Market & Valuation Considerations
The financial infrastructure that the $CARROT ecosystem is proposing to establish for a sustainable, pollution-free global economy is both deep and wide. Estimating the value of a community-owned and governed zero waste circular economy that involves potentially billions of people and thousands if not millions of companies; is difficult. Accenture Research and the World Business Council for Sustainable Development (WBCSD)[88] suggest the value of the Circular Economy will be US$4.5 trillion by 2030 and US$ 25 trillion by 2050 (see the book Waste to Wealth.[89]
Utilizing a bottoms-up approach, the Carrot Fndn estimates that a Zero Waste recycling economy involving waste collection, hauling, recycling and composting (at current waste production levels and middle income country material recycling values), along with a global, recycling credits and carbon credits-from-recycling voluntary market could represent US$1.9 trillion per year; or roughly 42% of the Circular Economy opportunity. The Recycling Credits and Carbon Credits market total addressable market (TAM) alone is expected to become US$0.5-1.0 trillion dollars.
Total Addressable Market (TAM) = US$ 0.5-1.0 trillion
Service Addressable Market (SAM) = 250 billion
Service Obtainable Market (SOM ) = 125 billion
For valuation of the $CARROT ecosystem we can use a top down approach applying market size, value capture and risk[90]. In this case, a US$125 billion market (SOM) with an estimated 20% market share results in a US$25 billion market size. The 20% market share assumption is made considering the following factors: there are no established market players at present, Zero Waste coordination and membership will likely converge under a community-owned and led decentralized autonomous organization (DAO), most companies will likely choose to store all of their Tokenized Recycling Credits under a single protocol despite being on a public distributed ledger, years of development already provide an important head start for the protocol despite being still in an early-stage. For more on the scaling potential of the $CARROT ecosystem, we suggest reading the “Network State”[91] by Balaji Srinivasan and listening to the Bankless podcast “Debrief - Rise of the Network State.”[92]
If we add a 20% discount for execution risk we can arrive at a US$20 billion potential valuation. By comparison, McKinsey & Company estimates that the overall voluntary market for carbon credits could be worth upward of US$50bn in 2030[93] while the mandatory Carbon Markets were already valued at US$850 billion in 2010 while only covering ⅕ of global greenhouse gasses.[94] If we agree with Deloitte’s and the Circular Economy Foundation’s analysis that transitioning to a Circular Economy can deliver 85% of the GHG emissions reductions needed to stay below the 2ºC limit from pre-industrial levels, then we can expect significant value to be driven into a recycling credits marketplace.[95]
Notes on market size calculations and additional opportunities:
57% of the current global population is urban, a figure which is expected to grow to 68% by 2050[96].
Waste generation is expected to increase 70% by 2050, from 2.1 billion tons per year to 34 billion[97].
The average price modeled for carbon credits is US$5.00 per ton of CO2e. This figure is at the low end of voluntary market pricing and significantly lower than many companies are paying, estimated at US$25 per metric ton of CO2e in 2020, according to ESG Today.[98] As demonstrated before, average prices of CO2e in the mandatory markets are trading between U$80-US$95 per ton. We expect that demand for carbon credits will increase much faster than the supply of carbon credit offsets and that the spread of CO2e per ton prices between the voluntary and mandatory carbon market will narrow over time. We also expect that the gap will close even faster for high quality carbon credit offsets, such as those provided by the Carrot Fndn and $CARROT ecosystem.
The market size estimation for total carbon credits offsets only takes into account carbon credits created from food waste composting. Green waste composting, which typically make up for 50% of total composting heaps and provide similar GHG emissions reduction results, were not included. In addition, other greenhouse gasses avoided when Glass, Plastic, Paper, Cardboard, Metals, etc. are recycled, compared with extracting new raw materials from nature, and hauling and processing them, were also not factored. The WARM model [99] serves as a mechanism for capturing this value and we believe that it can be significant.
In addition, we believe every product created can and should carry recycled MassIDs purchased or earned through recycling. Producers such as Consumer Packaged Goods (CPGs) companies can utilize acquired MassIDs from purchases of recycled material content to prove recycled content material use in their products. Currently, we have no choice but to accept recycled content figures printed on product labels, forcing us to take a company at its word (even in an environment with rampant greenwashing). Connecting the recycling economy to the producer and consumer economies offers great potential for the creation of value and reducing waste.
Data captured from a digitized, decentralized and dynamic recycling market can generate significant value to multiple stakeholders, including to consumers at point-of-sale. Third-party validated product source information and its waste footprint, along with recyclability data by locale can significantly impact consumer behavior and create new opportunities for Producer-Consumer engagements across a variety of channels.
Valuation in Web3 is still in its infancy and more art than science. We are not completely comfortable with TVL (Total Value Locked) valuation alone, because while it does demonstrate commitment by token holders for the long term it also leads to low trading volumes and high token volatility, which are not healthy for the ecosystem. Should a Community Reserve be considered Locked tokens? We believe the industry is moving to more traditional valuation methodologies such as Discounted Cash Flow (DCF). These can be estimated based on fees captured from within the ecosystem which flow back to the foundation’s treasury (see Carrot Fndn Ecosystem fees). Because $CARROT is a proof-of-physical work solution that generates infinite TRCs and TCCs for offsetting, and because it has a built-in incentive mechanism that generates fees to the Treasury from real-world activities, we believe Carrot Fndn can generate healthy and stable fees, operating much like a global utility for waste management.
The user experience with regard to understanding the value capture of $CARROT is at the top of our minds as Carrot Fndn and $CARROT founders. What is the price we can put on building a pollution-free world? If there are 10 billion $CARROT tokens representing each person in 2050 then we can understand the value, roughly, that $CARROT should provide to each person at that date. As a reference, in the inefficient world in which we live where more than 80% of the waste that is generated becomes pollution, that value could be understood to be at least US$8 per person. According to the World Bank, just the transfers or subsidies that occur each year from the Federal Government to Local governments for waste management average US$8 per capita. If you factor in that businesses pay between US$155 and US$314 per year for waste management, it is clear that the true value “per person” is higher than $8/year. We believe the price per $CARROT token should eventually reflect the value to each person of establishing a future sustainable planet.
88. World Business Council for Sustainable Development - “The circular economy’s natural logic”
89. Accenture “Waste to Wealth” book.
90. Fortune article: 3 Venture capital investors explain how they value crypto startups with the market in turmoil.
91. Balaji S. Srinivasan: Foresight Institute Interview transcript and book “The Network State”.
92. Bankless Podcast: “Debrief - Rise of the Network State” in particular minute 27:35 where it is suggested that “crypto is more than just a (new) financial system… it is a social and political movement… a new human organizational structure.”
93. McKinsey & Company - A blueprint for scaling carbon markets to meet the climate challenge, report
94. Statistics Times: World Urban Population, link
95. World Bank - What a Waste 2.0 : A Global Snapshot of Solid Waste Management to 2050 report
96. ESG Today: CDP Study: More Companies Putting a Price on Carbon link
97. US EPA: Basic Information about the Waste Reduction Model (WARM)
98. World Bank - What a Waste 2.0 p. 107
Last updated