Toucan Protocol. Functions and Features

    Toucan Protocol

    Toucan Protocol, based in Zug, Switzerland, was the first infrastructure provider that enabled tokenization of carbon credits for decentralized finance (DeFi).

    One-way bridge tokenization

    The Open Climate Registry, a core component of the Toucan Protocol, was a suite of smart contracts on the Polygon and Celo networks. The process of transferring to the Open Climate Registry (tokenization) unfolded as follows:

    • Users generated a BatchNFT (ERC721 token) containing a unique identifier-link to the Toucan Protocol.
    • Users or trusted associates retired carbon credits within the traditional registry, marking the BatchNFT identifier-link in the “retirement notes” column. They then obtained and copied the transaction’s serial number from the registry.
    • Users updated the BatchNFT with details of the carbon credits retirement transaction’s serial number. The Toucan Verifier reviewed the retirement information in the traditional registry. If everything checked out, the BatchNFT’s status transitioned to “Approved.” Consequently, it became possible to sell NFT tokens on marketplaces.
    • Users divided the NFT into fungible ERC-20 tokens (TCO2), each representing one ton of CO2. TCO2 tokens preserved all attributes and metadata from the NFT regarding the climate project and carbon credit issuance year.
    Tocan Protocol tokenization
    Carbon bridge operation scheme

    One-way bridge Carbon Pools

    Given the variety of TCO2 tokens, maintaining their liquidity became a challenge. To address this, the Carbon Pools system was developed to group digital assets based on pre-set criteria.

    Toucan Protocol Carbon Pools
    Carbon Pools System

    Two one-way bridge carbon pools was created:

    • BCT (Base Carbon Tonne), created by Klima DAO, catered to a wide spectrum of carbon credits from the VCS program issued no earlier than 2008.
    • NCT (Nature Carbon Tonne) had stricter criteria, only accepting carbon tokens from nature-climate projects under the VCS program starting from 2012.

    Users could acquire NCT or BCT by sending TCO2 that meet the relevant criteria to Carbon Pools.

    NCT or BCT could be retired only by reverse conversion into a TCO2 token with two options:

    • By default and without fees, a user received a TCO2 token from the lowest quality climate project in the Carbon Pool.
    • If a user wanted to select a specific TCO2 token, a redemption fee was levied, a portion of which was used by the Toucan Protocol to repurchase and burn low-quality carbon credits from Carbon Pools. This process was designed to continually enhance the quality composition of carbon credit tokens in the Carbon Pools.

    BCT and NCT couldn`t be used to offset carbon footprints, only TCO2 could.

    Current Situation

    More than 20 millions of carbon credits have been processed through the Carbon Bridge from the March of 2021 to the March of 2022. In May, 2022, the Toucan Protocol has halted its carbon credit tokenization activities due to a prohibition from the VCS Program, the carbon credits supplier.

    Source: data.klimadao.finance

    Two-way bridge tokenization

    A two-way bridge for carbon credits was launched in October 2023. This bridge allows users to transfer carbon credits on and off the platform. At the time of writing it connects Toucan to the Puro.earth carbon standard through the Puro Connect API. This connection creates a new carbon pool called CHAR and carbon tokens with a same name.

    Here’s a simplified breakdown of how tokenization works on the Toucan Bridge:

    1. Initiate the Transfer: Request tokenization and provide details like credit serial numbers, project name, and its destination address to Toucan.
    2. Locking Up on the Source: This involves immobilizing your credits in a special account on the Puro registry. These credits essentially become unavailable until their tokenized counterparts are redeemed.
    3. Batch It Up: Toucan creates a unique digital record (a batch NFT) containing all the information you provided. This NFT acts as a container for the entire batch of credits being transferred.
    4. Splitting the Batch: Toucan then breaks down the batch NFT into individual TCO2 tokens, one for each credit you’re bridging. These TCO2 tokens are then deposited into the blockchain account you specified.
    Two-way bridge Toucan proocol
    Source: https://docs.toucan.earth/toucan/carbon-bridge/puro-carbon-bridge/how-bridging-works

    Transferring credits back to Puro.earth from Toucan Protocol requires a Detokenization request. Keep in mind that the current Carbon Bridge version only supports detokenization for the same quantity initially transferred.