Utilizing Tokenization to Bring Accountability and Maturity to ESG Models - TOKEN2049 Singapore 2022

hello so as introduced my name is Matt Harmon I'm a co-founder of hedera hashgraph and also the co-ceo of swirls Labs just a bit on that you may have heard about hedera hashgraph maybe know a little bit about that I'm going to talk a little bit about that and you haven't heard about swirls Labs recently hedera decided to decentralize operations most of the operations of Adera hashgraph moved into swells Labs swords Labs continues to build the product build the platform that is hedera hashgraph most of us left headera hashgraph and we dissolve the offices of CEO and CTO in hedera it's now we were in the final stage here of decentralizing that project and so that's the explanation there if if it's a little bit confusing we're going to talk today about ESG models related to tokenization and specifically about hedera I want to start off just sort of by introducing ESG many of you probably heard about it stands for environmental social and governance it's really concerned with the processes and policies that businesses use to focus on their social responsibility and carbon footprint these types of issues so let's Dive Right In uh there are challenges have been challenges associated with layer one protocols and scaling up to meet Mass adoption period let alone using them just for ESG these are those to be very brief they've historically used a lot of energy of course that's why ethereum moved to proof of stake rather than proof of work they have low processing speeds generally there are high costs associated with the use of the platforms per transaction and those costs are not stable they're typically a function of the token the underlying token so if the token goes up and down and valued the cost to use the platform goes up and down in value if you're a developer building a product on one of these platforms you can't predict what your cost of goods is going to be for the DAP that you've created their security vulnerabilities we see this all the time you see variants layer one protocols go down briefly and then there are centralization and transparency concerns we solve those problems using two different uh mechanisms one is technical hedera hashgraph uses a hashgraph it's an alternative to blockchain the other one is governance in the governance model that we use which I'll get to in a moment so what is hashgraph it's just an alternative to blockchain uh it solves the same category of problems that blockchain solves except it does it far more efficiently and it really the way to think about it is it it achieves as a technology it achieves the theoretical limits in terms of security that can be achieved in a distributed consensus algorithm by while simultaneously maximizing performance if you look at the other layer ones out there they're either not that there's no way of proving that they're going to work which is a problem or if you can prove that they will converge to a an order of transactions that uh everyone agrees on it comes with a lot of caveats like they're not susceptible to denial of service attacks there's no such thing as a DDOS attack what hashgraph does is resolve all of that put simply we use hashgraph to create the hedera network the performance is exceptional as a result of that the security is the best in class that you can achieve there are no assumptions like there's no such thing as a DDOS attack the network itself is stable for a lot of reasons including governance reasons and as I said before we solve some of the problems using a particular governance model um the governance model in particular well I think it's the next slide I'm just going to skip to it the governance model in particular is through the creation of something that looks and feels like a Dao um it was created actually before Dows became a real thing in this industry and it is based on the old Visa governance model that was put in place for the Visa Network back in the 60s the way it works is there's a council of global Enterprises that have come together they are voting individually on the various options or functions of the of the platform that includes the technical roadmap the legal and Regulatory posture use of Treasury that sort of thing these are those council members they're 26 today it's growing to 39. and so this is what we call the the governing Council so let's talk about the ESG components of this hedera is committed to being carbon negative now that's actually easier for hedera than for any of the other platforms out there and you may ask well why is that it has everything to do with hashgraph if you solve the problems the hashgraph solves as a consequence of that you use far less energy than all the other layer ones so we're committed the council is committed to being carbon negative and what that means on a quarterly basis for us is it's 250 bucks that's it and that's with a lot of usage in fact we've processed more transactions in total in two years time than ethereum is processed over its entire life that gives you a sense of what we're talking about there is a council member you University College of London that wanted to figure out well what is the lowest carbon footprint project out there how do they all rank against each other so they did a study and this is what they found if you look at the other layer one platforms the proof-of-stake systems out there if you even look at ethereum 2.0 the the proof stake version of ethereum we are far less energy we have far less consumption than the rest we are 9 000 times more efficient than ethereum 2o but maybe even more importantly than that if you look at Visa down here we got Visa captured on this study you have to do 70 transactions on the hedera network to use the same amount of energy that Visa uses with one card swipe just let that sink in give you a sense now why does that matter it matters because companies are going to be required to report their carbon footprint and when they calculate how much carbon usage that there is for a given product or service that they're providing they're going to end up having to account for the carbon usage of the suppliers and vendors that they use that builds out those products and services so it makes a difference Maybe not today but it's coming in fact this has already been a rules change proposed by the SEC it's already being deliberated right so it's coming so if you are building a product uh adapt on top of a layer one and you or you achieve any size at all in other words you have to do public reporting then you're gonna have to be concerned with the carbon footprint of the layer one itself which is why this matters to you as a developer the problem that we're solving with hedera the the the platform is that we're making it possible to look at not just that we're green which we are but we're making it possible for those companies that are using us to be transparent and auditable in their claims of Being Green in their products and services here's the problem if an Enterprise makes a statement that they've purchased some number of offsets for their carbon footprint there's really no way today to determine whether it's legitimate now if they purchase carbon credits or offsets that were created by actually using carbon removal Technologies these technologies that literally extract carbon from the atmosphere well that's pretty good that's the best you can do and so you have some accountability there but most of them aren't doing that in fact what this demonstrates is what types of renewable energy credits are being created today by percentage of the entire Market these technologies that extract CO2 from the atmosphere they almost never get used when creating the credits you can see renewable energies uh is the Lion's Share at 34 avoidable deforestation at 32 percent if you purchase a credit that was created because somebody stood up and said I promise not to cut down this Forest you have to be careful in understanding whether or not that forest was going to be cut down in the first place because if it wasn't it's fraud it's fraudulent right so you actually have to make an improvement in what the CO2 condition will be that's being created from these credits and so we can address that with hedera how do we do that we use hedera as the truss layer for the planet's environmental information what this means is that organizations that are recording their information related to the production of products and services can record that information with us in an automated way calculate what their actual carbon footprint is create what we call emissions tokens and then those organizations that are creating the offsets or the credits can create that they can record the same type of information on The Ledger meaning it's auditable and transparent they create their offsets and and um uh those tokens the opposite tokens and then the two can come together in a two-sided Marketplace to exchange the The Tokens The emissions tokens with the offset tokens in in a carbon Marketplace so this is actually being done this is what hedera is good at today there is a large and growing ecosystem of participants that are doing exactly this with Adera I want to talk about just very briefly one of those let's talk about Avery Dennison so Avery Dennison is one of the council members that I described Avery Denison is working with another council member Toco uh that to capture the information associated with widgets that flow through a supply chain so atma.io is the platform that Avery has taken to Market in atma.io is working with some of the largest companies in the world to create tokens associated with whatever it is it's being manufactured when the raw materials come in tokens get created they get created into say it's a pair of sneakers each pair of sneakers gets its own token these tokens flow through the supply chain as these sneakers are being manufactured the amount of energy consumption that is being used to do the manufacturing itself is captured in The Ledger they flow through the tokens themselves can interface with defy in various ways that you could imagine but at the end of the process you know what the carbon usage was associated with the sneaker or the widget more generally the manufacturer knows that the manufacturer then can turn around interface with the carbon market and offset the carbon associated with the manufacturer of these of these widgets is this real this is that they already have tens of billions of items on their platform today and those widgets that are in that platform already are going to be flowing through the hedera network in the ways that I've described that's imminent right this is going to be one of the largest Enterprise use cases on a public DLT that this industry has ever seen it's already coded they're talking about it publicly they're about to turn on the switch it's imminent that gives you a sense there are other council members servicenow is 100 billion plus organization doing similar sorts of things with the Dara integrating similar sorts of tracking mechanisms into their now platform dla Piper I've already mentioned delay Piper Scott teal who's here with us in the audience they have a tokenization platform that's being used for many of these different projects that I'm describing here and then there are other council members that are doing other things related Standard Bank for example is creating a green Bond platform that makes it possible for uh investors to invest in tokenized green Bond assets for uh for addressing the same types of ESG related problems that I've described and the list goes on LG just announced that they're using Adera they've gone to Market with a uh a a tokenization platform a Marketplace running on the LG TVs themselves you can buy nfts and to put those nfts on your LG TV assuming you got webos 5.

0 or later and the guardian just very quickly the guardian is an open source project that was created by us and others in the ecosystem it makes it possible for you as a manufacturer or an Enterprise to automate workflows that capture this type of information that I'm describing into the ledger so that you can do the The Trusted reporting that is needed as well as in turn tokenize the credits or offsets as part of that process and there are other organizations that are in our ecosystem as well thank you I invite you to check it out look at hedera.com and and you'll find a bunch of uh other related use cases and where they are in the ecosystem