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Digital exchange wins final license for carbon “ADRs”

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The Monetary Authority of Singapore has licensed MetaComp, a unit of Singapore-based digital asset exchange MetaVerse Green Exchange (MVGX), a license to provide digital payment token services to help jumpstart a voluntary carbon credit market.

This fills in what MVGX chair and co-founder Bo Bai describes as the final regulatory piece to realizing his business vision, of providing software to support the cross-border trading of carbon credits.

“All carbon exchanges have a carbon-nationality problem,” Bai told DigFin. Under the Paris Agreement of 2015, countries must report their emissions progress to the United Nations. That requires sourcing and validating the data about companies’ carbon emissions.

National barriers

Companies in heavy polluters, such as the US and China, want to buy carbon credits from places that are rich in natural resources as offsets – say they agree to preserve a bit of rainforest in order to keep emitting carbon at home.

This makes these credits valuable to those countries that are rich in offsets. Rainforest now becomes an asset, and some countries now regard this as their sovereign domain, not just a commercial exchange. A few countries, including India, Papua New Guinea and Indonesia, are moving to ban the export of carbon credits.

Indonesia is home to about one-third of the world’s rainforests. The Paris Agreement is transforming these into a financial asset akin to oil. “This is about national power,” Bai said.

But the move by some countries to keep national wealth onshore is complicating the development of voluntary carbon markets.

“National identity is a problem for carbon-trading exchanges,” Bai said. “MetaComp’s solution is built on cloud and blockchain to separate national identity from a credit’s commercial rights.”

ADR inspiration

Governments might want custody of their carbon credits to remain onshore, but is there a way to secure and trade the economic rights overseas? MetaComp looked to financial structures such as American Depository Receipts as inspiration.

An ADR allows a foreign company to do an indirect secondary listing on a US stock exchange. A custodian bank such as BNY Mellon or J.P. Morgan issues negotiable certificates that represent a foreign company’s stock, and trade them on a US exchange or over the counter. US investors get access to overseas companies; and the companies enjoy access to American funding and liquidity without having to go through the onerous process of an IPO. And because the certificates are negotiable, they can be traded.



With this in mind, MetaComp is eager to issue “Digital Depositary Receipts” based on carbon credits. In November it launched a pilot project with Indonesia Stock Exchange, and Bai says the company is eager to follow suit with other Southeast Asian authorities. It is also in talks with Chinese banks and corporates in Hong Kong about issuing DDRs.

Token biz and SaaS biz

DDRs would need to trade on a digital exchange, as they are built as blockchain-native tokens. MetaComp is a wholly owned subsidiary of Singapore’s MetaVerse Green Exchange (MVGX).

This entity, which operates a matching engine developed by Nasdaq, holds the other licenses that Bai and his co-founders need to fully realize their commercial ambition. These include a Recognized Market Operator license, to operate the exchange, and a Capital Market Service license, to deal in securities and funds, deal in OTC derivatives, and to provide custody.

MetaComp’s payments license now allows it to provide cross-border payment and remittance services, both in fiat currency and in stablecoins.

In addition, MetaComp builds software for companies to handle carbon credits – which today are not integrated into traditional accounting, reporting, or treasury systems. Carbon credits are not regarded as financial instruments but as environmental, marketing, or CSR tools. That is an impediment to creating financial markets in these instruments.

MetaComp is trying to change that, by selling enterprise resource planning (ERP) software, to help companies manage day-to-day carbon-related functions; and a ratings system. Oracle, one of the biggest global providers of generic ERP systems, has signed on to distribute MetaComp’s software.

This Software-as-a-Service business provides revenues but more importantly encourages companies to systematize their carbon footprints, which over time may encourage them to tokenize or trade in voluntary credits. It’s a channel to drive liquidity to digital exchanges.

Ledger of record

Bai says blockchain is fundamental to making the DDR aspect of the business work.

“We need to trace the entire process of a carbon credit,” he said. “We need to ensure the project is happening, that the credit is issued, that there’s no double-counting, and that the custody is properly separated from commercial rights. End-to-end blockchain is critical.”

MetaComp’s tokenization and trading software is a Layer 2 protocol, that is, an application built on top of a blockchain, which represents the settlement layer. MetaComp is built on Ethereum. It uses digital-twin technology – an artificial intelligence process of replicating a system digitally – to represent real-world assets. These are expressed as what MetaComp calls “non-fungible digital twins”, a mashup of NFTs and digital twinning, to generate tokens that are registered as securities under Singapore law.

MVGX’s license lets it host securities tokens and provide for their custody. MetaComp’s payment license lets it integrate fiat currency and stablecoins, providing gateways to MVGX or to other blockchain-based carbon exchanges (such as Climate Impact X and AirCarbon X); and to distribute tokens on and off Ethereum.

Indonesia explorations

MVGX is also in talks to sell its technology to Indonesia Stock Exchange, which is considering becoming a carbon exchange too. It would rely on MVGX’s blockchain to validate all carbon-related data that would rest on IDX’s own registry.

Bai says MetaComp will offer what it calls Carbon Neutrality Tokens that represent a fractional ownership of a pool of carbon credits from different projects. He says the company now has over 100,000 tons of carbon locked into CNTs. One of his goals for 2023 is to create pools representing more than 1 million tons.

In theory these pools could be tranched, with higher-quality carbon projects being sold as “triple A” and lesser quality tranches sold for higher yields.

But first, the industry is too illiquid and lacks agreed ratings. It’s too early. Secondly the underlying carbon credits, despite the term “credit”, are not forms of liabilities. They are assets, a claim on projects such as reserves of rainforest that won’t be destroyed. Bai says this makes them more like Real Estate Investment Trusts, pools of yield-producing real estate assets that are securitized and trade as listed stocks.

This is why he believes the MetaComp tokens – the CNTs – are designed to operate similarly to ADRs. Bai says the Indonesian government is considering whether to treat carbon credits as financial securities rather than environmental tools, which is one reason why he’s entered a pilot with IDX.

Post-crypto?

Greasing the wheels of commerce is the MetaComp payments license, to get dollars or rupiah into the system in exchange for stablecoins that can be used to purchase tokens. There is no liquidity for a dollar/CNT pair, so a stablecoin is necessary.

Right now MetaComp caters to USDC (issued by Circle) and USDT (Tether). Asked about the well-publicized concerns about USDT’s reliability, Bai said, “We don’t hold a principal position in USDT. We are just a facilitator. If we see Tether could be dangerous, we will advise our clients.”

Bai adds that he would welcome a Singapore central-bank digital currency to add to the mix.

He says MetaComp is benefitting from the recent turmoil in crypto markets caused by the collapse of businesses such as FTX. “We see a desire [among crypto traders] to go to regulated platforms.” MVGX requires customers pass the MAS’s requirements for onboarding, including KYC and other checks. He says the exchange now has 150 clients.

Bai’s other goal for 2023, other than adding more tons of underlying carbon projects, is to break even and raise venture capital. He and his partners have been privately backing the company, spending about $30 million over four years to build the software and win the licenses.

The company is now planning to launch a Series A round next year to raise “tens of millions” of dollars. The proceeds would go first to capital reserves to boost MVGX’s ability to serve as a clearinghouse. The company also needs to add salespeople across the region.

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