Innovative crypto carbon loan platform raises $2 billion to tap ‘energy internet’

  • No partnership has even raised nearly $2 billion for a series of market-making products that feature both asset classes
  • Premium carbon credits feature aspects of structured products and related commodities and derivatives

Carbon offset credits, meet cryptocurrencies.

The digital asset-focused exchange, carbon credit liquidity provider 1GCX, and T3 Trading, a proprietary trading company investing in the space, struck a deal that raised $2 billion and set up a $100 million liquidity pool to facilitate carbon credit transactions.

This move, made possible by the unprecedented fundraising of prestigious carbon credits, was prompted by growing interest of institutional investors in securities, said corporate executives exclusively to Blockworks. These securities – say proponents – facilitate the ability of institutional investors, including pension plans and endowments, to put their money in place in terms of deriving measurable alpha from ESG investment products.

However, as an asset class, hashed carbon balances carry a lot of risk: financial instruments are quite volatile, and the judgement, according to critics, remains to be seen how well they do in terms of stemming the rampant spread of Global Warming. Not to mention the glaring lack of liquidity, considering that countervailing trades are more like illiquid structured products than anything else in digital assets, even though they come with steeper ups and downs in price terms.

Enter 1GCX, which provides the infrastructure for an ambitious new trading platform.

T3 is moving millions of dollars in capital between a number of major cryptocurrency exchanges, as well as putting the money to work in the commodity markets. Both companies also specialize in equity derivatives and have rolled out a number of related synthetic trading pairs that compare commodities to cryptocurrencies. The exact terms of the deal were not disclosed.

The idea is to create a series of liquidity pools and associated over-the-counter (OTC) market making activities that reduce margins for such transactions in an effort to lure institutions into the markets, including entities from traditional finance who are accustomed to carbon assets but still learn when it comes to digital assets.

RA Wilson, Chief Technology Officer, 1GCX

RA Wilson, chief technology officer at 1GCX, told Blockworks that the company has been doing due diligence on the feasibility — and cost of quantitative implementation — in the initiative for several years. This was particularly motivated by the discovery that there are virtually no other market makers that cater to both individual and accredited investors in terms of pairing digital assets with real-world commodities, as well as derivatives.

So far, according to Wilson, the liquidity is mostly made up of bloated tranches banks that grab large amounts of carbon securities at discounted rates, and then act as an unofficial tick maker for the corresponding trading firms. Banks will probably get a good spread for doing this, considering that such trades are essentially OTC in nature.

coding issue

Wilson, who has personally invested in cryptocurrency since 2011, said he noticed about five years ago that while carbon credits — promoted by governments, including the United States, and which include tax incentives, in specific cases — are gaining traction, Companies see products as more of a good effort, not the “currency” that tools are designed to become.

“Business development starts with building the right market, making sure there is liquidity, high-quality compensation and nature-based solutions,” Wilson said. “Transferring financial assets from land-based projects can really benefit us globally.”

1GCX is also in the relatively early stages of developing its own blockchain, which features a token linking “Proof of Authority” to “Algorithmic Proof of Authority.”

Proof of Authority is a method of signing off transactions that features elements of Proof of Stake consensus mechanisms but relies on auditors Guess their identity or reputation. It is usually served in private and centralized blockchains, rather than on unauthorized public systems.

The ultimate goal: to build a digital asset-based market driven by the thriving “green grid mixed with energy internet”.

The first-of-its-kind setup would, ideally, increase the transparency of price discovery and real-world utility — in terms of combating climate change — a common thorn in the way of institutional investors who have so far had to rely on Wall Street and the Chicago Commodity Center to deal in carbon credits. Illiquid denominated via obscure pricing for market makers.

Traders using 1GCX already have access to a range of digital assets, such as Bitcoin, Ether, AVAX, and SOL.

There is already a “huge demand” from institutions hungry for carbon offset credits, and it’s a demand that’s growing every year, according to Wilson. He said the launch of the trading platform should boost liquidity, transparency and fair pricing – while clamping down on fraud – by adding cryptocurrencies to the mix.

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  • Michael Bodley

    managing editor

    Michael Bodley is a managing editor at Blockworks in New York, where he focuses on the intersection of Wall Street and digital assets. Previously he worked on the institutional investor hedge fund newsletter. His work has been published in The Boston Globe, NBC News, The San Francisco Chronicle, and The Washington Post. Contact Michael via email at [email protected]

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