First vs. Second-order Assets

What are first vs. second-order assets?

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First-order assets, such as carbon credits, are directly tied to specific environmental projects and are considered place-based. In contrast, second-order assets derive their value from these underlying first-order assets and are designed to enhance market liquidity, mitigate risks, aggregate and diversify investments, and meet the specific needs of institutional investors.

In order for green crypto to scale effectively, the integration of both first-order and second-order assets is crucial. First-order assets, such as carbon and biodiversity credits, generate tangible environmental impacts and are prominently listed on the Regen Atlas. However, their place-based nature can present challenges, including difficulties in scaling and issues with liquidity and stability.

Second-order assets address these challenges by deriving their value from underlying first-order assets, thereby offering enhanced liquidity, reduced risk, and stable returns. Examples of second-order assets include:

• Green stablecoins, which maintain value through backing by green assets (e.g. Azos).

• Green indexes, which track a portfolio of first-order green assets.

• Green perpetuals, which are indefinite instruments providing ongoing returns, yet substantailly enhance market liquidity.

• Green yield tokens, which combine yield-generating instruments with sustainability.

Additionally, the introduction of second-order assets allow for even more innovative concepts to emerge, such as agro-parametric insurance governed by global farming coalitions and memecoins who, through their exchange, automatically retire carbon.

These second-order assets will also be featured on the Regen Atlas, which, by aggregating first-order green assets and their stakeholders, helps create an environment conducive to second-order asset development and growth.

The creation of these second-order assets, by meeting the needs of institutional investors, has the potential to generate a positive feedback loop. This loop will encourage further innovation in the utilization of place-based assets and deepen stakeholder collaboration within the green crypto ecosystem, ultimately driving the sector’s growth and its impact on addressing the climate crisis.