Episode 38 of the Reversing Climate Change podcast. You can listen on Spotify (subscribe there for ad-free), Apple Podcasts, or wherever else you listen. Paid subscribers get the ad-free version right here on the page.
We know that Nori is on a mission to reverse climate change by building a platform that pays people to remove carbon dioxide from the atmosphere. But how exactly will the token economics of that platform work? Why is Nori creating its own cryptocurrency separate from its carbon removal certificates? And how can we get involved and invest in Nori?
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Full Transcript
Ross Kenyon: [unclear] listening to the Reversing Climate Change podcast by Nori, the world's first carbon removal marketplace. Here are your hosts Ross Kenyon and Christophe Jospe. Hello, welcome to the Reversing Climate Change podcast with Nori. I'm Ross Kenyon. Here's Christophe Jospe. We have producer Paul, Paul Gambill, our co-founder and CEO is joining us today for a special episode.
We're going to talk about token economics, why Nori needs a token, our fundraising process. We'll probably get into some other things around regulation of how these projects are launching and how ours is specifically. If you like the podcast, you should be sure to give us a good review on iTunes or wherever you get your podcasts, share this content, make sure the world knows about the Reversing Climate Change podcast. We would be very grateful that I do my duty as the podcast host.
Christophe Jospe: Yeah, I was about to just put my headphones down and walk out of the room. I feel like my job here is done. Good job, Ross.
Ross Kenyon: I think I'd be pretty lost without you though.
Christophe Jospe: Yeah, we're constantly saving each other sometimes.
Ross Kenyon: It's a harder job than it sounds sometimes.
Christophe Jospe: You need backup.
Ross Kenyon: Totally.
Christophe Jospe: And I actually felt in my last phrase, I had a very flat voice, which is incorrect because I am very enthusiastic. It has barely been 24 hours and something exciting has just gone live on a website. We're gonna talk about that, aren't we Paul?
Paul Gambill: Yes, very carefully.
Ross Kenyon: Paul is smiling.
Christophe Jospe: I couldn't be more grateful to work with someone like Paul because he's someone who's very careful in what he does. And this probably has taken up an outsized amount of hours of your, I'd say last couple months.
Paul Gambill: I think this is the only thing I've worked on in the last two months. And it's kind of important for us to get right.
Christophe Jospe: So how about we just jump to the chase, like cut to the chase?
Ross Kenyon: What?
Paul Gambill: So yeah, the short of it is that Nori has a crowdfunding campaign going on right now. [Nori promotion cut from the transcript. It’s still in the audio, but it no longer applies.] I can't really say much more beyond that because the SEC has very strict rules around what can be communicated. So everything that you need to know is on that page. Please go visit that and learn more about investing in Nori. What we can talk about are the rules around how these are governed as well as our other sale that is going on. I'm not the host here, so.
Ross Kenyon: Right. I was going to let you back host it if you wanted. I was going to cede that authority.
Christophe Jospe: I was kind of hoping you would just ask yourself questions and then answer them. I was going to get a little nap in while this happened.
Ross Kenyon: We're talking about a token, right?
Paul Gambill: Talking about a token. A Nori token.
Christophe Jospe: And we get this question increasingly, so we might as well just want to address it up. We're also burying the lead a little bit. Like when you listen to this podcast, we have a new version of our website up right now that has also published our white paper for the very first time publicly.
Ross Kenyon: Yeah, that's big news. It's been a huge portion of my workload for months and months editing a 70 plus page paper with many contributors, version control been a challenge. That's kind of a kitchen sink document there. There's everything in it. We're going to be finding ways to excerpt parts of it out that might be better standalone. Not everyone wants to send out information. Sometimes it's daunting, but it is the place where almost all of our technical details and philosophical approaches to these problems are stored.
And we'll continue to update that and have future versions come out as we learn more, we develop more, we have more things to share, and also a designed version of that is coming soon too in a few weeks. It will no longer look like a glorified Google document. It will look-
Paul Gambill: Because that's what it is.
Ross Kenyon: Yeah. That's the easiest way to do this. Yeah, we have a designer working on it too, so we'll be excited to share that. So a lot of stuff we're releasing right now, which has been really exciting. And then also, well wait, do you wanna get into the actual-
Christophe Jospe: Well, I brought that up because there is a whole section in there on token economics. So I just wanted to say that we're gonna talk about, in this episode, all about the Nori token and how we went about determining the total number and everything and how the sales happen and what these tokens will be used for and everything else about that. But that's all also in the white paper.
Ross Kenyon: We'll do the general and then we'll zoom into us specifically. There's a great podcast that we should link to on Tyler Cowen's Conversations with Tyler, Vitalik Buterin was on recently. There's a section there, he's talking about token economics, or it's also called cryptoeconomics. And he had some line where he said, it's actually just economics. It's just like an appendage that was added to this. So just generally, how do you describe token economics?
Paul Gambill: Token economics would entail the total number of tokens that are being created to serve whatever application or ecosystem they exist in, whether or not more tokens will be created in the future, how they are being initially issued. Are they being mined like a Bitcoin or Ether or are they being minted and sold like in the ICOs that we saw in 2017?
Ross Kenyon: ICO, that's initial coin offering.
Paul Gambill: Yeah. Things around how is the token used, where does demand and value for that token come from. Just kind of a general overall thesis about like this is a thing that is used as a medium of exchange or store of value and how do the designers of that expect that to play out over time. Very generally I usually think about it as how do you encourage some new type of behavior that systems that exist now are not adequately serving. So specifically carbon removal is not happening and therefore we're creating a system where this token will hopefully encourage people to start providing carbon removal services.
Ross Kenyon: Yeah.
Paul Gambill: Can I give a real world example? One of my favorite books that I've tried to make everyone at Nori read is called Rethinking Money.
Christophe Jospe: Oh yeah, we gave this one before, but I think I butchered it.
Paul Gambill: Yeah. So okay, let's do it again. So Rethinking Money is book published in 2014 and interestingly doesn't include anything about cryptocurrencies.
Ross Kenyon: Well, it was pretty much just a couple of weird proof of stake coins and Bitcoin back then. It was pretty early.
Paul Gambill: That's true, but Bitcoin could have served it anyway. The thesis that the authors are trying to make is that alternative currencies can be used to help small or localized communities create value where previously it didn't exist. My favorite case study from there is from, I can't remember the name of it, but it's a town in Brazil. They're on the coast and they had a very polluted coastal waters around the city. The local city government came up with a plan where they had this surplus of a thing, which was their public transit system. And they came up with a plan to offer to pay people for however much trash they collected from the coastal waters, from the bay right there. If they turned that trash in, they would receive tokens in exchange, like physical coin type things that they could use for riding on the bus.
But what ended up happening was so many people were doing this and incentivized to do this. These are people who were unemployed for the most part or just trying to find some way to get a free bus ride or something. These tokens became so widely used that local stores started accepting them as actual currency. And so in a region that had been hit very, very hard by an economic downturn nationally, what's the Brazilian currency? Is it the Real?
Ross Kenyon: I believe it's the Real.
Paul Gambill: Yeah. So the Real was not doing well when people didn't have many Reals, they could use this other currency to transact with each other. So the point of the book is that what we really need to improve people's lives economically is to create many, many, many new currencies that can serve everything. And so I often get made fun of at Nori for saying that we should tokenize everything, literally everything.
Christophe Jospe: [unclear] referring to me pushing back on him a little bit on this sometimes, but it's an active debate both in this space and at Nori. It's okay to disagree.
Paul Gambill: I think we can tokenize just about anything, but probably not everything. There are probably some things that are best left untokenized. I don't remember who I heard say this, but I don't want to tokenize interactions with my family members.
Ross Kenyon: That very well might have been me. I think I said one time, imagining a mother being like, I will give you $20 to respect your father and being like, that would corrupt the family.
Paul Gambill: I think yeah, when, when there's subjectivity involved in the tokenization, probably best to leave that outside. But here with Nori, we've got something very straightforward and I can say like, we're the first ones who are tokenizing carbon removal. And that is super exciting. Like that more or less happened yesterday. We probably passed a point of no return.
Ross Kenyon: Sure.
Christophe Jospe: Sounds [unclear], but in a really good way.
Paul Gambill: In a really good way.
Christophe Jospe: That's sort of the genesis of this idea that when I came out to Seattle over a year ago now, Paul and I started talking about how can we go into business together. We came up with this idea in like five minutes. It's not very complicated.
Paul Gambill: It wasn't just that. We've been thinking about it for many months.
Christophe Jospe: Totally half-baked. We haven't thought it through. That said, the execution is the hardest part, and that's part of why we do this podcast so that we can be very transparent about how we're going about executing. Ideas are cheap, right? It's not that hard to think of that idea. It's how you do it, who you know, actually building it, being reliable. Those are the things that matter most. And understanding why does this need to be tokenized? And once you tokenize carbon removal, what does that even mean? Like what are we trying to achieve? Oftentimes we use the term reference price for carbon, which I think is a really important piece here. So tokens.
Paul Gambill: Yeah, let's get into all of those. I thought it might be good to talk about the history of what we've gone through in our thinking. So you were jumping back to the very beginning when you and I came up with the business model for Nori. Basic idea behind it was, imagine it's the middle of 2017, the ICO craze is going like gangbusters in the cryptocurrency space. So there are companies that are decentralized app companies that are raising tens, if not hundreds of millions of dollars in these ICOs where they're creating their tokens and selling them. So we're seeing that happen and realizing, hey, we could use this potentially to raise money to create a more liquid market that will provide financial capital to carbon removal projects.
So what we came up with was this model where you have a token that is the medium of exchange that gets used to pay for one tonne of carbon dioxide. Christophe just mentioned the reference price. So what that means is the price of the Nori token whatever that price that might be in third party exchange markets is a reference price because it's a reference that people can look at and say that's how much a tonne of carbon dioxide costs since one Nori token buys one tonne of CO2. This is really, really useful for people even if they're not participating in our market, if you're a policymaker or if you are working in supply chain at some large corporation or maybe you're an academic and you're trying to model out different scenarios that people might look at, how do we draw down carbon dioxide fast enough?
It's the same way that the Brent crude oil reference price works. So if you were a commodity trader and you wanted to purchase oil contracts, you could go to several different places, but the most popular one that people are aware of is the Brent crude oil. So when people talk about like, oh, the oil price has fallen dramatically in the last few years, that's because they're looking at what the Brent crude oil price is. And the Nori token can serve as that for carbon.
Christophe Jospe: So we've got two things going on, right? We've got a Nori token and then we've got a carbon removal certificate or a CRC, which we know is the removal of one metric tonne of CO2 from the atmosphere. And we separated them. One of the questions we get is, well, why don't you just sell CRCs? Why do you need a token? So why, Paul?
Paul Gambill: Sort of thinking of these in a few different reasons. The first and foremost is that reference price that I'm talking about. So price of the Nori token can act as a commodity. We'll get into this when we talk about the regulatory things that we have to deal with. We really, really want the Nori token to be viewed by regulators as a commodity. Commodities have very liquid markets. There are people who are speculating on them. So speculators and hedgers, we've talked about that in previous episodes, like the previous one we did with Klaus. That's really important. That token being fungible in that way becomes highly liquid.
By liquid, we mean that it's very easy for that to be exchanged for something else. Let's say that the three of us here created a new currency and we called it the RCC for Reversing Climate Change. The three of us here were the only ones who used that currency and I had, say, 10 RCC tokens and I wanted to exchange those for 10 US dollars. The only people that might be willing to accept those would be sitting here at the table. So it's not very liquid. If you don't want to sell dollars to me, then I can't do anything with it. There are 3 million people using this RCC coin. Then there's many, many more people that I could go exchange that coin with. So that's what liquidity is. The more liquidity there is, the more useful that currency becomes. To look at it more broadly, like the US dollar is often seen as a sort of reserve currency for the world. It's because it's used everywhere and people trust that the value of a dollar will be the same tomorrow as it is today. We separated them for that liquidity because it's much easier to do that.
Ross Kenyon: All right, so liquidity and what else is there? Is there some other reason?
Paul Gambill: The other reason that we separate them is because carbon dioxide is a fickle mistress. You can't see it.
Ross Kenyon: I'm going to put that on a bumper sticker for Nori. Nori just got a new tagline. That should have been a Christophe right there.
Christophe Jospe: I know. I had that thought.
Paul Gambill: It's tricky because you can't see it and you can't smell it. And in the case of our first soil carbon removal methodology, we can't even directly measure it. We have to use estimation and modeling to figure out carbon stock. Especially in these more ecological methods of carbon removal, it's plausible that there might be some instances in which we either overestimate the amount of carbon dioxide that's been removed or the storage method causes some sort of leakage. So say, for example, there was an afforestation project, you planted a stand of trees and then all those trees burned down while all that carbon dioxide has been released back out to the atmosphere. And in the current carbon markets, the buyer of those credits is responsible to their reporting obligations buy more credits in the case of that leakage happening. Our model, we're flipping that on its head and we're saying the supplier is responsible for that. The buyer should not be. So we are creating an insurance reserve and I'll talk more about the details of that in a little bit, to be able to pay for other carbon removal certificates and then assign those to the buyer of the original invalid CRCs.
The cryptocurrency in having our own token gives us the ability to do that. If you're coming from a crypto space, one question that people in the cryptocurrency space often ask is why make your own token as opposed to using Ethereum or Bitcoin? Well, the reason for that for us is that it gives us the possibility to design the parameters of the tokens. How many are created? Will there ever be more created? Possible uses might there be? And we're taking advantage of all of that because ultimately, these tokens are just software code. They're just programs. We can write programs and software to do whatever we want. So they give us a lot more flexibility to make a better design for our overall market.
And just to get really geeky on one reason that we can use a token and do really cool things with it is that for every carbon removal certificate that we're generating through this soil carbon methodology, we're assigning a score. And that score matters because when the CRC sells for a Nori token, the higher the score, the more tokens you have that are immediately tradable, the rest of the tokens will go into a restricted account. And so we're able to use this to create a whole new market incentive to produce ways to come up with ideas around reducing estimation error. And that gets a lot of soil scientists excited. It also gets a lot of technologists excited who have ways to use better measurement techniques and ways to reduce the estimation error. And Nori doesn't need to prescribe what it is that is going to reduce the estimation error or what techniques someone must do in order to create these measurements. But we can say, tell us what you know, assign the estimation error with whatever measurement technique, for instance, a soil probe, and then that will just use a cryptocurrency to drive new innovation. So I think that there are a whole lot of reasons why it's important to have our unique code to be able to do this on our own.
Other things that the token can do is because it's so liquid and so fungible. There are opportunities for arbitrage depending on what kind of participant you are in the Nori marketplace. So let's say you are a company that wants to be buying CRCs to offset the emissions from your operations and you emit 1 million tonnes every year. Well, you might buy 3 million tokens today in the price that you pay for that relative to US dollars. Now you have these tokens and they're basically gift cards. And then you cash those gift cards in for carbon removal certificates, one million every year over three years. So you get that predictability of how much you paid for that. And maybe you end up saving money in the long run. Maybe you don't, but that's up to the exchange markets. On the other side of it, if you are a supplier of CRCs, you might get paid in the Nori token and you might decide, I want to trade this for some other currency right away, or I might want to trade it in the future. Or I might want to work with a financial intermediary who pays me a fixed fee and they'll take the tokens. Like it just creates lots of new opportunities for people to organize themselves in ways that might better for them in ways that we couldn't predict as like sort of pseudo central planners.
Ross Kenyon: Did that hurt you to say that last part?
Paul Gambill: No, no, I'm saying we're not being central planners.
Ross Kenyon: Okay.
Paul Gambill: Yeah. No, it feels very good.
Ross Kenyon: So in the beginning, you talked about all the sorts of rules that govern token economics. You talked about minting tokens versus mining tokens. So what's Nori doing? Walk us through that.
Paul Gambill: Yeah. So we started this last summer and then we created our first draft white paper for the Consensus hackathon that we won. And then from there we realized, okay, this is a very difficult challenge because if you think about it, we create a finite number of tokens and that scarcity, the fact that there are only a set number of tokens is where the value of this comes from. So if the demand for carbon removal increases over time, then demand for the Nori token increases, which should increase the price. So what that means though is if we make too many tokens, the price of the token will be too low to incentivize carbon removal suppliers to participate. And if we make not enough tokens right now, then it could potentially be a problem in the future if the price goes up too high. Because we are pegging the price of one Nori token to one CRC, we have this issue. And this is a problem that Klaus has brought up on our previous episode with him.
We recognize that problem and we started working with several different economists, one of whom, our co-founder Aldyen, who you've heard from a couple of times on this podcast. But we also hired an economist named Kyle Burchard, who gave a short presentation about this at our Reversa Palooza conference in April. The work that he and Aldyen and the rest of us have been doing, they took about eight months for this. And we did a lot of modeling of potential participation in the Nori marketplace based on data that we have already and know about possible carbon storage in soils and a forest in the United States. Kyle worked on creating what's called an agent-based simulation model. And so that's where you define different like actors in a system and you give them parameters or rules around how they'll take action. And then you let a simulation run. You look at the results and you might do that many times and you look at the results and see what they come out with.
This is kind of how it ended up playing out. Aldyen, Kyle and I each took our own separate approaches to determine the total number of tokens. Mine was more of like an intuitive back of the envelope estimation on tokens. It was somewhere in the range between 100 million and 1 billion, but I thought it was on the lower side. Aldyen came up with, I think, around 250 to 300 million. And Kyle came up with between 250 and 500 million based on his different calculations. So we all kind of sort of zeroed in on the same number. And we felt good about that because we had taken these different approaches and come up with similar results. We are making 500 million tokens.
100 million of those tokens are being used right now for fundraising for Nori. We are selling these in two ways. I mentioned the Republic campaign. [Nori promotion cut from the transcript. It’s still in the audio, but it no longer applies.] And then we are selling tokens in what's called a Regulation D exemption sale to accredited investors. So Ross and I have had the great pleasure and honor and distinction of learning everything there is to know about securities laws in the United States.
Ross Kenyon: No way, there's so much to it. I do find it quite fascinating, but it's a deep kind of subject.
Christophe Jospe: Ross, didn't you bag some certifications along the way?
Ross Kenyon: Yeah, I did. I did a couple of the series tests under FINRA or the National Futures Association. And there's one coming out soon that they're reorganizing with the Series 7 called the Securities Industry Essentials Test that I'm preparing for right now. I think it's going to be the last one because my brain kind of hurts from it sometimes. There's a lot. I'm looking forward to working with ranchers and farmers and digging my hand into the dirt after it. But it is intellectually stimulating.
Christophe Jospe: Let's get some calluses on those hands. Sorry, what's FINRA?
Ross Kenyon: Financial Industry Regulatory Authority. So there's a bunch of agencies that are designated under legislation like the SEC was created in 1934, the Securities Exchange Act. Many of these policies will delegate authority for regulating to what's called SROs, self-regulatory organizations. So there's sort of this like chain of command that goes down that is more involved with the policing and how they keep track. So like FINRA works a lot with brokerages.
Paul Gambill: Should we talk about what a security is?
Ross Kenyon: You want to give it a go?
Paul Gambill: Yeah. So I published a piece on our Nori blog about this a while ago. When the ICO craze was happening in 2017 last year, all these companies were selling tokens to Americans, to anyone from like anywhere all over the world. It was totally anonymous. You could just simply send Ether to a specific wallet address and then you would automatically receive tokens in return. There's no identity checks or anything like that. It was really kind of a wild west. Those days are long over now because the SEC, like Ross mentioned, got their charter in 1934 when the Securities Acts of 1933 and '34 were passed by Congress in the US. Passed in response to the Great Depression. And basically taking the approach that, well, there were too many risky investments and so they wanted to limit the possibility of increased risky investments harming people who didn't necessarily have the funds or assets to deal with losing all of those.
Ross Kenyon: They're not there to tell you it's a bad investment. In fact, I think you can even put on your forms like, "We don't recommend even investing in this thing. This is a bad idea." As long as you disclose everything in accordance with the law, the SEC says, "Cool, good luck."
Paul Gambill: So when passing those laws, Congress wrote this very long paragraph, and I can't remember the whole thing, but they define a bunch of different things as securities. What people are probably most familiar with would be stocks, stocks or shares in a company. Those are definitely securities.
Ross Kenyon: Or bonds, debt instruments.
Paul Gambill: Yeah. But one interesting security that was listed in that paragraph was something that's called an investment contract. And an investment contract really came to the fore from, I think it was a 1946 Supreme Court case called Howey versus the SEC. Howey, Mr. Howey, can't remember his first name, was an entrepreneur in Florida who owned a large orange grove. And he went around to potential investors and talking to them said, "Here's my offer to you. I'm going to sell you a parcel of this orange grove land. And then I want you to sign this contract that leases that land back to me and I'm going to operate the farming and maintenance of that land and I'm going to distribute some of the profits to you. So all you have to do is buy the land and tell me that I can operate it and you're just going to start receiving money from me." And the SEC was like, no, no, no, no, you can't do that because that's a security. That's an investment contract. He was saying, "No, this is just a real estate deal. I'm selling real estate." So this went all the way up to the Supreme Court. The Supreme Court decided that yes, it is in fact a security and it's an investment contract. And they came up with language, what's called the Howey Test now, that defines how to know when something is an investment contract.
Ross Kenyon: Howey know that.
Christophe Jospe: Oh, God. How long were you sitting on that gem?
Ross Kenyon: About two seconds.
Paul Gambill: The parameters of an investment contract are if you sell something to someone and they expect to make a return on it based on the efforts of some third party, then that's an investment contract and therefore security. So the SEC was taking that and looking at these companies that were selling tokens, companies that did not have working products, they don't have an actual network for their thing, they're just selling tokens and then they're gonna take that money and go hire a team and build it. So they're looking at that and saying, well, this is the same thing because you're selling a thing, an instrument to someone who is buying that, they're expecting to make a return on it, otherwise they wouldn't be buying it. And the only reason that the value of that token should go up is because you, the issuer, the company, are going to do work to build the application behind it. We agree with the SEC. That's an investment contract. Because of that, everything that we are doing to sell our tokens right now is done in full compliance with the laws and regulations and as much guidance as we've gotten from the SEC. Cryptocurrency is relatively new and there's still a lot of open questions about things, but we're trying to comply the best we possibly can.
Ross Kenyon: Yeah, some of the policies now are the sentiment is based around what's called dictum. So there hasn't been an officially offered public statement by the relevant regulatory authority, but some member of the authority like the SEC has given a speech where they indicated that this was a certain way might be possible. Is it dicta if it's plural? Dicta.
Christophe Jospe: Dicta. Dictums.
Ross Kenyon: Definitely not dictums.
Christophe Jospe: No, that would be dumb.
Ross Kenyon: Anyway, we're keeping that one in.
Paul Gambill: Anyway, when Congress passed the Securities Acts, they included a few different exemptions. Basically, the Securities Acts are saying if you're going to sell securities, you have to register the securities with the SEC. So if you're familiar with how IPOs work, that's initial public offerings, when a company goes public, they're going through a registration process with the SEC. It's very expensive, very time consuming, takes a lot of legal work. You have to find an underwriter so you have to partner with an investment bank. It's incredibly expensive. It is not really an option for startups. And it's probably not a good option for startups anyway because you haven't proven yourself.
Ross Kenyon: Far down the line too, this is way after you've done multiple series rounds.
Paul Gambill: Right. Equity. Yeah. If you look at the big tech companies that do this, they've often been around for five or 10 years before they try to go public. The exemptions though, the one that's particularly important to us right now is the Regulation D exemption. Back in 2012, Congress passed what's called the Jobs Act and it was like jumpstart our businesses or something like that.
Ross Kenyon: Yeah, I think that's right.
Paul Gambill: The idea was, if you think about it, these securities laws are not good in some ways because basically, our federal laws are set up to encourage people to buy stocks in the stock market. But that's just straight up gambling. And we're saying that the only people who are allowed to buy securities that aren't in public offerings through Regulation D have to be accredited investors. And accredited investors by today's numbers means that you either have to have $1 million in assets, excluding your primary residence, or you have earned $200,000 per year in income over the last two years and that you expect to also make that this year. Basically saying, in order for you to invest in a company, you have to already be rich. So the problem as I see it is that the opportunities for making great wealth, which means like investing in early stage companies, are only available to people who already have significant financial assets. The downside to this problem. So in an effort to try to deal with out like throwing the baby out with the bathwater, Congress passed the Jobs Act in 2012, created a new exemption class and this is called the 506C exemption that's part of Regulation D.
What it means is that a company that's selling securities does not have to register with the SEC and you are allowed to sell to accredited investors. You can sell to up to 2,000 different investors and you can raise any amount of money that you want doing these. They also created the Regulation A+ exemption which is open to non-accredited investors as well. You can only raise a maximum of $50 million per year. It's an unlimited number of investors that you can participate with. And there are some limits to how much non-accredited investors can actually invest, but it's at least open to them. That requires-
Ross Kenyon: A long approval process with the SEC.
Paul Gambill: Anyway, this is a lot of securities, a lot of talk. What we're doing for Nori is we're doing a Regulation D 506C accredited investor sale. We are selling tokens in two different classes of tokens. They're Class A tokens and Class B tokens. Class A tokens are priced at 7.5 cents and Class B tokens are priced at 15 cents. And the reason that we have two different classes is because the Class A tokens come with an extra restriction. All securities that are sold under the Regulation D exemption require a one-year lockup, meaning when you buy them, you can't do anything with those for one year. After that, you can freely exchange them, trade them to someone else on a system that's approved by the SEC to exchange securities like this. But prior to that, you can't do anything.
The additional restriction that comes with the Class A tokens is that these tokens must be used to purchase carbon removal certificates before they be used for anything else. So if you're a speculative investor and you want to be buying Nori tokens just because you want that as a speculative investment, you should be buying Class B tokens. If you are a potential buyer in the Nori marketplace and you want to secure a price of 7.5 cents per tonne of carbon dioxide, then you should be buying Class A tokens. So we did that because all those Class A tokens that are sold a signal to suppliers in our marketplace that look, there are all these millions of tonnes of CO2 worth of demand ready to go when those tokens unlock and the marketplace is in operation. That was Aldyen's idea and it's been one of her best.
100 million tokens are being sold in the sale now, but when we launch the marketplace, we need to have tokens available to use to buy CRCs. And I mentioned that there's a one-year lockup on these Regulation D tokens. We're trying to figure out a way to be able to sell 250 million tokens that we intend to make available in a way that's compliant with the federal agencies. So we are intending to go talk with regulators at the SEC and the CFTC, and that's the agency that regulates commodities in DC. discuss with them our plan because the dictum that Ross referred to earlier is that some SEC regulators have in speeches and conversations have implied that they believe that a token might transition from becoming a security to a non-security after the application is up and running and the network is in operation.
Meaning if it's an investment contract prior to launching the market, then it might not be an investment contract afterwards because at that point, it's not just the efforts of us at Nori that produce value for the Nori token. It's based on all of the participants, all of you listeners who are working within the Nori marketplace, and that's kind of out of our hands. The SEC has implied that that might be possible. They have not officially said that that is the actual case. And so it is our intention to try to work with the regulators to figure out a way to sell these tokens in a way that's compliant with them. There are other options available, but that's the way that we want to go.
Ross Kenyon: It's a hard problem to solve. This is a frontier for people that are regulators too. From what I've heard from everyone who's talked to them individually or listening to them speak, they seem like they very much want to make sure that this works while making sure that bad actors who are fraudulent or somehow misleading people are addressed in the proper way. They're excited. I think they don't want to drive innovation overseas. They want to make sure it stays here.
Paul Gambill: We want to stay here. I want to stay, continue to live in the United States. I like living in Seattle.
Christophe Jospe: You're an old fashioned American innovation.
Paul Gambill: We've been talking to people in Washington too for that reason. Yeah. These 250 million tokens, we don't want to just flood the market with those because like the problem I mentioned earlier, we want to make sure that the market value of the token as closely as possible reflects the value to the market of removing one tonne of CO2. There's a lot more detail in our white paper about this, but we intend to sell the tokens in batches over time. It might take many years before all of those tokens are sold. So that's 350 of the 500 million tokens so far.
So then 100 million more tokens are going in that insurance reserve that we talked about earlier, where those tokens are used to make the buyers whole if it's discovered that the CRCs they purchased are not valid anymore. Finally, 50 million tokens are being held for the Nori team to give to our team here. 500 million tokens, that's what we're creating. [Nori promotion cut from the transcript. It’s still in the audio, but it no longer applies.] Where else should we go from here?
Ross Kenyon: The only thing left on my list is if we wanted to knock out this, why does Nori need a blockchain? But we were going to cover that today with a different guest, but then we ended up switching. So you want to take a quick stab at that.
Paul Gambill: So the short answer is that you can't have blockchains without cryptocurrencies, and you can't have cryptocurrencies without blockchains. They are inextricably linked together. On the one hand, just to get all of these advantages of cryptocurrency that we've talked about in this episode, you have to work on a blockchain. But on the other hand, like the most basic function of a blockchain is to provide an immutable ledger, meaning a record of transactions that cannot be changed. It cannot be bribed. It cannot be corrupted. When we're talking about carbon removal activity, every bit of data around how that carbon dioxide was removed and stored and verified is stored on the blockchain so that anyone, whether it's the buyer or someone who's auditing a buyer or something like that, can go trace back exactly what was done and see exactly not only who owns what carbon removal certificate and when, but how that carbon dioxide was removed. So it's a very, very open and transparent record of all of that activity.
Ross Kenyon: Sounds good to me. Is there anything else you want to cover, Christophe?
Christophe Jospe: Just for the sake of redundancy, that is www.republic.co/nori. Go there now. This is super exciting. We are so grateful of you, the listener, tuning in and following us along this journey. And we're super stoked to have turned this page.
Paul Gambill: [Nori promotion cut from the transcript. It’s still in the audio, but it no longer applies.]
Ross Kenyon: Thanks for listening.
