Steward tokens

Introduction

Smallholder farmers represent the majority of those excluded from the traditional financial system. Their small plots of land and economical unit economics also prevent them from accessing not only financial services but also certifications that would allow them to sell their crops in better conditions. In addition, this situation prevents them from accessing the traditional carbon credits market, where project developers certifying carbon are only interested in projects starting with 65,000 hectares.

Agroforestry smallholder farmers have a huge impact on the environment. Shade grown coffee and cacao (the bigger agroforestry markets), are spread all over hundreds of millions of hectares in the greener areas of the world and support hundreds millions of poor families. When they cannot make a living out of these crops they cut down the trees and plant corn in deep slopes so after a couple of years the soil is lost and they are forced to emigrate. This is the story behind tens of millions of immigrants to the USA and Europe.

The objective of this project is to find a viable solution so that these small farmers can get rewarded by the high environmental and social impact of their way of life so they no longer depend only on the volatile income from the sale of their crops, but instead find a new, much more stable form of income (sale of impact tokens aka alternative carbon credits). Being able to increase the income for these farmers allows them to preserve agroforestry, stop deforestation while contributing to decreasing immigration.

Our solution consists of creating a registry of smallholder agroforestry farmers plots of land, tokenizing them in the form of fungible tokens and blending these tokens with already certified and tokenized carbon credits. The resulting blended token is a premium carbon credit that not only includes measured carbon sequestration, but also includes measurable social impact and unmeasurable (at least with current technology) extra carbon sequestration, biodiversity preservation and water retention. This solution could be applied in the future to other areas suffering similar problems like tokenizing partial and small plots of jungle/forest and could also be blended with other environmental assets.

Problem

Coffee production (cacao situation is very similar) is widely dominated by smallholder farmers except in Brazil where there are high flat lands that allow for high technification on coffee production that is far more competitive. Brazil low cost coffee drives the global price down creating an economic pressure for all other coffee production areas. Mexico and Central America have been hit very hard and millions of smallholder farmers have decreased their production or just abandoned them to produce corn which creates a huge environmental impact since coffee is agroforestry farming while corn isn't so in order to plant corn farmers first take down all the trees.

Moreover, coffee is normally produced on very steep slopes so lack of trees produces high erosion so after a couple of years farmers can´t live from corn production anymore (and coffee is hard to set up again since it needs about 4 years before it starts producing), so farmers are forced to emigrate.

Directly and indirectly this is one of the main reasons why immigration from Central America to the United States is high (and also from African producing countries to Europe and from South east Asia producing countries to both the United States and Europe).

One of the problems with current carbon credits is that they are very focused on reforestation (rather than prevention of deforestation) and only for large projects, which prevents the value contributed by small farmers with sustainable farming practices from being recognized. We have being working on a new methodology to certify carbon sequestration that works for smallholder agroforestry farmers and analyzed other efforts in this regard but we found very significant problems to overcome: -MRV (Measurement, Reporting and Verification) of small plots of land is almost impossible in an economically sustainable way (devices are expensive and the outcome of such a small plot is just not worth it). Even digitizing the plot of land to do satellite image capture is very challenging for such small plots of land that normally are very far from cities and within steep environments. -These farmers' impact is not just carbon sequestration but also biodiversity preservation, water retention and overall there is an intrinsic social impact that should be taken into account so these carbon credits have much higher value. -Methodologies verification takes many years to be validated and climate change and the problems explained before cannot wait a decade to be solved.

Solution Lowering the quality of the methodology and mint tokens just based on hectares and statistical extrapolation of research already done regarding the four pillars of the impact of these farmers would open the doors for offsetters of this carbon credits to be accused of doing greenwashing since the MRV wouldn´t be proven and accepted by the status quo in the sector. Instead we will use these data to explain to buyers (offsetters) the difference from a traditional carbon credit to our blended credits. We will use as a base layer a traditional certified carbon credit enriched with the impact of these farmers. We will create a registry of small farmers with agroforestry practices and will tokenize each plot of land by minting 1 NFT and also will mint an ERC20 token called SAT (Steward Area Token) per Area (a=100m2).
The SAT represents 1tn of certified carbon credits enriched with the impact of preserving 1a of agroforestry from a smallholder farmer and so on enriched with more carbon sequestration (that cannot be certified but it undeniable exists), biodiversity preservation, water retention and social impact, and so on should have much higher price. SAT will be blended with certified carbon credits (ie NCT from Toucan) and burn together in the offsetting process that results in a NFT certificate that proves how much NCT and SAT you offsetted.

We will continue supporting efforts on methodologies with the end goal of being able to certify this impact tokens but with this approach we can start creating a new revenue stream if we succeed in creating demand for SAT. When a methodology with scientific support is available and technology is ready to do the MRV, we will be able to measure the value of each SAT offsetted. This is a perfect example of retro funding, supporting a common good that you now will have a real value in the future.

How it works

The project is born within EthicHub which has been working with smallholder agroforestry farmers since 2018 leveraging on Blockchain and smart contracts and is already operational in Mexico, Brazil, Honduras and Colombia. EthicHub has a very holistic approach in order to be able to work with such small farmers is hard to do in a sustainable way. EthicHub finances the farmers, helps them sell their crops and now we will also help them have a new revenue stream if they preserve regenerative practices.

There will be validators that search for farmers and certify they are doing agroforestry practices which results in minting SAT tokens for those farmers. Auditor is not a permissionless role since they have to have proven capacities to execute this role.

In order to be able to mint a SAT token, the farmer has to open a Celo wallet, do KYC, scan the legal paper of his plot of land and accept the T&C. Validators only work with agroforestry farmers and this has to be verified by the auditor. Both the originator and the auditor can burn the farmer SAT if the farmer cuts down his trees or sells the plot of land.

The EthicHub dev team did not register on time for the hackathon, so I had to search for a new team. At the end I found Jeff, who was a perfect partner: a quite senior developer, and also very aligned to ReFi. Before finding Jeff I just had time to do some description and research and also forked Toucan Protocol Offset Helper which is key for the buy, retire and mint certificate NFT. With Jeff we decided to focus on the onboarding of the farmers and road to mint steward tokens instead of starting with the blend+offset end part of it. We started with the Polygon ID implementation, where the farmer is the owner of the personal data, the government is the issuer and the cooperative of farmers that is already a loan originator in EthicHub where it has Ethix stake subject to slashing is the verifier. We got stuck in this part for too long which later we regret because we could not finish the product properly nor add all the pieces we wanted. We wanted to deploy on Celo as Toucan and EthicHub are already operational in Celo and is a carbon negative Blockchain with a community for projects like this. It took Jeff also some time to get ready to start building on Celo. On the smart contract side we started with the Toucan Offsetter Helper which is for buying and offsetting NCT tokens: which also took too long. Markus Aurelius and Lena Hierzi helped a lot in this regard. At the end, we didn't sleep, but squeaked in a decent submission right under the wire.