Q1: What is the core idea or insight you want to pursue?
Our core idea is to study the impacts of carbon insurance or decentralized carbon insurance on emission reduction investment/carbon trading market expansion, etc., and finally to create a more transparent, efficient, secure, and flexible decentralized carbon insurance protocol(or blockchain-based carbon insurance system) to address various risks in the carbon credit trading market (such as transaction price, quantity, quality, etc.). This ensures that buyers of carbon credits are able to make early investments in carbon removal projects, receive carbon credits in a timely manner with guaranteed quality and quantity, or avoid the loss of carbon assets due to price volatility, removes buyers' concerns about the transaction, and thus attracts more carbon removal solution providers (sellers/providers of carbon credits) and accelerates the expansion of the carbon trading market.
Currently, the insurance protocols surrounding carbon removal investment and carbon credit delivery face the following challenges, which we outline from two perspectives:
From the perspective of traditional carbon insurance protocols:
- Lack of carbon insurance products/protocols: Carbon insurance is still in its infancy, with most people not fully realizing its importance, leading to a lack of products or service. This makes it difficult for market buyers to find suitable carbon insurance providers.
- Non-digitalization: Current centralized insurance companies mainly engage with policyholders through offline communication, resulting in inefficiencies and limitations in expanding their application scope.
- Lack of standardization: Even for relatively standard risks such as price fluctuation or quantity delivery risks, current policies are highly customized, and lacking standardized contracts, leading to wasted resources and ineffective competition among insurance companies.
- Low information transparency: Lack of transparency in risk information impedes buyers' trust in carbon credit sellers and insurance products, hindering the development of both the carbon credit and carbon insurance markets.
- High insurance costs: Each decentralized insurance company incurs high costs in developing insurance products, exacerbating insurance costs for policyholders and wasting societal resources.
From the perspective of the decentralized insurance market:
- Lack of more decentralized insurance products: Decentralized insurance is still in its very early stages and decentralized carbon insurance has not been observed yet.
- Focused on providing security for crypto transactions: Existing decentralized insurance products primarily focus on providing insurance for crypto transactions, without addressing real-world issues such as carbon trading market risks. However, these issues serve as the basis for our protocol improvement.
- Lack of understanding and design for carbon trading market risks: Current decentralized insurance products have standardized designs for specific risks, such as flight delay insurance from Etherisc. However, carbon credit trading risks differ from flight delay risks and have their own characteristics.
To improve existing protocols and accelerate the carbon credit trading market, we will implement the following principles in our carbon insurance protocol improvement:
- Openness: We will openly publish project progress and content related to carbon removal, carbon credit trading markets, carbon risks, carbon insurance, and decentralized insurance to facilitate knowledge dissemination, increase attention to carbon insurance, and generate climate impact, which is currently lacking.
- Transparency: Improvements to the protocol will be based on transparency principles, including framework design, participant information (excluding sensitive information), and code, to ensure public scrutiny and oversight.
- Scientific validity: We will seek input from scientists and utilize science-based insurance knowledge and data to control the protocol's efficiency and fairness.
- Scalability: We will implement protocol improvements based on modular principles to reduce design waste, as there are still risks in other areas, such as agriculture, that also have the potential to utilize decentralized insurance models.