From e974078ba7438013d33a84eca71d218fc21d434e Mon Sep 17 00:00:00 2001 From: EilidhRoss1 <98904290+EilidhRoss1@users.noreply.github.com> Date: Mon, 19 Sep 2022 16:46:35 +0100 Subject: [PATCH] create claims/can-solve-collective-action-problem.md --- claims/can-solve-collective-action-problem.md | 119 ++++++++++++++++++ 1 file changed, 119 insertions(+) create mode 100644 claims/can-solve-collective-action-problem.md diff --git a/claims/can-solve-collective-action-problem.md b/claims/can-solve-collective-action-problem.md new file mode 100644 index 0000000..489345b --- /dev/null +++ b/claims/can-solve-collective-action-problem.md @@ -0,0 +1,119 @@ +--- +title: Blockchain technology can solve collective action problems and resource public goods +description: Evaluating the thesis that blockchain technology can solve collective action problems and resource public goods. We use KlimaDAO as an example of a group making this claim. +category: + - claim: y + - featured: y + - interview: n + - deepdive: n +claim: + - evaluation: NN + - confidence: HH +--- + +# Summary + +## Claim Steel-Manned + +### The Problem + +The "collective action problem" is the problem of how to coordinate collective action, eg funding public goods or combatting collective action issues such as climate change. + +Public goods are non-rival and non-excludable (anyone can use this good and someone's use does not diminish someone else's use of the good). The trouble with funding public goods is that if anyone can use this good whether or not they have contributed to the funding or upkeep of the good, how do we motivate people to contribute to the good? + +Blockchain technology can help us solve these problems. KlimaDAO is an example of a group using blockchain technology to combat the collective action problem that is climate change. + +The key question underpinning climate action is what is the appropriate coordination mechanism to achieve collective action on something that is decadal in scope. + +As individuals, our short term incentives aren't naturally aligned with something like climate change, because it takes so long to play out. Political systems as we have them today are structurally incapable of addressing a decadal problem like climate change, eg in the US, politicians are elected for two to six year terms. And for corporations, profits are maximised in most cases by continuing the status quo. So there's a clear coordination problem that needs to be solved. And the question is, what's the appropriate coordination mechanism to address that problem? + +In addition, the technologies that are required to achieve high scale carbon removals is just not there right now. We probably need around a trillion dollars of investment to get to the scale needed. This is not going to happen through individual philanthropy. The only systems we have today that can operate at that scale are macroeconomic systems like the Petrodollar system. + +It's for these problems of scale, in terms of both time and money, that KlimaDAO has been motivated to use a financial engineering approach to combatting climate change. KlimaDAO is taking inspiration from the high scale financial and economic systems we have today, like the Petrodollar system, to inform the creation of a new trillion dollar economy built around saving the planet. + +### The solution + +KlimaDAO's goal is to become a Climate Carbon-Based Reserve Currency... effectively a semi-algorithmic [central bank](../concepts/central-banks.md) with [DAO](../concepts/dao.md) governance structures. + +> The DAO serves the role of "de-central" bank, governing the monetary policy of this new carbon-backed currency, just as a central bank governs the monetary policy of a fiat currency. Over time, we will build an economy around KLIMA by driving adoption and unlocking growth of the crypto-carbon economy. - [KlimaDAO](https://docs.klimadao.finance/) + +The model is as follows: +* Someone comes along with some currency, eg a [dollar](../concepts/dollar.md) or a euro, and then converts that into USDC, the [stablecoin](../concepts/stablecoin.md) equivalent of a US dollar. +* In exchange for depositing whatever amount of USDC, you get 1 divided by the price of Klima tokens from the Klima treasury. +* Then the Klima organization takes the USDC that it has received, converts them back into dollars (or euros or pounds etc) and buys carbon offset certificates. Carbon offset certificates represent carbon sequestration (tree planting), methane capture, and renewable energy initiatives. The idea is then that certificates of carbon offsets come back into the treasury. Every Klima token that's issued is backed by at least one tonne of carbon offsets. +* So essentially what is being done is they're collecting money together and buying carbon offsets. It's basically the equivalent of a special purpose vehicle for buying carbon offsets. +* You can also take those Klima tokens and sell them back to the Treasury or create [derivative](../concepts/derivative.md) financial products on top of them, which can potentially give you more shares in the entity itself. This is called [staking](../concepts/staking.md) and bonding. This process doesn't change the macro structure of what KlimaDAO is trying to do end to end, it just adds a level for people who are already invested in it to get more invested in it. + * It’s a [DeFi](../concepts/defi.md) system which uses token staking and bonding to incentivize users to deposit or sell their collateral to the DAO treasury in return for discounted KLIMA tokens which trade on a secondary market and are used for [governance](../concepts/governance-token.md) in the DAO. + +In summary: +* The underlyign aspiration of KlimaDAO is to sequestrate carbon, to plant more trees, and to drive up the price of carbon offsets - as we buy more of them, there will be less supply and that will make it more expensive to pollute. +* Klima tokens are a reserve currency that can act as a complementary currency to the world's national currencies that can be used to do targeted quantitative easing to encourage either degrowth or decarbonisation. +* There is potential to raise a lot of money due to price volatility of Klima tokens. + +## Evidence of the claim being made + +## Evaluation + +The aspiration is laudable. But we want to achieve this aspiration of reducing carbon emissions and sequestering carbon in the most effective and efficient way possible. Klima does not achieve this. + +### Cost + +If you are creating a special purpose vehicle for buying carbon offsets, there are really significant exchange fees. You are essentially converting dollars into crypto, and then converting crypto back into dollars to buy carbon offsets, and then hold them on your blockchain based on [Ethereum](../concepts/ethereum.md) which has quite high transaction fees. While it's not completely clear what the transaction costs are, one would have to guess that for every dollar going in, you're not able to buy even close to $1 of carbon offsets certificates. So at the basic level of what it's trying to do, it seems highly inefficient. + +### Indirect and overly complicated + +As an individual you can go to the market and invest in things that KlimaDAO would invest in directly without going through a hypervolatile [speculative](../concepts/speculation.md) asset and DAO indirection layer. + +And why is the [DeFi](../concepts/defi.md) part required? Why do we need all the [staking](../concepts/staking.md) and bonding? It seems to add to the obfuscation of the underlying purpose. + +### Klima cannot function as a currency + +A [reserve currency](../concepts/reserve-currency.md) is something a large group of people on an international scale adopt, because goods and services of their major trading partners are denominated in that currency. The whitepaper keeps referring to Klima token as a reserve currency, but in reality it cannot function as a [currency](../claims/is-bitcoin-currency.md). + +Firstly, the insane price volatility means Klima can't function as a [currency](../concepts/currency.md). The price of Klima peaked at around $3600, well above the intrinsic value of one ton of carbon. It has since collapsed, losing around 99% of its value over 1 year - it's now trading at around $20. + +The notion that it can be a [reserve currency](../concepts/reserve-currency.md), when nobody's denominated any kind of goods or services, seems to be an irreconcilable contradiction inherent in Klima. + +Like many other crypto projects it seems to be a piece of financial engineering that at the bottom sits nothing but some appeal to narrative and the faith that “number go up” by creating artificial scarcity of a digital speculative asset; so it is not a currency. + +### Why not just raise money to buy carbon offsets? + +Something that makes Klima exciting is this price volatility and the potential to raise a lot of money based on this price volatility. But ehy not just raise the money at the beginning and then shut down the thing and just buy carbon offsets and hold on to them? + +### Vulnerability to centralized control + +[Governance tokens](../concepts/governance-token.md) are available to be purchased by any actor. What's to stop say Exxon from buying up all the governance tokens? The answer: nothing. Exxon would therefore be able to take over the management structure of KlimaDAO. + +### How does it plan to scale? + +The total market cap is currently $35,624,946.00 of an illiquid crypto token. This is insignificantly tiny even if we believe this market cap number. There are some €53 trillion AUM in [ESG](../claims/is-bitcoin-esg.md) funds. + +One might argue that Klima is still new and it is at the beginning of it's journey. However, there is no clear narrative of how it's going to grow from being funded by the crypto bubble and being smaller than most philanthropic efforts surrounding climate change, to get to the scale that they aspire to. Rather than investing so much time, energy and money into this route, this money could have been put into simply buying carbon offsets directly. + +### Climate credits are a very questionable mechanism. + +Climate credits are effectively a form of indulgence where you pay for the right to pollute the environment by paying off the damage via some future project or activity. You're not seeking to solve the problem, but rather to mitigate it. It doesn't seek to fix the root of the problem: that we're burning fossil fuels. Buying tokens that represent tree planting in the future will not solve climate change. + +People will and can exploit these mechanisms to maximize their capacity to pollute. Secondary markets for carbon credits are driven by bizarre corruption. Tesla has made a lot of money on secondary markets trading carbon credits. + +### Anything we can do, we can afford. Money is not the problem + +Mark Carney proposed to COP26 to allocate $130 trillion to help address solutions to climate change. **The money to fight climate change absolutely exists, but sufficient funds is not the issue.** The problem is doing supranational coordination of solutions and allocating resources to those projects. + +Unfettered capitalism is a process of commoditizing everything, privatizing the commons and destroying that which has no value and converting everything into private profit. [Crypto assets](../concepts/cryptoasset.md) are an extension of that program to an even more extreme level. + +Our system will continue exploiting fossil fuels so long as the private costs to capitalists are much lower than the societal cost. Vague appeals to new mechanism designs and appeals to absolute free [markets](../concepts/market.md) about “aligning incentives” can’t conceive of solutions outside their own capitalist logics. + +### Technosolutionism is a distraction and a drain on resources + +[Technosolutionism](../concepts/technosolutionism.md) via the [financialization of everything](../claims/is-hyperfinancialization.md) is a common theme within web3 rhetoric: let’s turn the abstract idea of fighting climate change into a [fictitious commodity](../concepts/ficticious-commodity.md) to be traded on the market. + +This is a distraction from actual solutions, of which there is no financial silver bullet. It is just adding an additional layer of complexity to fighting climate change. Such a project absorbs time, money, and runs on [proof of work](../concepts/proof-of-work.md) which requires a large amount of energy. All these resources could be better allocated. + +### Conclusion + +KlimaDAO are asking an important question: how can we tackle climate change using human cooperation? But the white papers aren't addressing how this question is to be addressed. + +The aspirations are beautiful. The initial manifesto resonates a lot with what doesn't work about unfettered capitalism, about an unfettered market system, about the lack of provision for [public goods](../concepts/public-goods-problem.md), and yet KlimaDAO seems to go further down that same route. + +As a [currency](../concepts/currency.md) it seems problematic. As an [investment](../claims/is-why-invest.md) it doesn’t seem to work. As a special purpose vehicle for buying carbon credits it seems highly inefficient (e.g. massive trading fees). Carbon credits are themselves problematic and are not going to be the answer to climate change. \ No newline at end of file