ver 1.3 - November 2022
Table of contents
Since 2020 ImpactScope has been creating sustainability methodologies and applications for digital asset ventures, starting with measuring and reducing the carbon emissions of their business operations. Our clients include some of the largest crypto mining companies in North America, as well as Europe's leading crypto lending platforms and fiat off-ramp service providers.,
In Q2 2022 we began the process of expanding our toolkit far beyond climate action tools. We started looking at ways in which we could help all types of impact focused organizations and mission-driven social enterprises harness the power of distributed ledger technology and web3 primitives.
In some parts of this White Paper we describe specific web3 applications we have built and deployed, including Proof of Impact Dynamic NFTs, impact staking tools and on-chain climate action calculators. Other chapters of this White Paper are more theoretical. Our goal is to showcase the evolution of our systems design thinking and token engineering outputs. We unpack use cases in plastic recycling, education and behavioral economics while examining how impact tokens can be used to reward stakeholders, track impact delivery and incentivize behavior change.
According to the Global Impact Investing Network, “Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.” If we remove the “financial return” aspect we arrive at the broader definition of the “impact sector” that includes all organizations and initiatives, both for and not for profit, which improve our lives socially and environmentally in a significant manner. The globally recognized framework that defines the areas of impact activities and their measurable indicators are the UN Sustainable Development Goals (SDGs), with 17 goals and 169 precise targets for all governments and businesses. In our business activity, we aim to support directly and indirectly (through our partners) the advancement of the following goals:
Fig 1. ImpactScope’s targeted SDGs
Furthermore, as defined by the SDG Impact Standards it is not just about the end goals themselves but the means to achieving them. It is vital to ensure that impact driven organizations are operating sustainably and contributing positively to the SDGs, through their strategy, management approach, transparency, and governance. As such those standards provide a pathway to “reimagine business models and partnerships to innovate, create solutions and reach underserved stakeholders, involving stakeholders in decision making”.
Fig 2. SDG Impact Standards (UNDP)
However, the path to the SDGs requires not only sustainable business practices through decision making, but it also requires effective impact management. As seen in Figure 2, this includes impact frameworks, measurement models, and tools, which is what ImpactScope tackles and what we discuss further in this paper.
The United Nations Development Programme estimates that it will be impossible to achieve the SDGs by 2030 without additional annual investment of ["USD 5 to 7 trillion per year"](https://www.undp.org/sdg-accelerator/business-and-sdgs#:~:text=At the global level%2C total investment needs are in the order of USD 5 to 7 trillion per year.). However, the good news is that once the SDGs have been achieved, the resulting socio-economic re-alignment may unlock up to an additional USD 36 trillion in economic benefits. This presents an enormous opportunity for investors.
In its "Investing for Impact: The Global Impact Investing Market" report of 2020, the International Finance Center reported that USD 2.3 trillion was being invested in impact that year alone. More than 27 % of this amount went into “measured” impact assets, “investments for which there is a measurement system in place.” It is in the measurement and verification of impact that web3 technologies can facilitate the most use cases and where the tools being developed by ImpactScope can bring the most value.
The challenges faced by impact-focused companies have been researched extensively in recent years. According to the 2020 Annual Impact Investor Survey, published by the Global Impact Investing Network, the primary challenge facing the sector continues to be "impact measurement", with 242 out of 294 respondents listing it as the greatest challenge. In the same survey, the Top 3 concerns mentioned by all respondents were a.) impact washing, b.) inability to demonstrate impact results, and c.) inability to compare impact results with peers. In other words, the challenge is with measuring, proving, and reporting impact.
Moreover, in its 2019 publication "Social Impact Investment: The Impact Imperative for Sustainable Development", the OECD provided a roadmap of recommendations in four specific "action areas". As can be seen in Fig. 3, the OECD report places significant emphasis on the need for “innovating new approaches and addressing data gaps”.
To summarize, the challenges for the impact sector remain in measuring, tracking, verifying and reporting impact data in a transparent, standardized and interoperable way. Lack of effective impact management tools, as discussed in section 2.1., will impede sustainable business practices and ultimately our efforts to meet the SDGs.
However, web3 technologies and blockchain par excellence, offer unparalleled opportunities in addressing these challenges due to its features of immutability, transparency, security and decentralization of data. As such these technologies can help us to reach the SDGs, improving our lives while unlocking great economic opportunities.
Fig 3. The Impact Imperative - Four Action Areas (OECD)
<aside> 💡 “The emergence of the token economy offers new possibilities for creating systems that are decentralized and secure, which can give communities new tools of governance, such as the development of incentive mechanisms around common objectives.” – The International Institute for Sustainable Development (2019)
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Blockchain technology enables the transfer of value (e.g. data) in a frictionless manner, by providing trust as an immutable, decentralized ledger. It enables converting assets into digital tokens and with the use of smart contracts making them programmable.
While attempts are made to fit all tokens within a tiny set of categories, we believe these programmable assets to differ substantially from one another. As an example, impact tokens have a specific goal of unlocking investments for projects with positive social and environmental impacts.
Such tokens represent impact through a specific measurement metric for example: tonnes of greenhouse gas emissions, number of vaccinations, amount of plastic collected for recycling. etc. They are registered on blockchains (immutable ledgers) and can be traced transparently along supply chains. They therefore offer a proof of impact that has been delivered, which can be traced to a particular activity or investment.
<aside> 💡 "High-trust impact tokens, especially those measured on a unit basis, lend themselves as a key metric for the design of results-based finance schemes." – World Economic Forum (2018)
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A 2019 study by the International Institute for Sustainable Development has reviewed 200 projects using impact tokens and found that in addition to increasing trust, improving financial and social inclusion they can also “improve data collection and accelerate monitoring, reporting and verification processes”, and “incentivize behaviors that promote sustainability.” (Uzsoki and Guerdat, 2019).
The authors of the study believe that tokens can completely redefine business models and our societies, creating new economies and sources of income, where non-financial values such as natural capital or passive work are accounted for on blockchain. In fact, in the past few years this has already started to become a reality. Take climate action where carbon emissions can be tracked (see our emissions calculator) and carbon credits traded on decentralized (blockchain-powered) marketplaces.
However, as discussed earlier, ends do not justify means in creating a positive impact. The research in the emerging field of crypto-economics has already identified that “many blockchain projects critically lack usage of existing social impact evidence in design and management, posing a threat to inflict significant harm” (Barclay et al. 2022). The ease of experimentation (low costs and access) in tokenizing behavior only increases the risk of violating the fundamental principles of social impact to “Do no harm”.
Fig 4. Tokenized Ecosystems (Barclay et al. 2022)
In “Tokenizing Behavior Change: A Pathway for the Sustainable Development Goals”, Barclay, Cooper, Hackel and Perrin (2022) suggest, that if impact tokens are to be adopted as tools to achieve SDGs they must be designed and managed as “behavior change interventions” (BCI). Although most blockchain practice and research focuses on the ledger design, there is a greater need for connecting it “with the behavioral relationships they seek to modify (spanning real-world social contexts) and the ecosystems they are embedded in (see Fig. 4). Particularly important is the tokenized ecosystem, which comprises the actors who influence desired social outcome and are in turn influenced by the design of the token to achieve or mitigate behaviors and align incentives.
A greater consideration of behavioral science is needed in the interaction of ledger, tokenized, and digital ecosystem, with tokens being a technical bridge between the two. The token designs should integrate BCI design principles as well as performance metrics from the tokenized ecosystem.
Barclay et al. write:
"Designing tokens as behavior change interventions requires new constructs beyond those currently in use to model the interdependence of digital and social ecosystems, and integration of token engineering, cryptoeconomics, and behavioral skill sets to test token designs within various ecosystems. New token design and testing protocols that integrate behavior measures around the targeted social outcomes are needed, to fill a critical gap in current practice."
All in all, tokenization of impact activities should be seen as tokenization of the behavior changes which impact projects foresee. Only then, tokenization will help to incentivize positive behavior changes, while simultaneously unlocking investments leading to a sustainable and exponential growth of the impact sector.
All the methodologies and tools proposed in this white paper represent the constituents of the virtuous cycle of impact which ImpactScope seeks to implement. All six elements of the cycle are required to ensure that the system maximizes value creation and is self-sustaining. The virtuous cycle requires a holistic approach in impact management along its lifecycle, from impact funding to impact creation. The cycle is subsequently supported by MRV (Monitoring, Reporting and Verification) to ensure value extraction from the impact created. Such value extraction closes the gap in the cycle, by ensuring that funding is provided to promote further impact creation. The use of such a framework is required to ensure compliance with the requirements of the Global Impact Investing Network. The GIIN framework requires intentionality, additionality and impact measurement to ensure that impact is effectively created, and MRV functions ensure such requirements are met.
Fig 5. The ImpactScope virtuous impact cycle
ImpactScope is actively engaged in all six phases of this impact life cycle, by relying on a combination of the methodologies and tools adopted, as applied with the existing partnerships.
Over the long term, the objective is to integrate all the tools and methodologies into Blockchain applications in order to take advantage of transparency, traceability and immutability (trust) that this technology offers. A central element of this integration process will be the Impact token, as well as sustainable decentralized finance mechanisms, which we discuss in section 5. We illustrate this in an overview of our system (Fig. 6), which is a draft for a potential design that serves primarily to illustrate our thought process thus far.
The end point on our roadmap is a platform, including a marketplace, where any impact-focused company or mission driven entity can access tools and methodologies to help them tokenize, monetize, validate and monitor the value of their positive impact. Throughout this process we place significant emphasis on ecosystem design, community building and the logical integration of tokenization models, which we discuss further in the paper.
Fig 6. ImpactScope Draft System Design
After having presented the Virtuous Impact Cycle and how ImpactScope approaches all its different elements, we now delve into the four groups of tools and their corresponding use-cases.
The first group concerns tools specifically aiming at supporting climate change initiatives, either by calculating and offsetting CO2 emissions generated or by offering methodologies to decrease CO2 emissions. These on-chain and off-chain tools were specifically designed for digital asset marketplaces, crypto enthusiasts and bitcoin mining ventures.
The first tools deployed by ImpactScope were interactive educational quizzes and calculators aimed at crypto enthusiasts and retail traders. Users input their crypto spending and trading habits and at the end of the process ImpactScope calculates their approximate crypto carbon footprint.
Fig 7. ImpactScope’s questionnaire for calculating emissions of crypto-users.
In 2021 ImpactScope also released a crypto wallet CO2 emissions calculator. It is the most precise carbon footprint calculator for BTC and ETH wallet addresses currently available.
Our methodology is able to distinguish between the carbon emissions of on-chain ETH transfers, ERC-20 token transfers and smart contract creations, both pre and post Merge, all the way back to the genesis block.
Fig 8. ImpactScope wallet emission calculator
For crypto currency exchanges, ImpactScope developed a real-time easy-to-integrate carbon offsetting API. Any digital asset marketplace can integrate this tool into their trading systems, allowing their users to voluntarily offset the emissions of their on-chain crypto trades in real-time by purchasing a basket of high-quality offsets in carbon sequestration projects in Brazil, Kenya and Indonesia. This technology is similar to the CO2 compensation features that airlines offer retail customers during the online ticket purchase user experience.
Fig 9. ImpactScope APIs Real-time offsetting tool.
The involvement of ImpactScope in climate change applications is not limited to software services. When presented with an opportunity to finance and support an early stage Direct Air Capture inventor in Hungary, ImpactScope recognized an opportunity to raise its profile and potentially experiment with the tokenization of ex-ante DAC offsets. Aether technologies, an R&D pilot project of ImpactScope, proposes a use case for feeding an algae bioreactor with concentrated CO2 gas. The innovation relies on an industrial apparatus that pushes ambient air through a novel filter material, where the selectively bonded carbon dioxide in the material is then released under controlled circumstances producing concentrated CO2 gas at high efficiency. Looking at the innovation from a business perspective, the concentrated CO2 in itself is a win-win solution, given the green premium it carries being a recycled gas instead of conventional ethanol-derived CO2.
In December 2021 Aether by ImpactScope entered the $100 million XPRIZE for Carbon Removal. In April 2022 it was announced that of the 1,133 global competition entrants, Aether by ImpactScope was one of only 287 which achieved Qualified Competitor status. In fact ImpactScope’s entry was one of only 13 teams from Europe in the Air Solution category to achieve QC status.
Fig 10. Aether technologies explained (ImpactScope)
The second group of tools focuses on the ability to bring about behavioral change that promotes sustainable development. Such an objective is reached by creating tokenomics models as explained earlier (in section 2.4).
There are not enough tokenomics models which focus on advancing SDGs through incentivizing behavioral change. A strong need exists to link ledger design with the behavioral relationships they seek to modify, as explained by Barclay et al. (2022).
The objective of a Verify2Earn component in tokenomics is related precisely to this: designing easy-to-deploy tokenomics models which encourage and reward sustainable behavior and impact verification, but also funding. The token at the center of the ecosystem is designed to influence supporters of behavioral change in projects aiming at creating a positive impact. The proposal draws parallels with various incentives systems - blockchain based or not - which encourage such types of actions. Typical examples or existing methods aiming at promoting behavioral change are Play2Earn in the gaming industry and Move2Earn for fitness.
Examples of actions of a Verify2Earn model concern performing and verifying an action which results in a positive impact: such as picking up garbage and proving it has been collected; similar mechanisms can be introduced for verification of recycling, picking up litter, saving water, exercising or spending more time in nature. Verify2Earn encourages donations to successful causes as it provides a strong incentive for potential verifiers to collaborate in a project and ultimately, achieve the objectives of the project. On the other hand, such an incentive system must ensure the fairness of the verification process if the performance of an action and its verification are performed by the same person (i.e. the general problem of separation of duties).
Finally, tokenization of this model can also prove useful to address a challenge of funding the verification process. Tools such as Verify2Earn can give us more options to build better social impact models either by integrating verification into decentralized funding models or by augmenting public goods funding models, avoiding the common need to find creative funding for X2earn (e.g. sponsors).
ImpactScope is developing a proof of concept Verify2Earn tokenomics model and accompanying dApp to tackle one of the most pressing environmental challenges: plastic pollution. The open source application is a fork of Littercoin, which itself resides on top of OpenLitterMap. Token earners take geotagged photos of garbage, and dispose of the garbage while earning rewards in the form of tokens. The tokens can be spent, swapped and staked.
The second use case is a multichain token bridge to a closed loop voucher system designed for deployment by municipalities to reward sustainable mobility solutions (or other impact goals). The original application is developed by Changers.com and is currently deployed in several European cities, including Düsseldorf and Aachen, and was one of the major inspirations for efforts such as the Vienna Kultur-Token.
The third group of tools concerns the ability to monitor and report sustainable impact creation. Monitoring and reporting functions are essential in making the connection between the amount invested and the impact created.
Dynamic NFTs (Non-Fungible Tokens) are ImpactScope’s primary delivery mechanism for displaying what we call a Proof of Impact. Social enterprises can leverage these tools to engage with their audiences. Typically, in multi-stakeholder social enterprises with a local focus, impact reporting is a dry, centralized, sterile exercise, in which the project developer periodically sends stakeholders spreadsheets and infographics showing financial and impact performance.
The objectives of our Dynamic Proof of Impact NFTs are primarily to: a) make impact reporting more engaging and more gamified, b) connect off-chain impact outputs with on-chain display interfaces, c) experiment with oracles as a tool to verify impact, and d) produce a digital asset which can be simultaneously used for displaying impact achieved and as a stand-alone fundraising tool.
Fig 11. Dynamic NFTs (ImpactScope)
The NFT is dynamic meaning that it changes in real time to display the positive impact created. Oracles are used to pull data from the APIs which determine the appearance of the Dynamic Impact NFTs. The meta data, displayed data and visual characteristics of the NFT change regularly as impact metrics are updated, (i.e. amount of carbon sequestered, number of trees planted, amount of plastic recycled, etc.)
Besides the mentioned functions of the Dynamic NFTs it is worth mentioning that there are other possible use-cases to it, and potentially more to be discovered. For example, Dynamic NFTs can be used to allow for access to new groups (new impact investments, communities, etc.) and automatically open social spaces for members.
The gamification element and the creation of the NFTs leads to a greater engagement around impact investing while contributing to solving pressing problems. Moreover, the NFTs can be sold on the secondary market, in a quasi royalty model, and serve as an additional fundraising tool for the social enterprises.
Another type of Dynamic NFT has been designed by ImpactScope for potential future use by Planet League. The engagement is created by leveraging the passion of the people for the sport with the biggest number of fans globally: football. The principle of Planet League is very simple: by performing actions with a positive impact on the planet (e.g. saving water, cutting your CO2 footprint, having a meat-free day, spending time in nature, etc.), fans can “score goals” for their clubs. The gamification element of the Dynamic NFT aims at bringing a higher level of engagement to users.
The Impact Dashboard envisages an interface via which social enterprises, impact-focused companies, carbon project developers and our users can all engage with each other to monitor and benchmark the amounts of impact generated by themselves and specific initiatives.
The Dashboard will have different interfaces for different types of users and their roles in the ecosystem. Through the enterprise view the Dashboard will provide access to web3 tools such as Dynamic Proof of Impact NFTs, Verify2Earn mechanisms and access to capital via staking rewards. Companies will need to pay a subscription fee to access the tools as well as pay for any add-ons. Depending on the service, payment will be either in fiat/stablecoins or via locking up tokens.
By measuring and displaying the positive impact of projects the Impact Dashboard aims to address the MRV data gap in impact investing, which tends to focus on the amount invested rather than of impact created. The Impact Dashboard will allow for a comparison of the performance of different projects and facilitate decision-making investments for companies and institutions. It aims to provide a broader range of metrics, which cannot be presented in the Dynamic NFTs.
Methodologically, the Impact Dashboard is based on the GIIN principles of intentionality, additionality and impact measurement. Intentionality requires the will of the user to generate a positive social/environmental benefit; additionality measures the contribution of the investment in terms of what would have happened if the investment would not have taken place; and measurement requires to concretely bridge the gap between the amount invested and the impact created. The Impact Dashboard will leverage GIIN metrics to quantify the impact creation and support sustainability reporting functions.
The fourth group in our toolkit concerns tools used to provide impact financing opportunities. Such tools are based on concepts used for centuries in the financial industry (e.g., loans and interests) but applied to a different context thanks to the development of digital tokens (cryptocurrencies) and Decentralized Finance. Among the different opportunities, this allows investors to obtain a satisfactory financial return while using part of the yield to create positive impact.
As an example, Celo creates green asset liquidity pools with natural capital-backed assets such as tokenized carbon credit and future nature-backed assets, like land and forests, circulating on Celo. Thus creating not only a carbon-neutral ecosystem, but a regenerative one, and giving a big boost for ReFi space.
Regenerative Finance (ReFi) is a new financial model that includes and regenerates people as individuals with unique talents, communities as economic hubs, and the health and biodiversity of global ecosystems. Based on the theory of regenerative economics, the ReFi model puts a price on externalities, charging those who create negative externalities and rewarding those who create positive externalities. The growing ReFi ecosystem is re-imagining the financial system as a model that aims to accelerate the development of new, planet-positive technologies through better measurement and financing. As such ReFi offers tools for advancing impact goals in a sustainable, regenerative manner.
Staking is a core component of the validation process for transactions on blockchains that are based on Proof of Stake (PoS). Users who stake their cryptocurrencies generally receive a financial reward for locking up their assets, during the staking process. New business models in PoS are being developed in which part of the reward obtained from staking is allocated to impact projects.
For the last year ImpactScope has been actively engaging with the Cardano community, where providing sustainable solutions to tackle global issues is high up on the community agenda. ImpactScope has been consulting with impact-focused Cardano Staking Pool Operators (SPOs) and Mission Driven Pools. Such pools are generally supported by users who are willing to forgo a portion of their staking rewards to support good causes.
ImpactScope aims at empowering impact-focused SPOs by implementing several of the methodologies and tools presented in this document (e.g., Dynamic NFTs, Verify2Earn tools, Impact Dashboard); as well as sourcing concrete sustainable projects (e.g. Takataka Plastics) which can take advantage of such alternative impact investment opportunities.
We have discussed the different web3 tools ImpactScope has developed and the use cases within which we have demonstrated the potential of these tools. These use cases are currently being developed on a case by case basis. However, to tie together this network of use case partners and ultimately create a self-sustaining ImpactScope ecosystem, we plan to launch our own $IMPACT token.
Engaging in the process of ecosystem design is an important first step in the token engineering process. Ecosystem design involves creating a strategy to facilitate a network of actors to interact around common goals (Cicero, 2022). We intend to utilize our $IMPACT token to enable different partners involved in our use cases to interact around the goal of effectively engaging in the different phases of the impact cycle.