Open Forest Protocol - Investment Memo

Creating fully data-backed, transparent and digitally-native carbon credits.

Open Forest Protocol provides open source infrastructure to streamline and accelerate the process of measuring, reporting, verifying and issuing carbon credits for forestry projects of any size. The platform provides scalable, accessible and transparent infrastructure and tools for Nature Based Solutions (focussing on ARR) to generate high quality carbon credits.

Problem

90%+ of the restoration areas can’t access the tools and mechanisms to unlock value from the market. Access to carbon credit platforms is:

1. Exclusive (for larger projects)
2. Expensive (>$50K) with long timelines (2-5 years)
3. Lack of transparency

Smaller projects (<1000 ha) face the problem more severely, this creates a $50B+ annual market opportunity for forest carbon credits expected by 2030 which remains largely untapped.

Solution

Open Forest Protocol is an end-to-end digitally native platform from measurement to issuance of credits on the blockchain. This caters to small- and medium-sized projects globally by having:

1. No upfront costs
2. Minimum project size of 0.2 hectares
3. Anyone can be the project developer (small indigenous community to larger entities). The mobile app and dashboard simplifies data collection from decentralized sources

Validation - The proprietary consensus mechanism leverages validator network to verify project data. A public ledger provides transparency while tokenization accelerates sales to liquidity of assets, transparency of assets and better lifecycle tracking of assets through retirement are also benefits of tokenization.

77 small to medium sized forestation and restoration projects have been onboarded already across over 20 countries, with 70+ more committed for near term. Geographic footprint is global across primarily the Global South where restoration needs are greatest.

Number of Projects:

• 77 projects onboarded as of September 2023 (4’880 ha)
• 70+ additional projects in onboarding pipeline (90’000 ha)

Average Project Size:

• Currently onboarded projects : most projects currently in smallholder range <100 hectares
• In pipeline, average project size > 300 ha

Locations:

• Projects span over 20 countries in Africa, South America, Central America, Europe, Asia, and Oceania

Platform & Tech

• Project Operator Dashboard and Field Mobile App : for Project Developers to manage their projects and collect ground monitoring data
• Validation Dashboard : for Validators to evaluate the ground monitoring data collected by Project Developers
• Wallet : to manage assets (i.e. carbon credits)
• Atlas: Platform listing all onboarded projects and related data
• Validation Network : 25 active organisations part of the validation network (see Validation)
• Released a White Paper on Crypto-Economics
• Released a Carbon White Paper for Afforestation / Reforestation projects

Funding raised

OFP raised $4.1m pre-seed in 2022, this was done via tokenisation mainly to Web3.0 VC. This round has not impacted the cap table.

Over the past 3 years, the capital was used to develop the core components of its digitally native carbon credit platform.

Flowcarbon (backed by a16z)- financing platform for carbon projects. Confirmed $10m-15m worth of credit offtake in 2024

Neutral X - trade platform for tokenised credits. Confirmed $200k worth of credit offtake in 2024

Senken - carbon credits marketplace. Confirmed $350k worth of credit offtake in 202

Its mobile app and dashboard simplify plot-level data gathering in standardized formats for transparency. This data is directly uploaded to a public ledger which coordinates Open Forest Protocol's proprietary consensus mechanism for verification. Leveraging a decentralized network composed of over 25 remote sensing and earth data intelligence companies as Validators, Open Forest Protocol evaluates the legitimacy of each project’s monitoring data. Through this decentralized participation, the system provides a robust, trustless verification solution.

The immutably stored data then allows smart contracts to autonomously issue tokenized carbon credits representing verified sequestration outcomes. This traceability from monitoring to minting ensures credits issued via Open Forest Protocol are backed by the highest credibility data pipelines in the carbon market currently.

Open Forest Protocol’s USP’s

Open Forest Protocol consolidated the entire workflow into a streamlined, cohesive digital experience for restoration initiative owners.

The mobile apps simplify plot-level data gathering before automation takes over - managing verification, tokenization into blockchain-based credits, and seamless ecosystem connections for sale to buyers for offsetting.

MRV Process

• Projects use OFP’s mobile app to collect ground-level forestry monitoring data
• Information gathered on trees planted, species, growth rates, survival rates, etc.
• App ensures data standardized for carbon calculation and transparency
• Data directly uploaded to a public blockchain ledger

Validation Process

• Proprietary incentive mechanism coordinates validator network
• 25+ expert remote sensing companies currently in the network
• Each uploads its own assessment of project data legitimacy
• Consensus algorithm computes overall data verification

Credit Issuance Process

• If data successfully validated, smart contract issues digital tokens
• Tokens minted represent issued carbon credits
• Credits minted based on verified carbon sequestration levels
• Tokens digitally transferred to projects based on pre-agreed allocation
• Projects receive 85% of the credits that they produce. This is 1.5-2x the direct financial benefit than is possible through legacy issuance systems.
• Enables frictionless sale to tokenized carbon marketplace

Open Forest Protocol is pursuing a 4-pillar sales strategy to drive adoption of its forestation carbon credit platform.

1. Continue onboarding smallholder projects through proactive outreach and referrals, with a 2024 goal of 60,000 registered hectares.
2. Established developers managing larger projects will be targeted through existing partnerships and networks like cooperatives, aiming to formalize relationships with 5 major reforestation organizations in 2024.
3. Focus on country partnerships, leveraging current government relationships and collaborations with groups like the UN to advance 1-2 country-level agreements by 2024 to employ OFP's infrastructure for transparent credit flow monitoring.
4. The platform will be opened up for third party developers to create additional sustainability asset classes and methodologies, driving further revenue growth. Underpinning this is a growth trajectory from 60,000 ha in 2024 to over 2.5 million ha by 2028 through expanding these pillars in parallel.

Pillar 1: Current Projects

Profile: smallholder projects, below 1,000 hectares, can’t access any other platforms due to size and requirements. Limited access to the global carbon market.

Sales approach

• Organic inbound and proactive outreach (currently receiving inbound interest via website and referrals)
• Currently, there are 20 countries active on the platform. To increase the number of projects, focus on regions with existing traction and double down on the most active countries
• Expand based on need: Brazil is focusing on reforestation efforts for a large number of hectares
• Sales cycle: 3-4 weeks

2024 goal: 60,000 ha registered

Current Projects

Pillar 3: Country Partners

Profile: countries that are in the process of setting up their carbon taxation/incentive frameworks

Sales approach

• Establish OFP as platform for transparent credit flows
• Leverage existing country relationships as proof points
• Partner with UN entities working on nature restoration
• Sales cycle: up to 1 year

2024 goal: Formalize 1-2 country partnerships

Pillar 2: Established Carbon Developers

Profile: Organisations (NGO or for-profits) managing a number of projects, funded by foundations or offset/credit sales, looking for a partner platform to manage NBS carbon credit production and capture.

Sales approach

• Convert existing partnerships and identify new networks
• Engage cooperatives through partners to increase outreach to project developers
• Currently have a pipeline of 70 key accounts with outbound sales strategy, implement account management for key established accounts
• Sales cycle: 2-4 months

2024 goal: 5 new major partners

Open Forest Protocol has an attractive fee-based revenue model generating income from every credit issued on the platform as well as credits sold through their future integrated auction mechanism. This results in strong unit economics - for every new hectare of restoration project onboarded, recurrent high-margin revenue.

Given the current $40 per tonne CO2e credit pricing and the milestone to have over 500,000 hectares under monitoring by 2026, Open Forest Protocol is projecting annual revenue of $6.3 million by 2027. With operational expenses forecast to grow only 10% annually, staying under $1.5 million through 2026, gross margins scale significantly.

OFP charges a 2.5% fee on the gross value of all credits created through ecosystems tracked on their platform. And they add an additional 1% transaction fee when credits are sold through their digital wholesale auction house.

Supply side

The voluntary carbon markets enabling corporations, governments, and individuals to offset residual emissions through purchasing credits is experiencing exponential growth. Annual trading volumes doubled in both 2020 and 2021, exceeding $2 billion last year. Major reports estimate the market could expand over 25x to be worth upwards of $50 billion per year by 2030.

Analysts predict nature-based credits will account for around 37% of all transactions in coming years as more enterprises pursue biodiversity-aligned strategies.

Within nature-based markets, afforestation and reforestation projects comprise a particularly sizable opportunity as they offer permanent carbon dioxide removal outcomes at gigatonne scales. Globally there remains up to 2 billion hectares of land viable for restoration efforts capable of sequestering an estimated 3 billion tonnes of CO2 equivalent when mature.

However, 99% of these viable restoration areas lack access to the necessary financing and accredited standards to register legitimate credits at present. The costs, complexity, and timelines of existing infrastructure prevent participation for smaller projects across developing regions where needs are greatest. This underscores the vast, untapped potential aligned with Open Forest Protocol’s mission to open access through streamlined digitally-native pathways to validation and sale into carbon markets hungrier than ever for verified, high-integrity removal credits.

Demand side

The voluntary carbon credit markets are entering a phase of exponential growth driven by surging buy-side demand. An aggregation of estimates from top management consulting firms suggests annual global trading volumes ranging from $250 billion to over $1 trillion by 2050. Early signals support this prospect with corporate and government procurement recently accelerating.

In 2021 alone, 300 multinationals across sectors like Big Tech, aviation, CPG, and autos committed to or invested in carbon neutrality targets manifesting through credit purchases. Countries home to over half global GDP have now embedded net zero pledges into policy roadmaps ratcheting demand. Beyond emissions balancing, the regenerative multi-stakeholder economics catalyzed by credit markets are mobilizing groups like celebrities into the climate arena further expanding funding pools.

Bottom-up analysis calculating Open Forest Protocol's TAM, SAM, and SOM for carbon credits assuming an average price of $40 per credit:

Total Addressable Market (TAM)

2033 projected hectares on platform: 12,000,000

At average 1,250 trees per hectare = 15 billion total trees.

Each tree assumes 20 kg CO2 removed per year.

So annual removal at maturity = 15 billion * 20 kg= 300 billion kg CO2 = 300 MtCO2

Valued at $40 per tonne:

TAM = 300 Mt * $40 = $12 billion

Serviceable/Obtainable Market (SAM)

Looking at 2028 pipeline:

2,500,000 hectares projected on platform. At 1,250 trees/hectare = 3.125 billion trees.

Each tree removing 20 kg CO2 per year.

So annual removal = 3.125 billion * 20 kg

= 62,500,000,000 kg = 62.5 MtCO2

Valued at $40 = SAM of $2.5 billion

Serviceable Obtainable Market (SOM)

Analyzing first 3 years (2024-2026):

Hectares range from 60,000 (2024) to 500,000 (2026), Average 225,000 hectares

At 1,250 trees/hectare = 281 million trees, Each removing 20 kg CO2 per year

So 3 year SOM removal ~ 5.625 MtCO2

Valued at $40/tonne = $225 million

Investment trends

Investor interest in marketplaces digitizing voluntary carbon transactions has accelerated over 18 months as corporates made increasingly bold emissions reduction commitments. Venture financing into the broader measured climate solutions space hit a record $32 billion in 2022.

• Treefera , AI powered MRV platform, raised $2.2m
• SustainCERT raises $37 million to take climate impact verification platform global
• Carbonfuture raised a $22.8 million Series A for its platform trading CO2 removal certificates.

Latest acquisition:

• Liquid market leader AirCarbon Exchange was acquired by CF Acquisition Corp V I at a $1.4 billion valuation in March 2022 demonstrating M&A interest in sector while

Climate tech infrastructure enabling transparency, verification, and connectivity between emissions producers and offset suppliers ranks among most compelling propositions this decade given trends of multiplying demand-supply gaps.

Open Forest Protocol's innovation lies directly at the heart of this booming investment arena bridging fragmented climate progress.

Previous rounds

Previously, Open Forest Protocol raised $4.1 million from a number of leading Web3 venture investors through an initial token distribution event. This mechanism enabled capitalization without dilution as participants obtained governance and utility tokens overlayed atop Open Forest Protocol's decentralized protocol.

Given the previous token-based raises, Open Forest Protocol has clean cap table (3 founders).

The fresh capital being raised now via equity at a $6 million valuation. This exists alongside the token holder community maintaining protocol ownership.

This round comes at a key inflection point where Open Forest Protocol has seen initial traction with 77 projects already onboarded onto their digitized carbon credit issuance platform spanning 21 countries. The protocol has processed thousands of hectares to date.

Next possible round: ICO in 2024 or Series A in Q3 2025

Competitors landscape

Unlike most legacy standards, Open Forest Protocol provides an integrated end-to-end solution spanning monitoring, verification, issuance, and sale of credits. Incumbents focus narrowly on certification and offload remaining functions like origination or credit sale marketplace connectivity to partners and brokers. This fragmentation across steps creates opacity, expenses, and delays for projects navigating convoluted experiences.

Most rival standards rely on singular third-party verifiers centrally auditing submissions. Instead, Open Forest Protocol uses its proprietary consensus algorithm to align open participation from a spectrum of geospatial analytics vendors, carbon scientists, data accountability experts, and other technical reviewers.