Introduction
KlimaDAO proposes to integrate opt-in offsetting of on-chain carbon to allow Aavegotchi users to make their protocol utilization carbon neutral.
Motivation
Using Kyle McDonald’s emissions estimates, the Ethereum network has a carbon footprint of roughly ~18.1M tonnes. Now that the merge has taken place, Ethereum’s footprint looking forward is minimal. However, it’s important for the community as a whole to effectively quantify and take action for historical emissions. Doing so is a win for Ethereum, but also helps push investment and ideation into the growing ReFi (regenerative finance) ecosystem.
Recently, Sushi and KlimaDAO announced the launch of an automated carbon offsetting integration via a ‘Green Fee’, leveraging a technology stack that combines Polygon, Chainlink, Sushi, and KlimaDAO components.
For the first time, users of a core piece of decentralized financial infrastructure – in this case Sushi, a Decentralized Exchange (DEX) – became able to offset the impact of their activity, without having to leave the platform or even interrupt their user experience. Users gained access to opt-in via a switch to compensate for the carbon emissions of their transactions for a nominal fee.
This integration demonstrates how Web3 primitives can unlock climate finance. When embedded directly into blockchain applications, we can
- put impact in the hands of the user, who can simply ‘opt in’;
- enable carbon offsetting to happen at the point the carbon emissions occur, with minimal lag time; and
- make offsetting automatic, programming it into regular actions and helping to increase the volume and scale of carbon offsetting through the Voluntary Carbon Market.
The good news is that taking action on historic emissions is possible in a web3-native way, thanks to KlimaDAO’s development of DeFi rails for climate finance. The KlimaDAO team has developed expertise and unique technology to make the process of removing historical emissions achievable for dApps such as Aavegotchi.
Methodology
When a Aavegotchi user opts in to use the Green Fee and executes a transaction, Chainlink Automation nodes bundle users’ opt-in transactions to be offset at 24-hour intervals, routing them through the Klima Infinity retirement aggregator. This tool executes carbon offsets automatically, using tokenized carbon credits contained within KlimaDAO’s Sushi liquidity pools. The offset transactions are logged directly on the Polygon blockchain.
The transactions are executed without requiring permissions or activity to execute the offset, making this a fully automated climate solution.
With automation comes scalability: the amount of carbon that is offset scales directly with increased adoption of the Sushi DEX and of opt-ins to the Green Fee. Friction does not increase as volumes scale, and no technical or operational debt is incurred.
Importantly, the components of the tech stack are interchangeable. Sushi operates across 14 different blockchains, so it can roll out the Green Fee across chains and use cross-chain offsetting to draw on KlimaDAO’s Polygon-based carbon liquidity pools. Chainlink Automation likewise supports multiple blockchains. The Green Fee could therefore be integrated across other DEXes and aggregators (such as Uniswap, Quickswap, and 1inch), other decentralized financial infrastructure (trading platforms, lending platforms), and even on Web2 platforms (when sending payments via PayPal, or your airline’s ticketing portal).
Cost
When the Merge took place in September 2022, the foundational layer of this tech stack made an evolutionary leap forward in fulfilling the reduction step of the mitigations hierarchy, with the Ethereum network’s carbon footprint dropping by over 99.9%.
Even prior to the Merge, the Polygon network – sitting on top of Ethereum and operating with Proof of Stake consensus since it was launched as MATIC Network in 2017 – was energy efficient, with checkpointing and bridging transactions with Ethereum Mainnet being responsible for over 99% of Polygon’s emissions. With these Ethereum emissions now also minimized, the inherited emissions higher up in the stack are just fractions of those produced by traditional financial infrastructure.
These astounding results profoundly benefit the end user: users opting in to the Sushi x Klima Infinity integration offset carbon credits equivalent to 0.02 MATIC per transaction – which is a cost of around one cent per transaction in USD terms. Even at this extremely low cost to the user, every Green Fee transaction is climate positive: offsetting a single transaction with 0.02 MATIC is 100-fold overcompensating the actual emissions of the transaction.
The Polygon, Chainlink, Sushi, and KlimaDAO Web3 stack, built on top of Ethereum, has driven carbon emissions down to the bare minimum, and is setting the precedent for automated, scalable, and frictionless climate positivity.
Closing
KlimaDAO is looking forward to feedback from the Aavegotchi community on this proposal and ways that we can partner together on tackling historical emissions, developing the on-chain credit market, and broader ReFi ecosystem.
We appreciate Offsetra’s carbon.fyi for their work in developing a methodology for on-chain calculations and the countless stakeholders who have refined it over the past year.
Thank you for your consideration.