Tokenized trading project Neutral and DLT Finance, a German brokerage firm, have built a blockchain-backed exchange for carbon credits – financial instruments that represent forests and renewable energy products that businesses can use to offset their carbon footprint.
The tokenized real-world asset (RWA) project isn’t the first to bet that blockchain can improve the multibillion-dollar carbon credit market. However, it is the first to secure regulatory approval – specifically from Germany’s financial regulator BaFin – to operate the exchange.
“We didn’t see anyone building the market infrastructure that would allow for traditional traders to interact with these assets,” Neutral CEO Farouq Ghandour said in an interview. He said his company is the “tech provider,” and DLT Finance provides “the regulatory backbone.”
The product removes the blockchain from the end-user experience. Basically, the 10 commodity trading houses and brokers that Ghandour said are being onboarded won’t need to think about tokenizing this or decentralizing that – and they certainly won’t need a MetaMask wallet.
Instead, the exchange will aim to be just like any other buttoned-up platform for commodities swaps, Ghandour said, with much better liquidity for large-scale trades than one might find on decentralized exchanges (DEX).
“There’s a lot of reluctance to work with DEXs,” Ghandour said, explaining why the crypto world’s existing blockchain-based carbon markets haven’t really caught on – and how his might. He said it’s very important for financial institutions to have a regulated counterparty.