What role will blockchain water tokens (RWA water altcoins) play in the emerging $30 trillion RWA market by 2034?
Original Published on Sep 16, 2024
A big, if not major role, provided tokenizers can build “intrinsic value.” Forestry, nature based and afforestation projects cannot be taken on-chain due to the risks of reversal and leakage of the base RWAs.
What’s brewing at UWR?
Trade finance to play substantial role in USD 30.1 trillion tokenized real-world assets (RWAs) market by 2034 said a new paper published in June 2024, by Standard Chartered and Synpulse, which also predicted trade finance assets could become one of the top three tokenized assets globally, at 16% of the total.
Just because the technology to tokenize carbon and water credits exists, doesn’t mean it should be deployed frivolously. To gauge whether carbon and water credits in the voluntary markets should be tokenized, the basic two questions need immediate answers:
- How does the tokenization address or solve the climate change and impact mitigation finance market? and;
- Will/Do these carbon and water tokens have any “intrinsic value?”
The answer to question 1 is simple: Digital representations of carbon and water credits in the form of a token, or distributed ledger, enable operational efficiency and automation, with the most critical benefits being their ability to deliver enhanced access to new asset classes and improved financial market infrastructure — opening doors to innovative applications in decentralized finance (DeFi) and new business models.
Then there is also the potential of the rise of carbon and water stablecoins, given the “breadth” and “global minting” ability especially by the rural poor (truly democratized, unlike specific mining lobbies currently minting RWAs in a centralized manner with large energy footprints) of the base RWAs being mined at low costs by any green project owner or developer globally, especially at RWA repositories such as UCR and UWR.
RWA repositories for carbon & water
Since the RWA altcoins cannot be backed with RWAs such as carbon and water offsets that have the potential to be reversed or leaked and destroyed, hence only verified carbon credits and water credits from projects that are permanent, real, beyond regulation (financial additionality has no role since these tokens are not designed to be retired or burnt against a corporate offset footprint, the whole idea of “value” proposition means that the RWA altcoin must be held or re-traded for profit multiple times) and whose underlying tonnes or liters are generated conservatively, unique, traceable and issued ex-post (so forestry, afforestation, CCS, nature based project types and all ex-ante credits are ineligible for such RWA backed altcoins) would be the basic requirements for such plays since intrinsic value within the altcoin (pegged or referenced to real world market prices) cannot be built over RWAs that can vanish overnight.
The answer to question 2 is complicated: Currently the voluntary carbon and water markets are designed to be a “buy once to retire” option, with zero hopes of re-trade profit or return on carbon or water credit purchases. The end use or utility case has always been to negate a corporate or individual environmental footprint or to showcase support for climate projects via retirement of the credits.
We’ve already seen that speculative RWA tokenization don’t always guarantee (and often fails to deliver) liquidity. Take the real estate market, for example. There is no point owning 0.001% of a property in a system that lacks any meaningful dividend structure.
Making previously inaccessible assets accessible to the majority is a clear potential benefit of tokenization. But the initial spike in demand won’t be sustained if there is no value or profit on investment purchase, especially in the retail climate impact and finance space. Retail (especially RWA altcoins looking to attract private retail/impact funds/SDG or ESG funds & HNIs) supply and demand principles cannot be ignored.
