Neutral Launches Regulated Platform For Tokenized Renewable Energy And Carbon Credits 

Neutral Looking To Tokenize Carbon And Renewable Energy Credits - Carbon Herald

Even before the tumultuous 2023 carbon markets were already attracting new projects that looked for new ways of solving some of its inherent and acquired challenges. One of the approaches to improving the market has been the tokenization of carbon credits by introducing blockhain into the formula through which carbon project developers, registries and rating agencies interact between each other and ultimately with buyers.

An example of this approach is Neutral – an exchange for environmental assets that offers tokenized carbon credits, renewable energy credits, and carbon forwards. Founded in 2022 the company received a $3.2 million investment round in October 2023 from a host of backers – Redalpine, Digital Currency Group, Cerulean Ventures, Factor Capital, Very Early Ventures, and Rarestone Capital.

Speaking with Carbon Herald, CEO Farouq Ghandour explains the thinking behind the project by saying “We have a general thesis on markets, not just carbon markets, that they are moving on chain.”

Seen as part of Regenerative Finance (ReFi), the platform does have similar aspects to more classical blockchain projects but it has essentially removed the usually complicated interface, automating the end-user experience.

Screenshot from the Neutral platform. Source: neutralx.com

Its approach is aimed at four groups of users:

    • project developer who can sell their credits directly
    • marketplaces who can route orders to Neutral’s order book
    • commodity traders
    • financial institutions

    By offering aggregated tokenization, pooling, redemption, and retirement services in one platform Neutral is aiming to become the tech provider to all parties. But there is one important component to the business model which underpins everything – regulation.

    As a first step in this direction earlier in February the company announced a partnership with DLT Finance, a BaFin-licensed trading and brokerage firm in Germany, which will provide a regulatory backbone for Neutral’s operations.

    Ghandour also adds that Neutral is “..pursuing its own licenses in the EU. Europe has been a pioneer on two fronts. It’s been a pioneer in carbon markets, their ETS system is by far the largest. They just released regulation on integrating voluntary credits in there. They also recently released MiCA, which is now the gold standard for what clear cut, crypto regulation looks like.”

    Description of the order execution process on the Neutral exchange. Source: neutralx.com

    As it stands the Neutral platform offers three types of assets: renewable energy credits (RECs), carbon credits and carbon forward contracts. Commenting on the prospects of the three Ghandour says that “There definitely seems to be quite a bit of interest in RECs. But I think that’s been fairly consistent for the past couple of years. I think carbon is more at an inflection point where you had a year that has really reset the perspective in the market.”

    One of the key challenges that company is facing according to Ghandour is how to create trading instruments that make sense for environmental assets and that the prevalent trend of adopting approaches from existing markets is not the best choice.

    “I think the right approach to creating a strong foundation in this market and for creating efficient trade is to take a blank slate and ask “what makes sense for environmental assets.” And I think we need more of that kind of approach not just for exchanges, but also for market infrastructure,” says the CEO of Neutral.

    Read more: Nasdaq Launches New Digital Carbon Credits Service

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