Questions & Answers
The section covers a collection of the more common questions we get and their corresponding short-form answers.
AAVA FAQ topics
Tokens & Blockchain
In broad terms, the tokens are non-tangible digital assets that represent value or rights and are registered in a decentralized blockchain. Often the tokens are in the form of a smart contract as is the case with AAVA.
AAVA Tokens are built on an existing robust blockchain using smart contracts.
The tokens can be assets with value that are tradable or with some type of utility, such as, voting rights or access to a restricted club, with wide range of applications that are an ideal instrument for managing a portfolio of projects.
The AAVA ecosystem consists of two primary components:
- The DAO, a membership driven community that acts as a controlling entity for the business and the decision making, growth, and business development.
- The Securitized Token, that will be used to raise and channel funds to projects that support sustainable development or climate positive activities that support the global community while providing reasonable returns for the Token Holders.
Tokens on a blockchain are often used for raising funds, management of an activity, or fractional ownership of assets on- and off-chain. This is the case with AAVA Tokens.
In the context of the climate markets, tokenization of operative control (distributed autonomous organization) and opening up access through a fractionalized structure is innovative and genuinely leverages the power of web3 in a more traditional industry.
The tokenization allows new capital to engage with the climate markets under a transparent, secure, fair and beneficial manner.
The key advantages of the AAVA Tokens for investors are:
- Early investors get decision making power
- Tokens allow investors to have liquidity and are not forced for long hold periods. Paper value is not very liquid, Securitized Tokens solve this by being a tradable asset that can has value and can be sold easier before maturity of the investment.
The Climate Performance Tokens are built to be Securitized Tokens that are compatible for regulatory oversight.
We’ve recently seen the regulators especially in the USA and other developed markets undertake a strong interest in the crypto space. This is a good thing. When you think about it the regulator is there to provide a layer of protection for consumers and investors. Initiatives like AAVA Climate Performance Tokens with a solid business plan based on value creation, long-term sustainability, and transparency welcome this.
Of course it causes more work on setting up a robust structure to comply but in the long term this kind of ambition is what will create a leading and successful venture that benefits all stakeholders. This is what drives us!
Even the markets are calling for regulation: Michael Saylor, one of the world’s largest Bitcoin holders is calling regulators to tackle the wild west of crypto and token based initiatives. Read the full article here.
As you participate in the AAVA Climate Performance Token ecosystem, you are purchasing AAVA Tokens that represent a fractional ownership of the portfolio of the corresponding Token pool.
In terms of returns, the Token holders gain a percentage share of revenues based on the number of Tokens you hold (investment level)
The value of the AAVA Token will be based on the revenue generation potential on a dynamic basis.
Dynamic how?
As capital is deployed to activities, they will lock in projected revenue based on the business model for each activity. For instance, from market related activity
- In the short term, we will report projected and realized portfolio values.
- For mid-term activities, we will be able to report projections on revenue streams based on the value of contracts that we are locking in, as at this time we will already have validated the business mode of the activity.
- In the long-term, we are dealing with more uncertainties so any inclusion in the projected earnings would need to be evaluated on a conservative manner to establish the revenue generation potential, but in the implementation phase we will already be able to access offtake interest.
As a summary, the estimated total portfolio value of the projects that are part of the Token define the baseline value for the Token. Naturally, due to the conservative approach, the Token capitalization will likely to rise due to expected market development and as we get closer to the revenue generation milestones. The secondary market may also respond to the assumptions in the portfolio valuation.
impacted by:
- Baseline investment
- Revenue or profits generated
- Contracts estimated value over time
- Impacts to revenue closer to generation when more accurate data is available
- Forward sales contracts
- Secondary market value perception and expectations
Initially, the project types will generate a revenue stream through direct project profit and through carbon finance (generation of carbon credits).
In the caser of carbon credits, the credits generated by projects are not intended for use by the members directly but taken to the market and monetized at the highest possible value, the net income will be distributed among the Token holders. In the future, revenue distribution can be determined by the Members (direct carbon credit distribution, crypto or fiat currency payment to Token holders or partial reinvestment to boost overall Token value).
Yes, even though the token is asset backed, also climate markets can have a downturn. Tokens have assets behind them but are not guaranteed. It’s important to be aware of this.
Like always with any investment, do your research and don’t hesitate to talk to us for more details.
The number of AAVA Tokens to be issued has not been decided yet. This will be determined by the project pipeline the AAVA DAO Members wish to pursue and how much capital is needed for deployment.
One of the strengths of the blockchain is the efficiency and transparency that can be gained from its use. While we started the project by just conceptualizing the AAVA Token, we soon realized that to be fully a web3 based business, we also needed to expand this to the decision making.
As a result, we’ve launched the AAVA DAO, a Digital Autonomous Organization, where DAO Members propose and vote for decisions regarding the actions to be financed by the AAVA Token capital. Transparently, fairly, and efficiently.
More on the DAO at www.aavatoken.com/aava-dao
Climate Markets
As a global overview, climate markets in general focus on projects that have a positive impact on existing emissions or activities that reduce emissions in the future.
These are developed and structured as any more traditional project development activity with a few key stakeholders; the developer, the investor, the land or project owner, and the regulatory bodies. Access to small or groups of investors is highly limited as projects haven’t catered to a wider investor base in almost all cases. Much like it would be challenging for a smaller investor gain access to a large scale solar or wind farm as they are dominated by bigger players.
By taking project ownership into a blockchain this is much more manageable and why the AAVA ecosystem is taking steps to opening up this market access to a far broader participation. Effectively facilitating fractional ownership of projects or groups of projects.
Carbon Finance is one of the predominant mechanisms to combat climate change, where capital is deployed to environmental projects and facilitating their development when other incentives are not available. It covers the financial tools like carbon markets to mitigate impacts of greenhouse gases.
The products generated by the carbon markets are in a sense, digital certificates (emission reduction credits) representing a validated and verified emission reductions or removals. Using carbon finance, these projects generate these certificates that are sold to companies for them to reduce their environmental impacts. The purchase of these carbon credits, channels funding to the projects and in many cases to the communities where the projects are located, almost always in developing nations that need outside finance to develop the projects.
Projects for the climate markets have a long duration, ranging from 10 to more than 30 years. This means that we need to anticipate the direction of the markets, how private and public sector are envisioning the future role of these project and to evaluate the risks and opportunities that projects face in the long term.
On the whole, our project evaluation process assigns a strong weighting on these factors. Based on our experience in the carbon credit offtake market, ensuring project correlatives liquidity (ability to be monetized).
Also considering the launch of a token for project participation, the project selection is highly important in order to:
Maximize impacts; environmental, financial, and social impacts
Minimize risks; development risks, market risks, regulatory risks
Leverage experience of regulation, stakeholders, and the offtake market in order to secure financially rewarding high-integrity positions.
While carbon markets are the low hanging fruit for development, climate projects beyond this are naturally not ruled out. In the long-term, we need to consider introducing projects with viability to evolve beyond the carbon markets. Business development opportunities and strategic partnerships are continuously being evaluated and as with any viable projects, the DAO Members will select the ones we will engage with.
Considering the carbon markets are relatively young, our team with more than a decade of experience each in the sector, makes us veterans. Extensive hand-on experience throughout the value chain through concept to monetization, many times over gives us a very unique perspective in the climate markets.
Through daily activity in the markets, participation in sector-based working groups, consulting as subject matter experts, collaborating with private and public-sector actors further helps us anticipate upcoming market and regulatory changes, and importantly, the opportunities and risks in the market.
Carbon credits in simplest terms are certificates that represent one tonne of carbon dioxide or an equivalent of another greenhouse gas that has been either removed from the atmosphere or reduced due to efficiencies in an existing process.
The credits themselves are a mechanism under carbon finance. Carbon finance supports projects for implementing climate positive actions which are then quantified and a corresponding number of carbon credit certificates are issued to the installation (project). The credits then are sold in the open market providing cash inflows to justify the clean investments that were made.
Carbon credits are an instrument working under compliance markets like Europe, California, and others where heavy polluters are obligated to compensating their emissions. Under the voluntary carbon markets, companies utilize carbon credits to comply with internal commitments, such as, Net Zero commitments.
Carbon credits in the voluntary markets are completely market driven, a factor of demand and supply. Recently various entities have emerged to bring transparency to the market by publicizing executed prices for standardized contracts. The exchanges Air Carbon Exchange, CBL, CTX and others, operate trading platforms for purchase and sale of the credits with some level of price disclosure. Also more traditional exchanges like EEX and Intercontinental Exchange are entering the space, some with futures contracts.
As such, the carbon market and carbon credits are developing toward standards more commonly seen for traditional commodity contracts and futures. This is good news as it encourages a more broad range of institutions to take part in the carbon markets generating liquidity. There is a clear trend for this happening over the recent 18-24 months (August 2022).
Participation & Ownership
The AAVA Climate Performance ecosystem including the AAVA Token and the AAVA DAO are currently owned by the operational entity who manages all transactions ‘on-the-ground’ so to speak. The entity is a European registered limited liability company, Stratos Ventures and until otherwise decided by the Members, will be the mandated by the Membership for any off-chain activities, such as, contracting service providers, payment of fees and salaries, and engaging with project partners.
While the search for equity partners is not our priority currently, we are open to a dialogue with qualified partners in strengthening the ecosystem. For more enquiries, contact [email protected]
There may be as the AAVA Token is being registered as a regulated Security Token, some limitations to the ownership may have to be placed to be in compliance with the prevailing regulations. At the very least, we expect some level of KYC and AML checks on qualifying participants.