Technical overview

Tracer has developed an innovative solution to address the paradox of achieving both liquidity and traceability in the carbon removal token market. Traditionally, carbon credits have been either liquid but untraceable (generic fungible tokens) or traceable but illiquid (project-specific over-the-counter transactions). Tracer's approach overcomes this challenge by leveraging a single smart contract to create project-specific, graded, and fungible tokens that keep their traceability at all times.

Core principles

Tracer's technical solution is built upon four core principles that enable it to create a transparent, scalable, and efficient carbon removal market:

Premium for persistence and addressing the ephemeral nature of projects

Tracer introduces the concept of "grade" as an indicator of the persistence of carbon sequestration. This allows for an objective comparison of different CDR projects based on the longevity of their carbon storage. By assigning a higher value to more persistent removal methods, such as enhanced weathering (which can store CO2 for 100,000+ years), Tracer creates a market that rewards long-term, effective solutions. Additionally, the grading system addresses the ephemeral nature of each project by tying the value of the tokens to the duration of carbon storage. As tokens are minted and then retired over time, the market can accurately reflect the value of the carbon removal based on its persistence.

Scalable

To achieve the goal of removing the 2.2 trillion tons of excess CO2 in the atmosphere, Tracer's system is designed to be highly scalable. By delegating project curation and management to endorsed entities, Tracer minimizes overhead and enables the inclusion of a wide range of removal solutions, from established methods to novel approaches. This scalability is essential to reach the tens of thousands of projects needed to make a significant impact on atmospheric CO2 levels.

Trust through traceability and governance

Trust is a crucial factor influencing the price and adoption of carbon removal credits. Tracer ensures trust through two key mechanisms. First, every token ID contains information about the specific project and endorser, providing complete traceability of the carbon removal process. Second, strong governance and enforcement capabilities, enabled by the Tracer DAO, ensure the integrity of the system and allow for the swift action against any misrepresentation of performance.

Liquidity through standardization and DeFi compatibility

Tracer recognizes that liquidity is essential for price discovery, market stability, and growth. To achieve this, Tracer employs a single ERC1155 smart contract for all projects, creating a standardized and efficient framework for issuing and trading carbon removal tokens. This standardization, combined with the tokens' compatibility with decentralized finance (DeFi) platforms, enables the creation of advanced financial instruments that can further boost market growth and liquidity. For example, the Carrot tokens allows for the development of sophisticated products such as carbon removal credit futures, which enable sellers to secure funding for their projects by selling credits before they are delivered. The creation of "Baskets of Carrot Tokens" – collections of tokens grouped by persistence grade or project type – enables investors to easily access and trade diversified portfolios of carbon removal credits, increasing liquidity and market efficiency.

Solving the liquidity-traceability paradox

Tracer's unique value proposition lies in its approach to creating project-specific, graded, and fungible tokens through a single smart contract that effectively solves the liquidity-traceability paradox. Here's how it works:

• Project-specific tokens: Each carbon removal project is represented by a unique token ID within the ERC1155 smart contract. This ensures that every token is linked to a specific project, maintaining full traceability of the carbon removal process.

• Graded tokens: Tokens are assigned a grade based on the persistence of the carbon sequestration method used by the associated project. This grading system allows for the objective comparison of different projects and enables buyers to make informed decisions based on their preferences for long-term impact.

• Fungible tokens: While each token is linked to a specific project, tokens with the same grade are fungible within their persistence category. This means that buyers can easily trade and exchange tokens within the same grade, without losing the traceability of the underlying projects. This fungibility is crucial for creating a liquid market that supports price discovery and efficient trading.

By combining project-specific, graded, and fungible tokens within a single smart contract, Tracer's technical solution achieves both liquidity and traceability, overcoming the limitations of previous approaches to carbon credit markets.