Building with Blockchain in the Carbon Markets — Part 2
In our previous post, we explored how blockchain is reshaping carbon markets—bringing transparency to transactions, liquidity to markets, and credibility to the very idea of carbon offsetting.
This next chapter takes a closer look at how one of the first large-scale blockchain infrastructure projects for climate finance, Klima Protocol, is turning that vision into practice.
New Rails for Carbon Markets
Carbon markets are vital to scaling high-impact climate solutions around the world.
Many carbon projects—whether focused on carbon removal (such as reforestation, ocean alkalinity enhancement, or biochar production) or carbon mitigation (such as energy efficiency or methane capture)—depend directly on the sale of verified carbon credits.
Without buyers, these projects simply couldn’t exist, as they require significant upfront capex and rely on this revenue to maintain operations and scale over time.
Yet today’s markets still face systemic challenges: slow transactions, standalone registries, limited transparency, and uneven trust driven by opaque over-the-counter (OTC) deals. These barriers restrict liquidity, delay payments to projects, and make it harder for climate solutions to access the capital they deserve.
Klima Protocol was created to change this.
Its mission is to provide an autonomous, transparent system for pricing, managing, and retiring carbon credits—one that accelerates growth, enhances access, and strengthens confidence across the entire ecosystem.
Klima’s Blockchain Framework
At its core, Klima Protocol leverages key innovations in blockchain technology—particularly decentralization, smart contracts, and non-fungible tokens (NFTs)—to create an open, automated, and verifiable infrastructure for climate finance.
Decentralization: From Walled Gardens to Open Ecosystems
The foundation of Klima Protocol lies in decentralization—the principle that no single entity controls the network. Unlike closed or “walled garden” systems where access, data, and value flows are governed by centralized intermediaries, public blockchains are open, auditable, and permissionless by design. Anyone can observe activity in real time, verify transactions, or even build new applications that interoperate seamlessly with the existing ecosystem.
This openness drives two crucial qualities: transparency and accountability. Every transaction, fee, and contract execution is recorded on-chain and publicly verifiable, creating trust through visibility rather than institutional authority. In contrast, traditional carbon registries or trading platforms often function as closed databases—opaque and dependent on the integrity of their operators. Public blockchains, on the other hand, establish a shared, immutable source of truth that any market participant can audit at any time.
Decentralization also enhances resilience and innovation velocity. In the same way that biodiversity strengthens a natural ecosystem, decentralized networks foster a diverse landscape of developers, protocols, and participants—each experimenting, integrating, and competing to improve efficiency and usability. This open environment encourages continuous iteration and composability, where solutions like Klima Protocol can connect with lending protocols, liquidity pools, or marketplaces such as Carbonmark to form a dynamic, interoperable ecosystem for climate finance. The result is a system that evolves organically, scales globally, and resists capture by any single entity—an essential foundation for a transparent, equitable carbon market.
Smart Contracts: Automated Agreements on the Blockchain
Smart contracts are programs that run directly on the Ethereum blockchain, executing agreements automatically when certain conditions are met.
Think of a smart contract like a digital vending machine for agreements:
You set the terms (“insert X, get Y”) in code.
When the predefined conditions are met, the transaction executes automatically—no intermediaries required.
For example:
“If Person A sends 1 USDC (a digital dollar) to Person B by a certain date, then transfer ownership of a digital asset to Person A.”
Since carbon credits are essentially digital entries in registries or ledgers, they naturally lend themselves to being represented as digital assets.
When these assets are brought onto the blockchain, no central authority, broker, or lawyer needs to oversee the transaction. The blockchain ensures that the code executes exactly as written—transparently, tamper-proof, and irreversible.
This automation removes intermediaries, reduces costs, and increases speed. It also ensures that every transaction—from carbon credit issuance to retirement—is traceable and verifiable in real time.
Since their introduction in 2015, smart contracts have already revolutionized global finance, giving rise to Decentralized Finance (DeFi). Today, they are quietly but profoundly transforming how real-world assets (RWA) are owned and traded—a shift that directly applies to carbon markets, where carbon credits themselves represent tangible environmental outcomes.
NFTs: Unique Digital Assets for Publicly Verifiable Carbon Credits
Klima Protocol also makes use of non-fungible tokens (NFTs)—unique digital assets that represent specific items or data. In the carbon market context, an NFT can represent a particular batch or project of carbon credits, preserving provenance and preventing duplication.
Each NFT is governed by a smart contract using widely adopted standards such as ERC-721 or ERC-1155, which define the rules for how tokens are created (“minted”), transferred, and verified.
To understand the distinction:
Fungible assets (like dollars or Bitcoin) are interchangeable—one is as good as another.
Non-fungible assets (like artwork or carbon projects) are unique—each carries distinct attributes and value.
This uniqueness is essential in carbon markets, where every project has its own geography, methodology, and impact data. By encoding these attributes into NFTs, blockchain provides a verifiable record of origin, ownership, and retirement—ensuring every tonne of CO₂ is transparently tracked on-chain.
It has become clear that carbon credits cannot be traded as simple commodities—like metals or grains—because carbon projects vary widely. A tonne of CO₂ from one project can differ significantly from a tonne from another, depending on factors such as methodology, geography, additionality, permanence, and vintage.
We discussed this in more detail in our article on carbon pricing, which explains why prices may range from less than a dollar to more than $500 per tonne. NFTs can help automate the trading of carbon credits, as each tokenized asset carries its own unique attributes—just like the underlying projects themselves.
Semi-Fungible Assets: Finding the Middle Ground
While NFTs capture the uniqueness of individual carbon projects, not all carbon credits are entirely distinct. Many share overlapping characteristics—such as similar methodologies, project types, or geographies—creating degrees of semi-fungibility.
Klima Protocol’s Autonomous Asset Manager (AAM) model embraces this reality. It introduces the concept of carbon classes, grouping credits with comparable attributes into smaller, semi-fungible categories. This allows the Protocol to establish systematic pricing and liquidity across similar credits, while still recognizing their intrinsic differences.
Earlier blockchain experiments in carbon markets often over-aggregated diverse credits to build trading volume—an approach that increased liquidity but reduced pricing accuracy. Klima takes the opposite route: it refines and categorizes incoming data, balancing granularity with liquidity. By combining on-chain data and market sentiment, its pricing model can account for variations in quality, methodology, and geography while preserving trading efficiency.
This approach acknowledges that carbon markets occupy a middle ground between fully fungible commodities and one-of-a-kind assets. Just as real estate markets can establish consistent benchmarks for rents despite unique property traits, Klima applies semi-fungibility to carbon markets—enabling scalable trading without oversimplifying the diversity of climate projects.
The result is a more data-driven, adaptive carbon-pricing system that balances liquidity and differentiation. By structuring the market around semi-fungible asset classes, Klima Protocol moves carbon trading closer to a transparent, efficient, and realistic representation of the world’s climate assets.
You can learn more about how the AAM works in our article on economic governance and carbon pricing in Klima 2.0.
Toward an Autonomous Carbon Market
By combining smart contract and NFT functionality, Klima Protocol lays the foundation for a self-operating carbon market—one where credits can be bought, priced, and retired programmatically.
This architecture enables:
Autonomous market making: The Protocol can automatically purchase, price, and offer carbon credits for retirement.
Continuous liquidity: Buyers can access a diversified pool of credits 24/7, without relying on brokers or batch deals.
Real-time data: Project developers and market participants can view transparent on-chain pricing and activity data.
The result is a more efficient, inclusive, and transparent carbon economy—one where technology lowers barriers, accelerates funding, and ensures integrity at every step.
Building an Open, Evolving Infrastructure
Klima Protocol is more than a product—it’s open infrastructure. It serves as a foundation upon which others can build, creating new markets and applications for climate finance.
From tokenizing new types of environmental assets to powering digital marketplaces and embedded offset solutions, Klima is helping redefine how capital flows into verified climate action.
In our next article, we’ll explore how one of the first platforms built on top of this infrastructure—Carbonmark—is already leveraging Klima Protocol to bring real-world accessibility, transparency, and efficiency to the carbon market.
