After raising US$2.5 million in seed funding in 2022, ReFi OG Solid World announced recently that it is shuttering operations.
It's with a heavy heart that we've decided to close Solid World. Despite our best efforts, we have found the voluntary carbon markets to be deeply broken in ways that, even in the best case, will take years to fix. We have huge respect for the organizations that are leading great projects with real impact. They deserve better. We continue to see the potential of market-based climate solutions, but the reality is that leading carbon registries and greenwashing-prone organizations keep pulling the market toward the cheapest, most questionable credits available. We have sadly come to believe that without governments imposing real requirements and consequences, climate impact will remain completely optional in the VCM.
While the project's explanation is absolutely valid, two existential questions for ReFi come to mind:
1) Are ecological credits compatible with decentralised finance (DeFi) concepts?
Solid World's model was reasonably simple conceptually but rather complex in practice. The idea was that project developers could sell forward ecological credits (certified by Solid World's on review board) to distributors as a way to raise the capital needed to implement their projects.
Where things got complex was that it was all done via DeFi liquidity pools. The forward credits were tokenised and the suppliers could sell them to a liquidity pool for working capital. Distributors could then buy them from the pool in exchange for USD stablecoins. A third party, liquidity providers, created the forward credit/USD stablecoin market and earned a share of the transaction fees generated.
This model made a lot of sense in 2022 when interest in blockchain fixing carbon markets was at an all-time high. Now? Not so much. Web3 UX is notoriously complex, so expecting non-Web3 natives (suppliers and distributors) to interact via a DeFi protocol is a tough ask.
Where does that leave the relationship between ecological credits and DeFi? Not in a good place. Finding buyers for tokenised credits is hard enough as it is. Let's not complicate matters with liquidity pools and the like.
2) Is it reasonable to expect a single project, despite being venture funded, to secure its own credit buyers?
Putting aside the debate around the usefulness of ecological credits for a second, the reality is that all of the ReFi projects working in this area aren't generating enough credits on their own to make much of a splash. This makes selling the credits difficult because it means finding smaller buyers (retail, SMEs). This isn't a recipe for scale.
If the ReFi space is really serious about large-scale ecological credit sales, would it not make sense to operate a trade organisation that can sell on behalf of the projects producing the credits? Yes, it's another intermediary, but it would allow projects to focus on what they do best: the climate impact that generates the credits. The trade organisation could then pool the credits and sell them in large batches to larger enterprises.
Otherwise, projects will get caught in a vortex of generating far more credits than they can sell, and eventually going down the same road as Solid World.
This isn't the end of the story for the founders of Solid World, however. They have moved on to a new project, Soldera, "a renewable energy venture where we are using AI to lower producers’ admin costs by 95% and increase environmental-benefits revenue by up to 3x
AI and ReFi
Some quick thoughts:
AI agents seem to have the most promise, but we need to move past the idea that they are simply chat bots designed to answer user questions
The key is thinking laterally. How can AI agents integrate different systems to simplify the UX of funding ecological and social impact?
All projects that lack proper documentation need to leverage generative AI to fill the gap. There's really no excuse for not having a basic explainer and onboarding guide.
AI isn't going to solve the user acquisition problem; it's not going to find buyers for your credits or investors for your investment instruments. Not that this should come as a surprise, but we need to keep our expectations realistic. For now, at least.
Trinity hosted a space specifically to discuss the intersection of AI and ReFi with Jimi Cohen, et al. Read the summary and listen to the full conversation 👇
https://carboncopy.news/refi-weekly/is-refai-the-future-jimi-cohen/
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