Nori lives at the intersection of climate and crypto, attempting to build a global commodities market for carbon removal on the blockchain.
And while we’ve discussed carbon removal at length on the podcast, we’ve spent less time exploring how one might use crypto to determine a reference price for carbon.
So, what does Nori look like under the hood? How can we use the blockchain as a tool to get the world’s atmospheric carbon balance back to 300 parts per million?
Chris Burniske is Partner at Placeholder VC, a venture capital firm that invests in decentralized networks and Web3 services, including Filecoin, Polkadot, and Nori.
On this episode of Reversing Climate Change, Chris joins Ross and Nori CEO Paul Gambill to explain what differentiates our market-based system for valuing CO2 from other climatetech projects.
Chris and Paul discuss the potential to build a world of complex financial instruments around Nori and describe what market mechanisms one might use to create depth around the pricing of carbon-backed assets.
Listen in to understand how Nori might evolve to become a DAO and learn what distinguishes our approach from companies making advanced market commitments to carbon removal.
More from the show
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Carbon Removal Newsroom, the news show that ran alongside this one, is over. Its episodes are still up, on the feed Climate Workers Anonymous now uses.
Carbon Removal Memes is still going.
Resources
‘Isomorphism in DAO Governance’ by Mario Laul
Full Transcript
Alexsandra Guerra: You’re listening to the Reversing Climate Change podcast by the team at Nori, the carbon removal marketplace. This is a show about the innovators and entrepreneurs developing solutions to climate change.
Ross Kenyon: Hello and welcome to the Reversing Climate Change podcast with Nori. I’m Ross Kenyon. I’m one of the co-founders of Nori and the creative editor there. Today I have with me my colleague, fellow co-founder and CEO, Paul Gamble. Hey, Paul. Hey, Ross. Yeah, you were joking that we never talk unless it’s on a podcast. I don’t think that’s strictly true, but is that how you feel? Do you feel neglected by me?
Paul Gambill: It’s kind of the opposite of that. Yeah, we talk too much. I don’t know.
Ross Kenyon: We should probably do more Nori shows because we’ve been thinking about a lot. A lot of it has impacts for how carbon removal works in general. We have a lot of interesting design decisions we’ve been really mulling over. I think we’re going to get into that today too, because we have one of the members of our board of directors and one of our investors, Chris Burniske, partner at Placeholder VC is here with us. Hey, Chris.
Chris Burniske: Hey, Ross. Hey, Paul.
Ross Kenyon: Yeah, we wanted to have you on for a while, Chris, since you’ve been involved in crypto for so long. I feel like the show overall is somewhat neglectful of crypto and blockchain topics. And we wanted to talk about the industry as a whole, but also what Nori is doing and steps that we’re making right now. So I hope you’re prepared for such topics.
Chris Burniske: I’m ready.
Ross Kenyon: Okay, good. Well, maybe Paul, do you want to introduce broadly what we’ve been up to with the stage of the company is and how it pertains to crypto?
Paul Gambill: Sure. So going back to the founding of Nori, what we’re trying to do is create a global commodities market for carbon removal, create that price incentive so that people can know how much money they can make And going to how Noria works under the hood, the whole design here is that we’re creating... So that’s been the vision since early 2017. Before the company started, but since then we’ve been focusing on building out the carbon side of the business because that turns out to be enormously complex as well. So since then we’re recording this in mid September, so we’ve accounted for over a 117,000 tonnes of CO2 removed, working with a bunch of different farmers who are sequestering carbon in their croplands across the US.
We’ve got an exciting pipeline of new supply coming online over the next 3, 6, 12 months. And we are marching ever closer towards doing the actual token launch. So you can think of what we’ve been doing as phase one is prove out the carbon side of the business, prove that we have the ability to measure and verify that carbon and sell it to customers end to end. And then the second phase is then rolling out the token and then letting the market determine what is the market value of pulling a ton of CO2.
So that’s where we are right now as a company. We’re at 25 people. We raised our seed round in 2020, Series A, 2021, and continue to move forward.
Ross Kenyon: Good. I think that’s a nice baseline for people listening to broadly get caught up there. Chris, I want to talk about how you got involved with Nori. Why did you ink a deal with us? How did that happen? What convinced you that our approach was meaningful in some way?
Chris Burniske: Sure. Well, My background is actually as a marine scientist. So I studied a lot of biochem and physics around the oceans in my undergrad and did a lot of climate science work. And how I ended up in venture capital is a long story, but here I am. And when Paul approached me in 2020, it was clear that he was the real deal and Nori was the real deal in terms of genuinely merging Rigorous climate science with rigorous use of a blockchain and not fluff marketing or fluff convergence, but actually using the powerful nature of a blockchain as an accounting system to better account for carbon backed assets.
And then at the same time, Use the power of that accounting system to create a transparent market structure that could price those assets. And I knew from some of my background that one of the problems with carbon markets was their opacity. So if you look at how things have traditionally worked, it’s a lot of, you could call it backroom dealing. And it’s not that it’s necessarily nefarious, but, you know, it’s basically two entities talking with each other, typically at scale, that leaves out the little guy. Leaves out a lot of transparency.
And it’s two big entities coming to a decision on what the price should be. And that’s what’s known as over-the-counter or OTC trading. You don’t get good pricing. You don’t get optimal outcomes, either in terms Now, market-based systems have been attempted, and they have either been policy-driven, or they have failed due to Doubts around the legitimacy of the underlying carbon-backed assets. And again, these are things that in placeholders’ diligence of Nori in 2020 that were known, acknowledged, and being attended to in the design. So let me pause there because there was a lot of thought that went into making the Nori investment, but we’re happy we did it.
Ross Kenyon: Paul, do you want to fish for some compliments right now or do you want to just let it play out naturally and hope it happens? I like the natural organic compliments myself. Were you looking for companies with inside carbon removal or climate tech broadly? Was that something that you were seeking out or did Nori just come across your desk and thought it looked intriguing?
Chris Burniske: I would say I’m always seeking out those investments. It’s just finding ones that are earnest in the pursuit or in their pursuit is really difficult. And so Nori was the first that fit the climate bill. And we’ve since done an adjacent deal with WeatherXM, which is more on the weather and climate data side, less on carbon-backed assets. But I love merging my background in, you could just call it Earth systems, with my understanding. And most of my career, I guess, at this point has been in blockchains. Melding those two is super gratifying for me.
And then it’s also part of what the world needs most right now, right? So if I can allocate capital to helping accelerate solving some of these most pressing problems, then I not only have a responsibility to do so to placeholders, investors, but also to the world. So one of my life philosophies is everyone is doing the best they can with what they have, right? And based on their conditioning, people are motivated by different things. And some of those things might appear misguided to me, but to the person running the ship at the time, they might be guided in the direction that they most deem to be important for themselves and for the world at that point in time.
And so... I would say there’s a growing number of refi projects out there with varying amount of success, some of them achieving a lot of financial success in a boom-bust fashion, right? So very quick to rise, very quick to fall, that in a way are helpful for raising awareness around the refi movement. But the hard part of this problem is not creating a casino of questionable legitimacy around which you can gamble on the price of carbon. The hard part of this problem is creating really solid, trustworthy carbon-backed assets that can be priced and trusted around the world.
And that really starts with making sure that the methodology Around the sequestration of carbon and that you’re actually sequestering carbon and not avoiding emission of carbon is robust. And then once you have that, which sure I can say it in a couple sentences, but takes years to stand up as Nori knows better than me. Once you have that as your base, then you can start to create the markets around it. I would say a lot of refi as we know it in crypto just focuses on the market part. And the market part does need to get solved, but if the market part is solved on a shaky foundation of questionable carbon assets, then it doesn’t do all that much for the world.
Ross Kenyon: We both have an intake of breath. I know I’m preaching to the choir here.
Paul Gambill: Yeah, I totally agree. I mean, the way I’m often talking about it is this is a supply side challenge, not necessarily a demand side liquidity problem. There’s plenty of demand out there from companies that are going carbon neutral or carbon zero governments and so on. And even opportunities in the crypto space to sort of gamify more carbon removal. That’s not really the hard part. The hard part is the physical act of pulling carbon out of the air. And there just aren’t enough people doing that. And then when there are people doing it, it’s often very, very difficult to measure and verify that that’s being done.
That’s really the bulk of the work. And I mean, there are a whole bunch of reasons why we’ve made the design choices that we’ve had in terms of not working with the existing offset registries, because it’s basically too expensive and too time consuming to do so. And so having to develop our own I think that as there have been new projects coming out in the refi space, they’re not necessarily interested or willing to do that. More difficult component. And they’re focusing on the other pieces that they think they can do well.
I just think that ultimately, if you are going to be dependent upon the carbon offset registries like VERA or Gold Standard, then you’re always going to be short on supply because they just cannot possibly move Fast enough. So everything that we do internally at Nori, which may seem opaque at some points to people, especially in the crypto and refi space, is really driven around how do we get really high quality measurement verification in a scalable way from people who are removing carbon in different ways. And so some of the things that we’re working on right now are how do we So how is that being built into the market aspects of that?
There’s a lot of work that goes into that’s required in order to make it scalable.
Chris Burniske: And I don’t think you guys are opaque so much as you just go really deep. And so what you’re alluding to there is the science of sequestration and actually accounting of carbon. And that’s the type of thing where it’s going to lose the interest of most people, right? Because it goes so deep, but it is important. And so it’s not some flashy thing that can be done very quickly or can be distilled into a meme, but it is important foundational work that someone needs to do.
Ross Kenyon: What are you trying to say about memes, Chris? Was that a jab?
Chris Burniske: These are an important way to communicate to the masses, but they cannot communicate all information.
Ross Kenyon: Okay, fine. Yes. In this commodity market drive that we’ve been thinking about, some of our work is remarkably unsexy because we’re not supposed to be the farmer’s market, little boutique model, or the direct-to-consumer rehab. We have an amazing product and we don’t need to sell through a marketplace in order to reach our customers. We’re almost trying to reach people who are doing carbon removal at much greater volumes and they need a marketplace to stand between them and the customer and to do price discovery and to make this whole system work.
And that isn’t really as attractive as going to the farmer’s market. It’s hard for you to compare going to Target or Walmart rather than going to a farmer’s market. You’re like, come on, it’s a different experience. We try to compensate for that in various ways.
Paul Gambill: Yeah. The problem is the underlying asset. We have to make sure the carbon gets removed from the atmosphere. It all starts from that. And anything that is built around carbon, carbon markets that isn’t first and foremost ensuring that there’s real carbon dioxide being pulled out of the atmosphere isn’t really making any sort of impact in the way that we want to see. Yeah. Our mission at Nori is to see the world’s atmospheric carbon balance get back to 300 parts per million. Crypto and blockchain are just tools to facilitate that. They’re not the purpose of the company.
The purpose of the company is to get carbon out of the air. And so many of these design decisions are quite difficult. And we spend sometimes weeks or months doing our own research, talking with different groups of scientists and other participants in the marketplace and so on before we have to make sometimes quite difficult decisions about how we want to go about this and seek out feedback from the market. So yeah, I think your characterization is right, Ross, because we are trying to build this market that is simultaneously both accessible to an individual, but also attractive to the really large corporate players in the world who actually have the resources and means and will to affect like really large change in atmospheric carbon.
Ross Kenyon: Do you think it’s worthwhile? Well, both of you should answer this question, but since a lot of these crypto climate intersection projects are quite focused on the demand side of this problem, does it make sense for Nori to be involved with them? I can see some benefits, but one of the things that Worries me is the complexity of some of these projects with some of them are obscure financial instruments and tying Nori to that kind of complexity makes me worried. And I don’t even know if that is a justified concern.
It’s possible I don’t know enough and I’m just being a chicken little.
Chris Burniske: Well, I would say, you know, one of the things that originally drew us to Nori is it’s an impartial but credible standard. On carbon sequestration, right? And then it produces these reliable carbon backed assets. And with the launch of the Nori token, the fungible token, a fungible mechanism to price them. The reason I go through all that is that’s all permissionless, right? And so my view is actually that Nori has no say in who buys the Nori token or who uses the Nori token to buy the underlying NFTs. And that’s part of the point of being impartial.
And it’s important because this allows a whole group of suppliers and consumers to coordinate around Nori as the impartial standard. And so I think that These crypto carbon projects should absolutely use Nori if it fits their bill of needs. Right. And they can accumulate Nori’s carbon backed assets, the NFTs. And to do so, they would have to be buying Nori, the fungible token at the going market rate for one ton of CO2 sequestered for 10 years.
Paul Gambill: Yeah, we’ve talked with a number of them. The interesting thing is that we also have this philosophical belief that the carbon itself shouldn’t be traded. We want our system to work so that every new dollar spent results in net new carbon coming out of the air. And sometimes that doesn’t necessarily Yeah, I think it’s a good thing to try to figure out ways to integrate demand for carbon removal from other crypto refi projects into Nori’s marketplace. But I think we’re trying to solve a slightly different problem than some of the other projects are.
Chris Burniske: Let’s unpack that a bit more because Paul mentioned the two assets, right? And depending on how much your users know already about Nori’s design. But when Paul says the two assets, we’ve got one, which is a NFT, a non-fungible token, right? Which represents one ton of carbon sequestered for 10 years. And that’s carbon that a farmer facilitated putting in the ground. Through the way in which they manage their land. So you could think of that kind of like the barrel of oil or the inverse barrel of oil, right? And that’s actually the asset that gets delivered.
But when it gets delivered, it cannot be transferred again. And this is part of the beauty of blockchains because blockchain can programmatically enforce that. And the reason it’s important for that asset to not be transferred again is because one of the games that has ruined Carbon markets of days past is people will buy a carbon asset For a certain price, sell it to their friend for 50% cheaper and their friend gets to then also use that asset to offset their carbon and then sell it again. And so you get this game of hot potato, which actually you could have say three different entities using the same time of CO2 to offset what they’re all claiming.
Whereas in the actual world, that should be three tonnes of CO2 and that’s what’s accounted for. But in reality, it’s only one ton of CO2 that got pulled out. And so that’s Bad for our climate and bad for climate change. So just going back, there’s that NFT asset, which is like the barrel of oil, but it is a carbon backed asset. Then there’s the fungible asset, which is the Nori token, whose whole purpose is to set up price discovery and around the carbon-backed asset. And the reason you need that price discovery and through a fungible mechanism is you can get a lot more scale, you can get a lot more liquidity, and you can start to get complex financial instruments like futures or a variety of derivatives, which people can use to lock in future carbon prices.
Because a lot of players at scale do not want to participate just in the spot market, just in the market of like here and now, they actually want to say, okay, if we’re committing to say carbon zero through 2030, and we’re in 2022 planning for fiscal year 2023, How can we lock in our cost of offsetting all of our emissions in 2023? If they have complex financial markets or a deep set of futures that they can source from, then they can theoretically, they can buy the assets they need to offset.
And so that’s more of the future ahead of Nori. It starts again from really credible carbon-backed assets, the NFTs, and a spot market. And if that base is solid, then you can start to build a whole world of more complex and global financial instruments.
Ross Kenyon: Those agreements exist right now, but they very much mirror the old school way of carbon markets too. Like these long-term future looking deals that happen where they’re buying carbon removal that don’t exist yet, very much look like the bespoke business development model of classical carbon markets, which require a lot of individual vetting and relationships and that kind of thing. And it’s not driven by financial instruments, which may be a good thing in your mind, but if you want to get to scale, seemingly we need that kind of market, I think.
Paul Gambill: One thing that’s interesting that’s been happening lately is there have been more and more advanced market commitments in the space. So the biggest one was called the Frontier Group, which is an alliance of companies like Meta and Microsoft and Stripe and Shopify. Almost a billion dollars committed. They’re out there, they’re doing their own specific diligence on particular carbon removal companies and their technologies and so on. And then they’re going to purchase in advance the next, say, five years. It’s worth of however much carbon they remove. And there are a few interesting things to draw from that.
One is that they are not waiting around for Vera or Gold Standard to certify those projects. They’re just straight up paying for it, taking their Two is that the volumes that they’re purchasing shows that these companies are so, so thirsty for carbon removal. They can’t source what they need. And so they’re taking it. Advanced market commitment approach, which is a thing that is typically lauded by a lot of economists. I think it’s sort of interesting in this space. So they’re doing this because they want to drive more money into the space, help with research and development, help bring about economies.
I think one that is more market-wide rather than specifically for a handful of different companies. We’re trying to take this approach of saying exactly how Chris is describing it. If you want to be able to purchase X number of tonnes of CO2 over the next Y years, then purchase X number of tokens and then use So we’ve designed this that there are a finite number of tokens, 500 million that are created. And this should be deflationary. So as the demand for carbon through Nori’s market increases, so too does the demand for the Nori token.
And with a fixed supply, that should then drive the price higher that meets that market demand. More and more of a financial incentive for suppliers to enter the market and remove more carbon and sell that carbon through Nori. So we’re taking this holistic market-based approach as opposed to some of the early buyers especially, but players in the carbon removal space are taking a more individualized market approach.
Ross Kenyon: I think they think that it’s just too early for commoditization of carbon removal. And at the scales that they’re talking about, they’re almost certainly right. I wonder how long their assumptions will hold as true. I’m wondering, is it one year? Is it a couple of years? Because at some point, and we’re building the infrastructure for that next step as we see it. So that when that supply comes online, it’s really able to uptake and it’s no longer a bespoke individual process. It’s more like a classical financial markets, commodities market. We talk about the different types of methodologies and how they’re supported by token economics.
I know there’s been a fair amount of discussion between you two about to what degree there should just be a Nori token versus a token for each family of methodologies. Perhaps there’s one for ocean-based removals, another one for biochar, another one for direct air capture. What’s your thinking on that, Chris? I know you’ve had a long story to debate. We’re opening this to our arms. Yeah, let’s get into that because that’s an interesting conceptual question.
Chris Burniske: Well, I would say that the conversation is ongoing. And my view is that if Nori is to achieve this global scale that we desire, and that starts with one ton of CO2 reliably sequestered for 10 years, then as Nori adds each new methodology, Where each new methodology has a different cost structure to sequestration and a different duration generally of sequestration, then the best bet is to create different fungible assets to price each carbon type. And so what is originally the Nori token could become the soil token, right? And it prices this one ton of CO2 that’s sequestered for 10 years.
And then let’s say you add a kelp methodology and that becomes the kelp token, or you add a direct Air Capture methodology, and that becomes the DAC token. And DAC, depending on the technology, maybe there’s the 100-year DAC and the 1,000-year DAC, just as there are different durations of bonds, let’s say. So I think that there’s a lot of precedent within a marketplace to do that. And it really, for me, hinges upon the longevity of sequestration and the cost structure.
Ross Kenyon: Okay, counterpoint, Paul.
Paul Gambill: It’s not like counterpoint per se. We’re trying to stand up a token from nothing to having it being adopted by market participants and have it reflect the actual price of carbon. And so the trade-off to what Chris was describing is Now you’re talking about many different tokens and managed liquidity for many more of those, which can become more expensive, more difficult, more complex as you go about it. There are also things that we have not even fully... Let me back up and say we’re doing a There’s a lot of research work in this space right now.
We’ve built out our supply side team. We’ve got a methodology analyst on the team now who’s been doing a lot of scientific research, talking with different carbon removal research groups and so on. So we don’t have a formalized opinion on this yet, although we hope that it’ll be coming out relatively soon. The other approach is more for simplicity’s sake of if you can get it down to a single reference price for token that has some sort of time-based element to it as well, then it’s just intuitively easier to understand. There are other potential benefits of that as well, but mostly for avoiding the complexity of the liquidity challenges is why we’ve taken this Nori overall token approach so far.
Chris Burniske: And I think the optimal path Could be somewhere in between. I mean, all these things end up being path dependent. And so right now the focus is, you know, the one fungible token to price the one type of carbon backed asset, which Nori is producing. In conjunction with farmers. And these are Maserati problems, we could call them. Maybe that’s the wrong term to use, but like these would be very nice problems to have down the road should Nori achieve that scale of success and liquidity. And then at that date, if there’s You know, enough momentum around Nori and let’s say Nori is being featured in the New York Times and there’s, you know, billions of dollars of liquidity and people are, you know, really excited about the next carbon backed asset that Nori is going to release.
At that point in time, you know, there could be a token split or a new generation. I totally agree with Paul, liquidity is a key thing. And so I think you would only start to split or fragment the market at a later date, should there be sufficient liquidity to then slosh into the two new asset types.
Ross Kenyon: I’m going to stand in for the audience here listening, maybe not familiar with how liquidity works or why it’s important. Chris, what exactly does it mean in this context?
Chris Burniske: Sure. So liquidity is often confused with trading volume. The two are different. So trading volume just shows your daily turnover, dollar turnover of assets traded. But especially in the carbon markets, which are more weakly regulated, there can be a lot of wash trading. So just as an example, Paul and I could trade back and forth between the two of us, you know, one dollar of BTC a million times over. And you could say, oh, my God, a million dollars of BTC traded on this exchange today. But if all that was ever offered or sold on the market was one dollar, then actually the liquidity of that market was only one dollar.
Even though there was a million dollars of trading volume. And so liquidity refers to the depth of what can be bought and sold on a marketplace at any point in time. And so you’ll see liquidity often showcase in terms of slippage at different unit amounts. So if I want to place $100,000 order, what is the slippage on that? The slippage referring to how much Will the asset deviate from its market price? And so if you had 20 basis points of slippage, that is one fifth of a percent of slippage for a $100,000 order.
And then maybe at a million dollars, You’re facing 1% of slippage. And so the world’s markets vary in their liquidity, right? With the US Treasury markets, the most liquid markets in the world, meaning you can buy and sell billions or tens of billions of dollars of assets on those markets without moving them all that much in the context of percent moves because those markets are so big. But just using that example of $1 traded back and forth a million times might be a million dollars of trading volume. But if all that was ever on offer in the books of that exchange was $1, then the liquidity of that market was only $1.
Ross Kenyon: So a case here might be a farmer is paid a Nori token and they go to sell it. And there’s two buy orders of people who are willing to trade for that token. And one of them is for $30 and one of them is for $10. And once that $30 order gets bought up, the slippage is $15. They just drop down to that next one. There’s no depth between there.
Chris Burniske: There’s no depth to that market.
Ross Kenyon: There’s no more counterparties. Maybe just that’s it. And that would not be ideal for people participating in this market. And there are various ways I think we’re working on to avoid this sort of fate too, some of which are kind of fancy. I don’t know if you want to introduce some of that, Paul.
Paul Gambill: Well, yeah. So DeFi introduced... Apps like Uniswap introduced the concept of having an automated market maker. So it works a little bit differently from having a centralized order book where you’ve got a spread between bids and asks. And instead, you just have a bucket of... And the ratio between them is the price. And so the cool thing about an automated marker maker is there’s always a price you can show up and there’s always a price. There’s always a market price for it. In the most simplistic models, you can’t necessarily do something like limit orders, which is saying, make a purchase at this price when the market moves to there.
You’re more just buying at market rate. It’s also typical for markets to have market makers who are helping reduce volatility and make it easy for people to trade within the liquidity of that market. So these are the different sorts of things that basically every crypto project does and normal traditional financial markets do as well.
Chris Burniske: I would layer in that these mechanisms we’re discussing are most relevant to Nori, the fungible token that prices the underlying NFTs. And that’s because a farmer just wants to receive a certain amount, really in dollars. And the whole point of the Nori fungible token is to create A depthful market, so a liquid market around the Nori token, where the Nori token will have a pretty reliable price. It might directionally go up over time if there is increased demand for carbon over time. That could be one way to think of it.
You could also say, hey, directionally, I think that the cost to sequester carbon over time is going to outpace the demand for carbon over time. And so maybe the Nori token should go down in price over time. That’s not necessarily what history has been showing us right now, because there’s so much demand in such a short period of time for carbon. But a market is made of both sides, and the price between those both Both sides is the market price. And the important thing to realize is the point of the Nori fungible token is to allow all of these market mechanisms to create depth around the pricing of carbon-backed assets and abstract a lot of that complexity away from the farmers.
Paul Gambill: Which is quite similar to how they normally operate. Like when they’re growing corn, they harvest their grain at the end of the season, and then they store that grain in a silo or a bin, and they wait for a global commodity bushel of corn price, and they sell in tranches at prices that they like. So this is almost identical to how they normally operate their business.
Ross Kenyon: I have kind of a weird conceptual question for you, Chris. Should Nori be a doe?
Chris Burniske: Eventually... Yes, in that Nori, if it wants to eventually get to this state of being an impartial global protocol for carbon sequestration, I think it needs to have as minimal of self-interest or extraction as possible while still sustaining the system. And if it becomes too self-interested, and sometimes companies, because of their profit motive, can become too self-interested, then often you lose the impartiality of the system. And so I guess I should back up and say Nori does not have to become a DAO. But I think that as DAOs grow up, and they’re going through a steep learning curve right now, and the promise of DAOs is very far from the current reality of DAOs, but that DAOs are set up to also be, say, these more impartial and global governing structures, they’re, of course, going to always be caught up In the drama that is the human existence until, you know, perhaps it’s algorithms guiding us and we’re just vetoing or approving the decisions.
But I would say that a DAO is aligned in theory with And then it’s just seeing whether in a few years or five years time, if the reality of a DAO is able to handle the scale of Nori at that time. And if not, it might be waiting longer. Paul and you, Ross, and the team is mission-driven enough to always hold, say, this pursuit of maximizing the amount of carbon that is pulled out of the atmosphere pretty much at all costs, then perhaps that could keep Nori, the company, minimally self-interested in corrupting the system.
Paul Gambill: I basically agree with that. The areas I’ve thought about have been around some sort of crowd-based governance the methodologies. So how we onboard new methods of carbon removal, how measurement and verification happens, how do you Decentralize that further so that it’s going beyond just having individual third party auditors and that kind of thing. And also the questions around as you’re onboarding new methodologies, what factors need to be taken into account as you are introducing new I love the concept of DAOs, but as Chris said, I think that there’s so much immaturity in the space.
And I don’t mean that in an emotional way. I just mean that we’ve seen some, although I guess that’s true too.
Chris Burniske: Growing pains.
Paul Gambill: They’re growing pains, certainly in terms of DAOs. The DAOs right now where every vote is like 99% to half a percent, that doesn’t seem to me to be providing totally effective governance. And I would wait to see for some sort of newer, more effective models to evolve before we took big steps in those directions.
Chris Burniske: I would say if you were to distill down... A DAO, or what I think of as like this new digital governing body over either digital or global networks, it’s allowing the closest approximation of the constituents to govern the network or the service. Whereas right now, it’s the shareholders or the politicians, which are To date, the closest approximations of the people who guide that network or service. But they’re pretty far approximations and they get corrupted in all kinds of ways that we understand well. And so then the question is, can a DAO structure create a better approximation that is less corruptible?
And that’s the pursuit.
Ross Kenyon: Yeah, these are such interesting questions.
Chris Burniske: And we’ll fail at it in a million ways because we’re human and we’re imperfect.
Ross Kenyon: And DAO being what? Decentralized autonomous organization. I should define that at the beginning even, but hopefully through context clues, you kind of get it.
Chris Burniske: But to what degree- And I think of it less as autonomous with the exception of, I don’t know- How machine learning is going to work its way into DAO organization. And so they’ll only be like, I think right now we’re at the stage and we’re trying to figure out decentralized organizations and how can they become better approximations of the constituents and guide in a way that benefits the most constituents that participate in that network as possible. So we’re at the decentralized organization stage. Machine learning is progressing at such a wicked fast rate alongside the progression of blockchains.
And these blockchains are these open data systems where without being too buzzwordy, there’s an intuition in me and a Amongst, I would say, a fair amount of futurists that understand both worlds, that there will be a convergence between the way that machines digest and synthesize information at scale with governing these organizations. But it’s just finding out how we can do it in such a way where the humans don’t lose control, where they still have veto power over the machines. And that the machines are producing sensible suggestions, right? Without getting into the philosophical concept of a machine having soul and a governing body having soul.
You do want things that are in the mission of that network or that service, right? As Nori has a mission.
Ross Kenyon: I’m really interested in this question of to what degree is democracy or how can democracy be used in a productive way here? Because it’s not like democracy doesn’t have any dysfunctions either that they could bring to the mix. Sure, politicians and shareholders have well-defined incentive structures, many of which are suboptimal. But the same could be said. I mean, the classic example is mob rule. How do you avoid that? I don’t trust decentralization in this way quite yet. And it might be a machine learning advance that’s necessary. But I have the sense that our work is so difficult that adding hobbyists with less direct daily involvement in this would not help it.
But I feel like I’m caricaturing it or I’m possibly being unfair to what I might be giving up by it. So am I missing something? Help talk me into it a little bit.
Chris Burniske: No, I don’t think you’re missing anything. I think... The one of DAO experiments that went through direct democracy, so one token, one vote, and everyone who’s a token holder can be a voter. I don’t want to call them failures, but they didn’t work or they are not currently working in the way that people hoped because you get a lot of voter apathy because there’s just too much decision making. And then you get a plutocracy often because it’s just the people who have the most dollars can control the votes. And there’s more We have pretty good examples of representative democracies, right?
That’s what the US is. And there are people claiming that they are stressing at the seams with the amount of information and change that we have going on. And I think A problem with any governing system is it actually gets captured over time. And it’s kind of I think of it as like human systems accrue the sludge and then like that sludge builds up over time and then the sludge has an immune system. That keeps itself from getting cleared out. Right. And so like a lot of times you just need a full reset and that’s where like blockchains are full resets.
They’re basically parallel systems to the existing financial, economic, political systems that we have today. And so we could do a full reset of representative democracies and they would probably work better for a time and then run into the same issues that we see with representative democracies today. As I said earlier, I think machine learning will work its way in here. The other thing I want to say to not let go of some of the promise of direct democracy or ways in which we could allow for some of it is if you look at DAOs, there are some people experimenting with a certain token amount to submit proposals.
And that’s basically like saying, hey, anyone can submit a law for consideration to Congress. And that’s actually quite cool in its openness, right? And you could even have another DAO of small constituents who rally together to raise the funds necessary to hit the proposal threshold to then submit to a larger DAO because it’s so important to them. And then the bigger governing body We’ll then weigh on whether this proposal gets passed. But I think that is perhaps more overlooked than it should be, that these systems can be open to the entire world for proposals, and they have a method for filtering that.
But over a certain bar of, say, meaningfulness, anyone can submit a proposal. And that’s super cool, because then you’re starting to get into You know, crowdsourcing decision-making and information from the world. So I think we’re going to keep playing with these things. And Mario, the governance researcher at Placeholder, He wrote a piece on institutional isomorphism, which is a fancy way of just saying once one thing works at scale, everyone will copy it. Right. And that’s what we’re working towards with Daos, where there’s all these experiments, you know, the movement, Bitcoin, you know, the white papers, 2008, the network, January 2009, still very young movement.
So we’re a bit over 10 years in, I think over the next 10 years, we will get some successes. They’ll be open source and then people will just like copy paste that DAO organizational structure and then it’ll just spread like wildfire.
Ross Kenyon: Okay, I would love to see it. Plus one, yes. I agree. Yeah, I would love to see something like that where we’re able to harness. I mean, the power behind something like the Linux community and just open source in general is a beautiful, magical thing when it works. I wonder how many of those I don’t know about because they failed so badly. And how do I make sure that my company, which, you know, blood, sweat, and tears, does not turn into one of those by opening up in the wrong kinds of ways?
Chris Burniske: You see, I just went on a long enough monologue that you forgot your original question.
Ross Kenyon: Was there a question? I think that means it’s time to end the show is what that means actually, Chris. We’ve hit that moment. Is there anything anyone is dying to say before we wrap up or is now an okay time? No, you don’t have like a bonus monologue, Chris, you’re ready? You’re ready to call it?
Chris Burniske: No, no. I mean, I think there’s lots of stuff that we could talk about and I may come back on this podcast at a future date as Nori is. Paul, good to see you. It’s been several months since we’ve last spoken. So thank you. Yeah, we never talk except on this podcast. So nice to see your ass.
Ross Kenyon: Yeah, links to Chris’s very active Twitter feed and placeholder VC are in the show notes. Thanks so much for listening. Please give us a great rating in Apple Podcasts or Spotify. It helps us a lot. Thanks so much for listening and have a lovely day. Thank you so much for listening. If you could please subscribe and give us a great rating and review on Apple Podcasts or a rating on Spotify, that’d be much appreciated. It helps us get our content out to more people. You can sign up for our newsletter at nori.
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