Smart Forest DAO

Introduction

Over the last few years, time and again we have been reminded by nature of the catastrophic consequences of our activities in the form of events like floods, heatwaves, snowstorms, forest fires, etc. But 2021 has been extraordinary in the sheer scale and number of extreme weather events across the world. As the deadly COVID-19 pandemic moved into 2022, climate protests and environmental campaigns continued to be held both physically and virtually, along with a large number of demonstrations protesting political and economic policies across the world.

Protests and strikes are being held both on streets and on social media across the globe, calling on world leaders to address and take urgent actions on climate change and to keep their promises on limiting global warming. Efforts of many environmental activists, climate change organizations, and  NGOs can and have led to positive and semi-positive impacts. Particularly in the case of reducing deforestation, we have seen  ‘Save Aarey’ and  ‘Save Mollem’ campaigns over the last decade. But these campaigns have been long fought battles with governments, courts of law which need to be supported for years. It becomes extremely difficult for individuals with jobs and independent lives to keep on contributing to the struggle over lengthy periods of 5-10 years. 

There also exists a very real possibility that government/administration can change over time and be replaced by a more environmentally unfriendly administration that believes that the land is more appropriate for commercial or residential use, or allocates the land for the extraction of timber/oil, mining. Over the last couple of years, we have seen a similar scenario in Brazil under the presidency of Jair Bolsonaro where an area of the Amazon rainforest roughly the size of a football pitch was being cleared every minute. These possibilities of ecologically destructive policies can threaten all previous attempts of preventing deforestation as the majority of this land is owned by the state. 

But what if the trees owned the land they were grown upon? 

Let’s look at an example titled  “Tree that owns itself” where when the original oak tree died after a long period of decline, it was replaced with a “child” grown from one of its acorns. We could sustainably extract resources from trees and use the proceeds to purchase additional land upon which the eco-friendly extraction process could continue, bringing in more revenue and ultimately leading to a positive feedback loop.

(A variant of the same idea in the context of driverless taxis has already been discussed – Link)

Execution Mechanism

The economic output of a forest can be calculated as the sum of the market value of goods that can be procured. Besides its role as a source of raw material like timber, fruits and vegetation; the forest can also generate revenue through sales of its carbon credits in carbon offset marketplaces, offering tourism opportunities. A forest also has non-monetary output as it serves as a protected space within which diverse species can survive, contributing to an overall ecological balance. 

The smart forest creates a scenario whereby the forest, through automated processes, utilizes itself to accumulate capital and eventually buys itself. The smart forest is not limited to owning itself, but can thus position itself to buy more land or support other smart forest DAOs to grow. 

Once repayment is complete, the original creditors hold no more tokens, thus the forest is the sole shareholder of its economic unit. The smart forest, in economic terms, controls itself. Blockchain technology and smart contracts enable nonhuman participants to administer & utilize capital and thus, claim the right to property for the first time in history.

The case of a natural resource being given human-like rights has occurred for river bodies previously – New Zealand’s Whanganui River is a person under domestic law, and India’s Ganga River ecosystem was also granted human rights in the year 2017.

How to implement the Smart Forest DAO

A smart contract along with a DAO community on a public Blockchain controls the inputs and outputs of the forest. Periodically a program fetches detailed satellite pictures of the property from a 3rd party service or an oracle service like Chainlink

Source: Open Forests

AI-aided Satellite Imaging analysis can help generate forest management plans to maintain the desired balance and sustain profits from the smart forest ecosystem. With the help of Forest Simulation Optimization System, the program can determine how much wood (limited within a pre-fixed range e.g. 5-8%) to sell without overly diminishing the tree population. Using image processing algorithms we can also determine with a certain precision the type of trees, size (girth of trees), quality of wood. Market prices for the particular wood types can be queried through lumber market data/commodity markets and the smart contract can determine the best pockets of the forest to log allowing the DAO to maximize the returns for that cycle. 

The contract coupled with some off-chain computation can analyze the sales data, soil information and ascertain the most profitable trees to grow, and therefore sell and grow these trees till the repayment is complete. The contract can optimize itself from cycle to cycle.

After the debt is cleared, and the smart contract accumulates a threshold of money, it can set up independent versions of itself. These operate under different parameters and let the contract optimize. Every new version of the contract thus acts more competitively, to optimize its economic value, and can adapt itself dynamically to different zones (according to climate and local vegetation).

Such a DAO can satisfy the 8 qualities of a decentralized, autonomous agent:

  1. Autopoietic: The organization can maintain itself and can reproduce itself without a single point of failure i.e. loss of a member of the DAO does not threaten the organization’s longevity. 
  2. Hyperscalable: The organization can reach large membership sizes and in contrast to the modern firms, becomes more efficient as it scales.
  3. Executable: The organization can run its operations through minimal protocols such as software applications and very low dependence on third parties.
  4. Permissionless: The permissionless quality indicates that any entity can enter and exit the organization according to publicly set criteria.
  5. Aligned: The organization has built-in mechanisms to overcome common problems of coordination.
  6. Co-owned: The co-owned quality indicates the organization encodes proportional ownership to its members. 
  7. Mnemonic: By automating the production of institutional memory, DAOs can promise accountability and produce a public record of their operations.
  8. Alegal: The quality in the context of DAOs indicates that organization does not transgress legality but helps develop a foundational framework over time.

Two token model

For the case wherein the smart forest only issues debt tokens, it becomes very difficult to incentivize local community members (who aren’t the creditors of the forest) to participate in the development of the ecosystem. This will also lead to an effect wherein people from around the world will not participate in the fundraising for the project because creditors aren’t assured of their economic returns by any on-ground support thus leading to a small, regional investor base that may not be able to raise sufficient funds.

By issuing an equity token (utilities explained later) the DAO can distribute these tokens to local community members, forest conservation NGOs to also help in the maintenance and growth of the forest through tree-plantation drives, regular checks, and management of on-ground logistics.

Debt token

The primary purpose of the debt token is to raise funds for purchasing the plot of land. 

  1. Fundraising – A smart contract would be used to issue Debt tokens. As soon as enough funds have been raised the community members can initiate land registration and other legal processes. Creditors will be able to withdraw their money plus the interest earned via a redemption process. 
  1. Redemption of Debt tokens – If we establish a constant interest rate (e.g. 10% per annum) it will lead to hoarding of debt tokens without adequate redemption due to low-interest rates offered by government bonds/savings accounts across the world. Thus we need to design the interest rate structure to incentivize timely redemption and burning of debt tokens.

The interest rate curve will decay over time to nudge users to redeem their tokens at the earliest. The redemption process can be handled through a first come first served basis or a probabilistic selection. For example, interest can decrease from 8% to 3% over the long term.

Equity Tokens

Equity tokens will not represent ownership of the forest but represent a future share of the economic profits of the smart forest. Equity tokens will be issued and distributed to help enlist the help of local communities, raise emergency funds, and get additional DAO participants (who are not the creditors). After the token generation event, a % of total equity tokens will be distributed to 5-8 local nonprofits working towards forest preservation, tree plantation, etc. 

In India, potential non-profits partners for the smart forest DAO could be –

The remaining supply of equity tokens can be used to incentivize local people/ecosystem participants in the growth of the forest DAO, manage the sale of food produce, staking funds for dispute resolution on-chain (for breach of logging licenses), etc.

Real monetary value accrual to equity tokens will only occur post the debt repayment of the DAO as the smart contract will enforce debt clearance before paying out any dividends. The dividends paid out by the DAO will also be limited by the governance votes. The surplus funds should be used in the development of smart forest ecosystems through

  1. Improving the fauna of the forest
  2. Planting more exotic trees
  3. Installing better security measures to avoid illegal logging &poaching
  4. Purchasing & utilizing future technological innovations to reduce human intervention
  5. Expansion of land
  6. Supporting other smart forest DAOs  

Need for Human Intervention 

According to current technological, infrastructure, and legal constraints; the system requires human participants to take up a few responsibilities 

Purchase of Land

To purchase a parcel of land (existing forest) would require the following:

  1. Land – This would require the help of a real estate broker to locate an ideal piece of land, a lawyer to help with the registration process. The DAO would also need to consider factors like whether the region receives adequate rainfall to sustain the growth of a forest, strong law enforcement to combat illegal logging, etc.      
  2. Registration – The smart forest would also require registering the plot of land under its name according to the local laws of property ownership. This process would require the help of lawyers and registrars.

Possible Automation of the above steps 

  1. Land – There can be aggregator websites listing all plots of lands up for sale quite similar to websites like Housing, LandCentury, and Landwatch. Additional information like weather, law enforcement, type of trees grown in the region can be collected through other sources on the internet and satellite images.
  2. Registration – Initially the process of registration of the land under the name of the forest will be unprecedented and will encounter some legal barriers. But after the successful launch of one/two such projects, it can be automated through an escrow contract by depositing twice the legal fees into the smart contract by both parties – Smart forest DAO and the lawyer who is ready to take up the registration work. Payments can be cleared from the escrow contract upon successful completion of registration. 

Prevent exploitation of forest resources

  1. A legal framework needs to be implemented to discourage illegal logging. Conducting semi-annual/annual inspections with help from forest preservation activists, Non-profit organizations or regular check-ups from the local community can help bring attention to unfavorable activities. 
  2. Logging appropriate amount of trees – Suppose the DAO decides logging contracts of about 7% of the forest need to be issued in one cycle to pay back creditors. The forest would require monitoring to see if the buyers of these contracts do not exceed the limit. In case there is excess logging, law enforcement can be informed of the same. 
  3. Avoid pooling of licenses – We also need to make sure that the buyers of logging licenses complete the collection process within stipulated time limits. There could be potentially disastrous consequences if a buyer pools the licenses over a long period and cuts a large section of the forest together.

Possible automation & implementation of the above steps

  1. To incentivize regular checks -These actions can be incentivized by allowing community members to mine equity token emissions through Proof of work (not to be confused with the Bitcoin PoW). The equity token can be paid to local villagers, forest preservation groups to enlist their help and align the economic interests of both parties rather than expecting goodwill. 
  2. Licenses – The logging licenses to be issued can be NFTs. By doing so, licenses issued in each cycle can have different expiry periods, specifications regarding % of forest & tree types to be logged, etc.
    The licenses can be charged at a premium compared to their cost and after inspection, agreement about acceptable execution of the license by the community/DAO the excess funds can be returned. (Dispute resolution can also be handled on-chain through Aragorn Court, Klerios if the need for it arises)
  1. IoT alerts – With the help of remote sensing and IoT devices, the data about the condition of the forest can be tracked. This can also help us get more granular data regarding the plants, animals in the forest and monitor the ecological balance. Security alerts can also be automated for incidents like trespassing, poaching, etc.

Regrowing & Replanting of trees

Post every cycle there will be a decrease in the forest cover in the region. DAO can organize tree plantation drives every cycle with the help of NGOs, tying up with universities, communities in the surrounding areas. The DAO treasury along with the equity token emissions can also be used to incentivize such drives, purchase new species of plants.

Collecting & Selling food produce

Similar to logging contracts – this can be executed by issuing a license to local farmers on a yearly basis. The licenses can be sold off at a fixed cost or on a revenue-sharing basis.   

DAO Governance & proposals

The non-profits selected for initial equity can act as the advisory board for the DAO until an active community has been established. Debtors and other Equity holders can also nominate members (or delegate tokens) to vote on their behalf. The DAO can be transformed from a trustee-based model to a completely community governed model later.  

Once the debt repayment process is complete the smart forest treasury will start accumulating funds that can be utilized for several purposes as mentioned in the equity token section.

DAO will also be responsible for the selection of important parameters like

  1. The number of logging licenses to be issued each cycle.
  2. The distribution of DAO funds to various functions such as security, growth of forests, land purchase, etc.

Grants can be issued from the treasury to incentivize participation/contribution.

Possible Problems

The initial fundraising target is missed

If the smart contract fails to achieve its fund-raising goal, the contract will let users withdraw their funds directly (the maximum loss users would face will be gas fees for initiating the transactions).

Alternatively, the contract can update the rewards curve and offer better returns to fund providers. Existing pool participants will be offered 2 options

  1. To receive the revised higher interest rate 
  2. Exit the lending pool 
The sale of assets is not enough to repay creditors

Such a condition can lead to a negative feedback loop and can cause the collapse of the DAO. There can be a few measures in place to help the DAO recover from such conditions in the short term:

  1. The treasury assets (built through the sale of equity tokens) held in stablecoins & invested through yield aggregators like Yearn can be transferred into index funds or an actively managed portfolio with more volatile assets to generate better returns.
  2. Extending the logging capacity for one cycle.
  3. Selling the carbon credits of the forest to carbon-neutral initiatives of MNCs.
  4. Selling commemorative naming rights to trees as NFTs (these trees cannot be logged post the purchase).
  5. The treasury assets (built through the sale of equity tokens) held in stablecoins & invested through yield aggregators like Yearn can be transferred to index funds with more volatile assets to generate better returns.
  6. Extending the logging capacity for one cycle.
  7. Selling the carbon credits of the forest to carbon-neutral initiatives of MNCs.
  8. Selling commemorative naming rights to trees as NFTs (these trees cannot be logged post the purchase).

Economic Model

Smart Forest DAO – Economic Analysis

Future of the DAO

After the successful launch and operation of the first smart forest project, it can help set a legal precedent and make it easier to launch similar new smart forest DAO projects across the country. These smart forest DAOs can also receive grants, investments from CSR (corporate social responsibility) initiatives. These grants can help reduce the repayment period for the debt raised to purchase the forest land. These smart forest DAOs can also receive grants, investments from CSR (corporate social responsibility) initiatives. These grants can help reduce the repayment period for the debt raised to purchase the forest land. Initial smart forest DAOs that have completed their debt repayment can further invest and become debt, equity shareholders for subDAOs that have been forked from the original project.

Future advancements in the domains of satellite imaging and analysis, coupled with IoT sensing, security integrations for monitoring the upkeep of the forest will help us reduce dependency on humans. Improvements in DAO governance frameworks will help to scale these organisations at a much rapid pace compared to traditional non-profits whilst also attracting the relevant global community; and experts through token incentives. 

The idea of the smart forest DAO can be expanded to more public goods (water bodies like lakes) and cooperative endeavors (like Farmlands) allowing community members to create a global cooperative organization that has the capacity to onboard a large and relevant community that can bring about meaningful change and compensate contributors proportionally to ensure long term participation and continuous betterment of the initiative.

Disclaimer

The following article has been inspired by terra0. The ideas expressed in the article aim to build upon the framework suggested by terra0 by optimizing it further, allowing a more global scope, reducing human dependence, and using the developments in AI, blockchain, and analytics over the last couple of years to create an easier implementation. Views expressed in the article also inform readers that the thoughts and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee, or other group or individual.

Author – Neel Daftary, Research Lead, Woodstock Fund

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