There is Untapped Potential in Representing Natural Resources as Tokenized Assets


May 6, 2021

Until recently, forests in the United States were mainly valued for their timber because timber is simple to measure and has obvious uses in furniture and construction. Forests’ function of carbon sequestration, by contrast, was insufficiently incentivized by a limited market. This means that at the margin, whether to log or maintain a forest was driven by timber economics and not by climate considerations. Similar logic applies to forests around the world (in some cases, the priced use case is clearing forests for agriculture). 

Private property is not the only way to govern shared wealth:

Elinor Ostrom, a Nobel Prize winner, studied how societies collaborate to share resources such as grazing lands, forests, and irrigation water. She argued that, contrary to common opinion, private property is not the only way to govern shared wealth. Her studies in farming villages around the world led to eight main principles for managing common resources. Ostrom’s principles describe a blueprint for sustainable coordination. Her rules, governance, and aligned incentives mirror blockchain principles which are now being used in cryptocurrency markets. While Ostrom’s research focused on local common resources, blockchain and smart contract technology might be able to help scale her concepts to global shared resources.

Tokenizing assets could aid in global cooperation and the accurate pricing of natural resources.

Why on-chain assets? 

  1. Transparent uniqueness
  2. Instant access to global markets:
  3. Use as collateral
  4. Open third-party verification of asset quality (oracles)

Tokenized natural resources have the potential to become one of the largest crypto asset classes due to the sheer scale of the world’s natural assets. Blockchain technology, when combined with the social power of legitimacy and trusted oracles for climate data, will help realize Ostrum’s vision of governing commons at scale. By aligning financial incentives, this will unlock the true value of natural assets and aid in the resolution of the climate crisis.

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