates a lot with what doesn't work about unfettered capitalism, about an unfettered market system, about the lack of provision for public goods, and yet KlimaDAO seems to go further down that same route.
As a currency it seems problematic. As an investment it doesn’t seem to work. As a special purpose vehicle for buying carbon credits it seems highly inefficient (e.g. massive trading fees). Carbon credits are themselves problematic and are not going to be the answer to climate change.
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