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A proof-of-concept sustainability-linked bond in Solidity, to enable the issuance and repayment of a corporate or government bond on Ethereum. Built in 2020.

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🌱 Sprout

For a guide on how to clone and start the app, jump down.

Sustainability-Linked Green Bond on Ethereum

Sprout is a prototype sustainability-linked bond in Solidity. Blockchain holds promise to offer significant savings in the cost of issuance and administration of sustainability-linked bonds. Here, we have linked the bond structure to sustainability metrics submitted by an off-chain oracle, which is analyzing raster data representing measurements of ecological health - NOx levels.

The bond contract must be adapted so that the borrower (i.e. government or corporate entity) is financially incentivized to meet sustainability targets. In our case - a simple prototype to illustrate the capability - we imagine the Greater London Authority issuing a sustainability-linked municipal bond.

In this scenario, the GLA wants to raise 1000 ether. They issue 1000 bonds with a face value of 1 ETH.

From the investor's perspective, it is a fixed-income instrument: they are paid a coupon (i.e. interest) rate of 3% of the bond's face value (i.e. 0.03 ETH) each year for 10 years, then are repaid the full 1 ETH face value once the bond matures.

This means that each year the GLA must pay 30 ether into the contract to repay bond holders, then must return the full 1000 ether at the end of the term.

However, we also want to incentivize the GLA to improve air quality in London. We will do this by linking the repayment amount to measurements of air quality, which will be calculated and submitted on an annual basis by an oracle. In this simple example, we are finding the average NOx level across London based on data generated by DEFRA, the UK Department for Environment, Food and Rural Affairs. The aim is to enhance this simple demo with more robust measures of ecological conditions - analyzing satellite images from various sources using machine learning algorithms and other analytical techniques.

(We will leave aside the possibility of collusion between DEFRA and the GLA for now - though this points to the importance of carefully designing the mechanisms underlying decentralized spatial finance products.)

In addition to the money repaid annually to pay bond coupons, the bond is designed so the Greater London Authority is required to pay an additional amount, based on the mean NOx levels (in µg m-3) derived from analysis of the DEFRA dataset. This variable rate will provide an economic incentive to the institution to improve air quality. We suppose that the extra funds collected based on this variable rate might be transferred to the agency tasked with improving air quality - a sort of metrics-driven capital allocation system for adapting government budgeting based on observations of environmental health.

We chose not to transfer the additional funds raised to investors because we did not want lenders to profit from degrading air quality. It is worth emphasizing: our aim here is to demonstrate the feasibility of sustainability-linked smart contracts, not to make recommendations about the most appropriate design of these instruments.

For this bond, the Greater London Authority will be required to pay 1 ether for each measured µg m-3 of NOx.

Thus, for the term of 2003-2013, the borrower could expect to see the following dynamics:

year noxLevel bondsNumber parValueEther couponRate coupon totalCoupon variablePayment totalAnnualPayment variableInterestRate
2003 56.15748001 1000 1 0.03 0.03 30 56.15748001 86.15748001 0.08615748001
2004 47.48138536 1000 1 0.03 0.03 30 47.48138536 77.48138536 0.07748138536
2005 49.60424539 1000 1 0.03 0.03 30 49.60424539 79.60424539 0.07960424539
2006 46.74988874 1000 1 0.03 0.03 30 46.74988874 76.74988874 0.07674988874
2007 49.84159725 1000 1 0.03 0.03 30 49.84159725 79.84159725 0.07984159725
2008 43.85691224 1000 1 0.03 0.03 30 43.85691224 73.85691224 0.07385691224
2009 44.05282664 1000 1 0.03 0.03 30 44.05282664 74.05282664 0.07405282664
2010 46.70628094 1000 1 0.03 0.03 30 46.70628094 76.70628094 0.07670628094
2011 41.34744668 1000 1 0.03 0.03 30 41.34744668 71.34744668 0.07134744668
2012 39.26930737 1000 1 0.03 0.03 30 39.26930737 69.26930737 0.06926930737
2013 40.30984002 1000 1 0.03 0.03 30 40.30984002 70.30984002 0.07030984002

Summary figures:

Total capital raised 1000 ether
Total paid coupons 330 ether
Total variable payments 505.38 ether
Total repaid 1835.38 ether

How to start

  1. git clone git@github.com:AstralProtocol/sprout.git && cd sprout
  2. Run yarn chain in one terminal
  3. Run yarn deploy in another terminal to deploy the contracts
  4. Run yarn start to load the react app

How to start with Powergate

How to deploy locally to ganache (be sure to have ganache-cli installed globally)

  1. Run yarn ganache in one terminal
  2. Run yarn truffle in another terminal to deploy the contracts
  3. Run yarn load-powergate-data as soon as the contracts finish deploying in the last terminal
  4. Run yarn start-cron in an extra 3rd terminal to start the cron job
  5. Run cd app && yarn start in a 4th end to start the front end. It will be available on localhost:4000

Starting powergate

Prerequisites:

  • Docker Desktop and Docker Compose
  • Golang

Instalation (more in depth in https://docs.textile.io/powergate/localnet/):

  • git clone git@github.com:textileio/powergate.git
  • cd powergate/docker
  • BIGSECTORS=true make localnet

If there are errors at this point, such as "powd/main.go:66 starting server: connecting to lotus node: resolving dns: lookup lotus on 127.0.0.11:53: no such host localnet_powergate_1 exited with code 1" OR SIGINT errors, you should try to build the lotus image by yourself:

  • git clone https://github.com/textileio/lotus-devnet.git
  • git checkout ntwk-calibration-x.x.x (substitute x x x for the latest release branch)
  • docker build -t my-local-devnet .
  • In the Powergate repo, replace in docker/docker-compose-localdevnet.yaml, the textile/local-devnet:.. for my-local-devnet.

When complete, you will have a fully functional Powergate (powd), a Lotus localnet, and an IPFS node wired correctly together to start using. To install the CLI:

  • make build-pow
  • Check the instalation with pow --help

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A proof-of-concept sustainability-linked bond in Solidity, to enable the issuance and repayment of a corporate or government bond on Ethereum. Built in 2020.

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