Change Credits: Composable financial instruments to make ReFi economically sustainable

For ease of scrollability for all of our short attentions-spans:

• TLDR
• About Change Code
• Grant motivation
• Achievements and near-term goals
• Problem (bit long, but we like to be thorough, feel free to skim)
• Solution (Change Credits)
• Changenomics
• Example of how it works
• About the founders

TLDRish

• The current $2.6 trillion global impact funding market (philanthropy, ESG, impact investing etc.) is opaque, inefficient, centralized and struggles to direct capital to innovative models like small social enterprises or community-based organizations.
• Many impact initiatives have long-term positive externalities that have real economic value (e.g., natural capital preservation, job creation, and educated people participating in economies).
• In current paradigms, these ‘impact dividends’ are not financialized, prohibiting true economic regeneration for the millions of changemakers who need more capital.
• Change Credits (impact tokens) are a new funding instrument to create a more community-driven, liquid and transparent impact economy.
• With the right economics, Change Credits can provide blended financial and impact returns by financializing the impact dividend.
• Change Code is building the positive sum economic primitives to incentivize long-term growth of impact as an asset class, such as our commitment to use 10% of revenues to the re-purchase and retirement assets, thereby providing a price support mechanism.
• For partners (buyers), Change Credits democratize impact investing beyond wealthy philanthropists and select institutions and begin the transformation of impact into a competitive asset class.
• For changemakers like social enterprises, Change Credits provide an answer beyond philanthropy for why capital should support them, unlocking access to new sources of capital aligned with achieving measurable impact.
• In essence, Change Code aims to leverage impact credits to not only transform how impact capital is sourced deployed, but to also build the missing economic incentives for more people to invest in impact.
• In May of 2024, Change Code will publicly launch a user-friendly minter and marketplace for Change Credits.
• Change Credits are designed as a highly composable financial primitive that incorporates the hypercerts standard and uses it as a base claim layer.

About Change Code

Change Code is building the tools for individuals and organizations to attest to and verify their impact and package that data into a meaningfully representative impact asset. Ultimately, the goal of these assets is to provide an unrestricted, but still accountable revenue stream, reducing the cost of social enterprise and eventually removing the need for continuous and unpredictable outside funding. Change Code is creating financial and data primitives that reliably and scalably represent impact outputs and just as important, longer-term impact outcomes—pioneering token-based representations of consumable and capital impact assets.

Why we’re applying for this grant

Change Code is already working to integrate hypercerts into our token flow and overall model. Hypercerts serve as a base impact tokenization layer for Change Credits and the larger economics planned for the future. We’re applying for this round in order to complete our own integration with the hypercerts standard and to integrate a verification flow via EAS (and hopefully with Deresy as well).

Roadmap

January 2024:

• Change Code incorporated as a Public Benefit Corporation in the state of Delaware and website launched.
• Received a grant from a large European renewables foundation to build a primitive for timber construction carbon-asset backed securities.

February 2024:

• Began work on our Change Credit minter and marketplace and research on hypercerts integration.
• Began business development of both carbon and non-carbon asset minters, securing 2 carbon projects to start.

March 2024:

• First web3 native carbon credits minted; 38K tons of CO2 minted across regenerative projects in the US and UK.
• Presented Change Code’s mission and economic ideas at REGENERATION event, hosted by CCN and Regen Network) at ETHDenver with the talk “Impact Tokenization: Decentralized Tools for Sustainable Funding: Erin Murphy, Change Code.”
• Applied to Mercy Corps Ventures’ Crypto for Good Fund.
• Crypto and fiat payment integrations complete.

April 2024:

• Additional 11K tons of CO2 minted.
• First changemakers onboard to Change Credit minter (tracking to launch in May with 5 social enterprises).
• Finishing minting requirements and hypercerts integration.
• Selection of initial assessment frameworks, including SDGs, EBF, and EU Commission.
• Apply for GG 20.

May 2024:

• Launch campaign for inaugural Change Credits going live on our marketplace, with a target of >$100K worth of positive impact.
• Secure 2-3 partnerships to help promote the inaugural asset purchasing.

June + July 2024:

• Secure minimum of 100 unique Change Credit partners (buyers).
• User feedback assessment (combination of interviews and surveys) to alleviate onboarding and minting friction, to drive product improvements.
• Initiate conversations with family offices, ESG funds, and other institutional investors to understand interest and requirements for purchasing tokenized impact assets.

August 2024:

• Secure diverse range of impact credits available on the Change Code platform from a target of 25 NGOs & social enterprises.
• V1 of Impact Dividend calculator.

October 2024:

• Secure minimum of 300 unique Change Credit partners (buyers).
• Assess pricing dynamics and effectiveness of Change Code’s price support mechanism.
• Prototype impact wallet, powered by AI, to educate users and decrease web3 friction.

Problem

Impact financing today is opaque, capital inefficient, and centralized— limiting both the initial cash flow to changemakers and their ability to become financially sustainable

Despite all efforts, progress towards achieving the United Nations Sustainable Development Goals (SDGs) by 2030 is falling short. The growing number of conflicts, rising inflation, and the impact of climate change have further exacerbated existing challenges, reversing hard-won gains and disproportionately affecting the most vulnerable populations in high and low-income countries alike. Without urgent, transformative action, including increased funding, policy coherence, and global cooperation, the ambitious vision of reaching sustainable development by 2030 (or even 2050) will fall short, jeopardizing the well-being of both people and the planet.

When the SDGs launched in 2015, the annual SDG funding gap was around $2.5 trillion; in 2024, that number is closing in on an annual $4 trillion shortage of funding. So what kind of funds do go into reaching goals like greener cities, education for girls, or peace building?

Currently, the global impact funding market, running the gamut from development aid, to philanthropy, to ESG-oriented funding, to impact investing, totals approximately $2.6 trillion. This capital flows to large players like UN agencies, millions of NGOs, socially-minded businesses (social enterprises), and myriad private sector companies working on things like carbon reduction technology, accessible financing, and planet-first construction.

Despite this vast range, all of these sources of capital have one thing in common. They are all acting charitably; they all pay substantial opportunity costs of forgoing higher returns for the good of everyone. The direct result is a uniquely high cost of capital and financial difficulty for development efforts and social enterprises. For example, despite collectively earning $2 trillion in annual revenue (2% of global GDP!) and providing 200 million jobs, social enterprises face a funding gap of $1 trillion, limiting their capacity to grow, employ more people, and deliver more change to their communities.

Impact financing today is primarily accessible to ultra-wealthy philanthropists, specialized institutions, and development aid agencies. Retail investors (ordinary folks who want to do their bit) are relegated to donation or sponsorship models, which ultimately diminishes the industry’s total liquidity. This large investor paradigm has also led to millions of organizations not having access to those pools of capital due to factors such as selection biases favoring existing recipients, organizational budget size or sophistication, or thematic focus (which is often donor-determined). As a result, a fast-growing ecosystem of innovative and respondent models, such as smaller-scale social enterprises or community-based organizations, are constrained by high costs of capital, arduous manual reporting requirements, and low levels of liquidity. These constraints cripple the effectiveness of impact projects and limit their reach.

Solution

Change Credits are the first in our series of composable financial instruments to make ReFi economically sustainable.

An open-sourced repository containing the code for the smart contracts as well as the backend code for minting and managing Change Credits is being built here. Change Credits represent our first composable primitive to power changenomics, an initial step toward making an impact economy that is community-driven, liquid, and transparent.

Terminology, Integrations, and Standards

• Good Generators. NGOs, social enterprises, and other organizations tokenizing and minting their impact via Change Code.
• Partners. Individuals, funds, and organizations purchasing and holding Change Credits from one or more Good Generators.
• Verifiers. Qualified experts actively reviewing and signing off on the impact outputs claimed by Good Generators.
• Hypercerts. Unverified impact claims setting out a scope of impact, time bounds, and contributors, represented as semi-fungible ERC1155 tokens.
• Ethereum Attestation Service (EAS). Tokenless, public good service supporting both onchain and offchain attestions.
• Change Credits. Composable and verified impact tokens linked to an individual Good Generator and represented as batched, non-fungible ERC721 tokens.
• Impact Reserve. Auditable onchain account acting as a repository of generated and verified impact from which Change Credits are minted, represented as ERC6551 token-bound accounts.

Token Evolution

Initial Impact Claims

When a Good Generator initially makes an impact claim (or a concurrent set of impact claims), data is captured onchain (and offchain) according to the hypercert token and metadata standard. Upon creation, the owner of the hypercert is set as the Impact Reserve. As such, the only fractionalization supported for hypercerts inside the Change Credits flow exists at the level of contributors. The purpose of this distinction is to create a more composable and less conflated system of primitives in which the hypercert can more clearly and exclusively function as a claim to impact.

Subsequent Claims

In the event that a Good Generator's work on a project spans multiple cycles (e.g. carrying over years) or is active in multiple geographies, each of these components can be represented as its own hypercert. These multiple hypercerts will all feed into the same Impact Reserve but streamline and simplify the process of verification, especially in the event that verifiers may be local in only one geography or only available for part of the longer duration of the initiative.

Verification

At the same time an Impact Reserve is launched onchain, it includes an updateable list of verifiers. Each hypercert owned by the Impact Reserve includes both a specified quorum of verifiers (m of n) and a sublist corresponding to the verifiers required for that hypercert to pass as verified. Once a corresponding hypercert is minted, its set of verifiers is able to provide their reviews via the EAS. (Choosing to leverage the EAS could, in the future, make the Change Credits protocol compatible with other EAS projects such as Deresy.)

Change Credit Minting

Based on the balance of verified impact units inside the Impact Reserve, partners can mint and purchase Change Credits at a price defined by the Good Generator. Each Change Credit is minted as a single NFT with a number of impact units included as updatable metadata.

Demand Levers

There are various levers in place to entice partners to mint and hold Change Credits, beyond of course any altruistic interest in impact or public goods. Change Credits are intended to be the start of the funnel and effectively the base asset of Change Code's economic flywheel.

• Subsidized Retirement. To catalyze interest, a Good Generator or their legacy philanthropic backers may offer to commit a portion of donated funds (or, in the case of a social enterprise, increased profits) to repurchase and retire a portion of its Change Credits, proportionally repurchasing them from current holders.
• "Follow-On Rights". In the case of social enterprises, it's well understood that these projects often begin with subsidized capital that is later replaced with profit-seeking capital. Coupled with the above notion of subsidized retirement, we might expect that as a social enterprise matures across multiple funding cycles the amount (and repurchase price) for subsidized retirements would increase. Holding Change Credits of an earlier vintage gives partners guaranteed participation rights to purchase future Change Credits from the organization.
• Continuous Outcomes. While the immediate outputs of an impact initiative may be quickly realized, the delayed or secondary outcomes take more time to be realized. Building an elementary school does not immediately produce a more educated workforce or increase household income. To recognize this outcome, the impact units of continuously-held Change Credits compound over time resulting in a larger Impact Dividend and conversion ratio outlined below.

Changenomics

So, is Change Code basically building a marketplace for impact NFTs? Not exactly. As collectible and verifiable demonstrations of verified impact, we think Change Credits can be a fantastic first step. Most importantly, we see Change Credits as a critical first step toward introducing more innovative impact funding models to individuals, who unlike large institutions and development aid organizations, have never had the option to do anything more than donate and receive occasional update emails from NGOs.

Change Code’s goal is to transform impact from something solely dependent on charitable notions into an asset class with economic incentives equal to any altruistic motives. The above demand drivers being implemented on the Change Credits themselves is the first step in this process.

However, to achieve the levels of capital flow, composability, liquidity, and plurality we seek, a single fungible asset must be able to be created, which is effectively backed natively by all the impact produced inside this system.

While creating a single fungible and composable asset is a key first step, it is not sufficient. If we want to talk about making impact funding scalable or the economic systems we create regenerative, then they must become economically self-sustaining, not continuously dependent on new external funding (retroactive, plural, or otherwise). The hallmark of any flywheel model is to eventually escape reliance on outside input.

Accomplishing this requires that interest in this proposed singular “impact coin” must be economically justified and it must be designed to bootstrap and strengthen over time. Our work on this aspect of the system is still in its early stages, as we’re focused on building Change Credits first, but some of our early design thinking is below.

Impact Dividend

The idea of a "dividend" is well known across development circles. When we invest in peacebuilding, education, infrastructure, or basic healthcare, there is inevitably an economic dividend. If we think about peacebuilding, for example, the World Bank estimates that every $1 invested in peace prevents $16 of future loss. In other words, resources previously tied up in military spending or humanitarian aid can instead provide an economic stimulus by increasing public and private investment in sectors that drive economic expansion and productivity improvements.

Each batch of Change Credits will be set with a conversion ratio into impact coins based on the calculated economic dividend realized from the project’s impact. We recognize the audacity of such a statement and are already onboarding development economists to support us in building the necessary models. If you happen to be such an economist, please reach out!

"Forex" Reserves

When minted and acquired by partners, Change Credits are subject to a Change Share fee equal to 10% of the amount paid. This Change Share is a means for the system as a whole to acquire hard currency reserves (USDC/T, DAI ETH, BTC…). These reserves can then be used to continuously acquire and retire coins, therefore shrinking supply as well as signaling the capacity for further market intervention when necessary.

A Currency for Change

Fundamentally, Change Code plans to see our impact coin eventually become a currency for change and changemakers. This new currency literally backed by and serving as a demand sink for verifiable impact. We expect to have a prototype of this currency in the wild by early 2025, so be sure to follow our progress on our Github.

Example of how it works

Project: Tech and Sun (referred to as TAS, founded by Green Pill Nigeria chapter lead, Izzy Lawrence.

Goal: Raise $25K to build 4 solar-powered charging stations in 4 different locations in Nigeria to provide affordable, stable flows of connectivity for local communities’ portable devices.

Step 1: TAS fills out Change Code’s Project Setup Request.

• This is where projects fill out background info, project purpose, and determine the metrics they will be tracking and attesting to. In this case, TAS will keep it simple, tracking:
  • Number of jobs created (people who tend the charging kiosks)
  • Tons of CO2 avoided
  • Number of individuals provided with solar-powered mobile or laptop charges on a daily basis
  • Annual profit that can be used to build more charging ports
• In addition to selecting SDG, EBF, CCN Climate Solutions Metrics Garden, or other assessment targets, projects can upload auxiliary documentation, such as photos or impact assessments completed for past initiatives, etc.

Step 2: Change Credit Issuance

• Assessing TAS’s expected operational costs and calculating its 10-year impact dividend, Change Code will work with TAS to determine the initial token price, mint their tokens, and generate their project page on the Change Code platform (project page for Jibu, a water project, available here).
• In this case, TAS will mint 625 tokens at $40 each to reach their goal of $25K.

Step 3: Marketplace Sales & Change Share Contribution

• Change Code’s team will work with TAS to drive the sales of their assets, promoting the token to retail and institutional buyers.
• Every month, Change Code will remit TAS’s token proceeds to them, minus the 10% Change Share, which TAS has already priced into their capital goal.

About the Founders

Change Code was founded in early 2024 by two people who previously built an impact-focused L1 (Topl) and who are now building financial and data primitives to mitigate the challenges of impact financing. Before joining web3 in 2021 after finishing her MBA, Erin spent a decade in the economic development and aid sector, working in the field across East Europe and South Asia on projects ranging from micro-enterprise development, to agriculture, to peacebuilding. Chris, who has an academic background in math and computational physics, has been in the web3 space for more than a decade and has expertise in protocol, product, and tokenomic design. In their respective and collective entrepreneurial journeys, they have raised nearly $30M in capital, and together, they have designed products and solutions for impact use cases across 25+ emerging and frontier markets.

Over the past few years, we’ve spoken and hosted workshops at events such as Schelling Point and Earth Commons (formerly Sustainable Blockchain Summit), and if you’d like a bit more of a window into who we are and how we think, feel free to check out some samples below.

Erin (@MurphyErinM) speaking at Schelling Point Bogota, SBS Boston, and on Crypto Altruism podcast.

Chris (@c_georgen) at SBS LATAM, on Impact 3.0 podcast, and featured by Causeartist.