Engineering a smarter and

greener financial world

with Tokenovate
Table of Contents
03 Introduction

04 The blockchain revolution

06 The problem with carbon trading and how

Tokenovate can help

08 Understanding the trading lifecycle with Tokenovate

12 Interest swap solutions and other offerings

12 How the BSV blockchain helps power Tokenovate

14 Looking forward
Introduction
Companies worldwide are awakening to the urgent need for sustainability and environmental responsibility,
not only as a moral imperative but also as a strategic imperative. This shift is driven by a convergence of
factors, including mounting pressure from stakeholders, the looming threat of climate change, and the
growing realisation that sustainable practices are not only beneficial for the planet but also for long-term
business viability and success.

As we approach the 28th Conference of the Parties (COP28) on climate change, the importance of green
initiatives has never been more pronounced in the corporate world - specifically when it comes to carbon
trading. Carbon trading is a market-based mechanism designed to mitigate the impact of greenhouse gas
emissions on our planet’s climate. At its core, carbon trading is a regulatory approach that seeks to limit
the total emissions of greenhouse gases, such as carbon dioxide (CO2), from industries, organisations, and
nations. Here’s how it works:

Governments or regulatory bodies set an overall cap on the total amount of greenhouse gas emissions that
are permissible within a specific time frame. This cap is usually allocated in the form of emissions allowances,
which represent the right to emit a certain amount of carbon dioxide or other greenhouse gases.

Companies and entities subject to these regulations are then issued a portion of these emissions allowances,
which can vary based on factors such as historical emissions, industry benchmarks, or government policies.
These allowances effectively serve as a limited and tradable resource.

While carbon trading and other Environmental, Social, and corporate Governance (ESG) initiatives are a
key consideration for many companies, it is not a simple task to keep track of these transactions. There are
multiple marketplaces where credits can be traded, it is not always clear when a deal has taken place, and
bad actors may try to manipulate the system to appear greener than they are.

This means that the need for comprehensive tools to address these challenges has never been more critical.
Enter Tokenovate and the BSV blockchain - an innovative company and technology which has the potential to
reshape how we approach ESG targets and build a more sustainable future.

In this eBook, we investigate blockchain technology and its profound impact on the ESG landscape. From
reducing carbon footprints to promoting ethical supply chains and enhancing corporate governance,
blockchain offers a multifaceted approach to addressing the key pillars of ESG.

We will also unpack how Tokenovate, a UK-based financial services technology company, aims to address
these issues by providing distributed financial market infrastructure, and smart legal contracts, enabling
programmatic lifecycle event management of the pre-trade to post-trade workflow for OTC and exchange-
traded derivatives, including Voluntary Carbon Credits (VCCs).

Finally, we will explore the fusion of blockchain and ESG, and detail some of the other powerful use cases for
Tokenovate and the BSV blockchain which can drive transparency, accountability, and sustainability across
various industries.

3
The blockchain revolution
Before we dive into the marriage of blockchain and ESG, it’s crucial to understand the fundamental principles of
blockchain technology.

At its core, blockchain is a distributed ledger technology. Unlike traditional centralised systems where data is stored
on a single server, blockchain operates on a distributed network of computers. This network, often referred to as a
“peer-to-peer” network, collectively maintains and updates a ledger containing a record of all transactions or data
entries. This distributed nature brings several key features:

Decentralisation
There is no single point of control or failure, making the network more robust and resistant to tampering or
hacking.

Immutability
Once data is recorded on the blockchain, it becomes extremely difficult to alter. Each new block in the chain
references the previous one, creating a secure and unbroken chain of information.

Transparency
Transactions on the blockchain are transparent and can be viewed by anyone with access to the network.
This transparency is a cornerstone of blockchain’s ability to promote trust.

Security
Blockchain uses advanced cryptographic techniques to secure data. Transactions are verified through
consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS), making it highly secure.

4
Blockchain technology originally gained prominence as the underlying technology behind cryptocurrencies like
Bitcoin and Ethereum. However, its potential extends far beyond digital currencies. Blockchain’s versatility allows it
to be applied to various sectors, and its unique properties have made it a game-changer in addressing
ESG concerns:

Supply chain transparency

Blockchain can be used to trace the journey of products from raw materials to the end consumer.
This level of transparency helps combat issues like child labour, unethical sourcing, and counterfeiting.

Carbon accounting
In the fight against climate change, blockchain offers a transparent and immutable ledger to record and
verify carbon credits and emissions reductions. This ensures trust in environmental initiatives.

Distributed energy grids

Blockchain facilitates peer-to-peer energy trading and the integration of renewable energy sources into a
distributed grid. This promotes energy efficiency and reduces reliance on fossil fuels.

Secure voting systems

For governance, blockchain can enable secure and transparent voting systems, reducing the risk of election
fraud and ensuring greater democratic participation.

Tokenisation of ESG assets

Tokenising assets like green bonds or ESG-compliant investments on the blockchain can enhance liquidity
and transparency in ESG investments.

Blockchain is ushering in a new paradigm for ESG by offering transparency, traceability, and accountability on an
unprecedented scale. Its decentralised nature and security features align perfectly with the goals of ESG initiatives,
where trust, transparency, and ethical conduct are paramount.

5
The problem with carbon trading - and how
Tokenovate can help
Carbon credits, often referred to as carbon offsets, are a key instrument in the global fight against climate change.
These credits represent a quantifiable reduction in greenhouse gas emissions, typically measured in metric tons
of CO2 equivalent. Companies or organisations can earn these credits by implementing projects or initiatives that
reduce their carbon footprint.

These projects can range from reforestation efforts and renewable energy installations to methane capture from
landfills. Once earned, carbon credits can be sold or traded on carbon markets, allowing businesses to offset their
emissions by investing in environmentally beneficial projects elsewhere.

Carbon credits play a pivotal role in encouraging emissions reduction strategies and fostering environmental
accountability among corporations. However, it’s essential to scrutinise the legitimacy and transparency of carbon
credit markets to ensure their effectiveness in mitigating climate change.

While the world seeks sustainable solutions to pressing environmental challenges, some less scrupulous businesses
engage in a practice known as “greenwashing.” Greenwashing refers to the deceptive marketing and branding
efforts employed by companies to create an illusion of environmental responsibility without making meaningful
changes to their practices.

This deceptive facade often includes using misleading labels, vague claims of eco-friendliness, or showcasing
isolated green initiatives while ignoring the larger, more harmful aspects of their operations. Greenwashing not only
misleads consumers but also undermines genuine efforts to address environmental issues.

Notably, a recent study has delivered strong evidence that challenges the credibility of corporations that rely on
carbon credits to support their environmentally friendly claims. The research examined 18 carbon-offset projects in
Peru, Colombia, Cambodia, Tanzania, and the Democratic Republic of Congo.

6
The findings revealed that out of a possible 89 million carbon credits, only 5.4 million, or a mere 6%, were genuinely
associated with meaningful carbon reductions achieved through the preservation of forests. In contrast, over 60
million carbon credits were derived from projects that made minimal contributions to reducing deforestation.

As consumers and investors become increasingly conscious of environmental concerns, it’s crucial to scrutinise
claims made by companies and hold them accountable for their sustainability efforts to combat greenwashing and
foster genuine environmental responsibility.

Tokenovate aims to address these issues by providing distributed financial market infrastructure, and smart legal
contracts, enabling programmatic lifecycle event management of the pre-trade to post-trade workflow for OTC and
exchange-traded derivatives, including VCCs.

Recently, Tokenovate forged a strategic partnership with GMEX Group, leading to a successful demonstration of a
high-calibre, ISDA-based, smart legal contract for waste-to-energy VCC trades, built on the BSV blockchain. These
trades have their origins in the Bio-CNG Project AJS Fuels, situated in Gujarat, India, where cutting-edge biogas
technology captures methane from animal waste.

This accomplishment was realised by seamlessly integrating Tokenovate’s dFMI into the ZERO13 Hub, a distributed
orchestration layer that digitally links participants in the carbon market, as well as registries and exchanges across
various jurisdictions. This interconnected ecosystem enables the trading, clearance, and settlement of VCC spot and
derivatives contracts.

Notably, these trades were executed on the SECDEX exchange, a regulated marketplace intricately tied to the
Universal Carbon Registry for voluntary carbon credits, all of which are seamlessly registered through GMEX and the
ZERO13 Hub.

7
Understanding the trading lifecycle with Tokenovate
While Tokenovate has a strong focus on carbon trading and other green initiatives, its powerful platform,
underpinned by the BSV blockchain, means it can offer assistance to enterprises in several financial sectors.
To better understand this, it is first important to understand the trading lifecycle and how Tokenovate helps reduce
complexity for businesses and customers.

Trading assumes various forms, but at its core, it signifies a transaction wherein two parties, the buyer and the
seller, engage in an exchange. However, this description is a simplification of what trading truly entails.

In reality, particularly within the realm of financial services, trading is an intricate and multifaceted activity. It
encompasses numerous stages and involves the participation of multiple stakeholders.

The lifecycle of a trade is a process replete with actions that are initiated by specific events and necessitate
completion by the involved parties. These actions and events frequently entail manual processes, which, in turn,
lead to costly inefficiencies, incomplete data collection, and inaccuracies in reporting.

Tokenovate’s platform for distributed financial market infrastructure, coupled with smart legal contracts, addresses
these challenges by facilitating programmatic management of the entire trade lifecycle, from pre-trade to post-
trade, for both OTC and exchange-traded derivatives.

8
Pre-trade phase

The initial phase of a trade occurs before the actual transaction, involving critical preparatory steps. These include
tasks such as client onboarding or Know Your Customer (KYC) processes, the acquisition and effective management
of necessary collaterals, and the establishment of legal frameworks like ISDA documentation. During this phase,
risks are assessed and comprehended. Upon the successful completion of these activities, you are poised
for trading.

For Tokenovate, this stage is where we collaborate with our clients to establish the requisite infrastructure using
blockchain technology. This encompasses tasks such as tokenisation, fractionalisation, and ensuring seamless
workflow integration.

Trade execution

The trade execution phase is relatively straightforward: counterparties engage in negotiations, frequently facilitated
by a broker. Once mutually acceptable terms have been reached, the trade is executed, which can occur on
exchanges, through over-the-counter (OTC) channels, or in off-venue settings.

9
Trade management

The third stage introduces a series of steps that significantly amplify complexity. At this juncture, the trade
necessitates management. The mere occurrence of a trade does not mark its complete execution; instead, it
initiates an ongoing process involving clearing, settling, and reporting.

Trade management encompasses several pivotal activities, including capturing, enhancing, validating, affirming,
confirming, reporting, netting, reconciliation, and collateral management. It is during this phase that Tokenovate’s
distributed financial market infrastructure solution wields its formidable capabilities.

The platform orchestrates the automated fulfilment of contractual obligations through the utilisation of smart legal
contracts. Furthermore, Tokenovate’s “digital twin” approach, exemplified by the creation of an identical digital
representation of underlying assets, ensures continuous synchronisation between the “real world” and the digital
realm, particularly in the management of collaterals.

Trade settlement

Upon the completion of the trade clearing process, the settlement phase comes into play, representing the actual
exchange of value. Within this context, the prevalent T+2 settlement cycle emerges as a significant challenge in
the trade lifecycle. T+2, denoting the time from the trade (T) occurrence to the number of days it takes for the
transaction to settle (+2), often proves to be a source of frustration.

10
Several factors contributed to the two-day settlement period. Fragmented and segregated databases and
infrastructures, coupled with predominantly manual processes, inevitably introduce delays. These delays can lead
to situations where information is incomplete or inaccurate, further elongating the settlement process. For a deeper
dive into this issue, you can explore our blog post titled “The Trouble with T+2.”

Tokenovate’s distributed market financial infrastructure (dMFI) platform, featuring blockchain as a central
component, emerges as a solution poised to address this challenge. Serving as a global, unified source of truth,
our smart legal contracts solution autonomously manages and executes trade events. We firmly believe that this
innovation will propel the industry toward achieving near-instant trade settlement.

Position and risk management

The ultimate stage in the trade lifecycle involves an ongoing process of position and risk management. Institutions
and counterparties must vigilantly oversee their held positions, often referred to as the trading book, ensuring that
the aggregate exposure remains both legally compliant and acceptable.

Ultimately, the pursuit of a collaborative and standardised approach to dismantling siloed infrastructures, and
unifying financial assets and funds on a common platform, holds the promise of streamlining processes, attaining
operational efficiencies, and significantly reducing settlement times.

11
Interest swap solutions and other offerings
As explained above, one of the biggest benefits of using Tokenovate’s platform is improving the end-to-end
management of the trading lifecycle. The trade lifecycle is typically a sequence of steps set in motion by specific
events, requiring participation from various parties. Unfortunately, these steps often rely on manual processes,
resulting in costly inefficiencies and incomplete or inaccurate information gathering and reporting.

Tokenovate’s platform, designed for distributed financial market infrastructure and intelligent legal contracts,
tackles these issues by facilitating automated management of the trade lifecycle, spanning from pre-trade to post-
trade processes for both over-the-counter (OTC) and exchange-traded derivatives.

An example of this is Tokenovate’s solution for Interest Rate Derivatives (IRDs). IRDs are financial instruments widely
used either for hedging or speculating on the movement of interest rates. Tokenovate’s objective is to modernise
IRDs by standardising and digitising them, thereby creating an accurate representation of the underlying contract.
As a result, calculations, trade processing, give-up to clearing and trade reporting can be fully automated, thus
simplifying lifecycle management, reducing costs and operational inefficiencies.

Tokenovate’s ambition is to support the industry to move physical assets to become digital representations (digital
twins), in a secure way through smart legal contracts, that also increase efficiencies while improving accuracy and
timeliness of reporting. By digitising and automating the trading lifecycle, Tokenovate can help governments and
enterprises create a sustainable economic future.

How the BSV blockchain helps power Tokenovate

Tokenovate’s platform, combined with the power of the BSV blockchain, assists in preventing greenwashing by
eliminating any double-counting or selling credit multiple times as the data is all stored on-chain.

The immutability of the BSV blockchain is a core principle that underpins its reliability and trustworthiness.
Immutability refers to the unchangeable nature of data once it has been recorded on the blockchain. In the case of
BSV, this immutability is derived from the blockchain’s design and consensus mechanisms.

BSV employs a proof-of-work (PoW) consensus algorithm. Under PoW, miners compete to solve complex
mathematical puzzles to add new blocks to the chain. Once a block is added and transactions are confirmed, they
become virtually immutable. The security of BSV’s blockchain is reinforced by its large network of miners and
nodes, making it extremely difficult for any single entity to alter or manipulate the data.

This immutability ensures that once a transaction or record is on the BSV blockchain, it can be trusted to remain
intact and unchanged, providing a strong foundation for various use cases, including digital identity, supply chain
management, and legal contracts.

12
Immutability on the BSV blockchain not only enhances trust and security but also opens up possibilities for
industries and applications that require data integrity and permanence. Businesses and individuals can rely on the
BSV blockchain to provide an immutable and tamper-proof ledger for their digital assets and transactions, creating
a robust foundation for innovation and trust in the digital economy.

In addition to the BSV blockchain allowing for each credit to be validated and verified, the technology’s inherent
scalability and low cost means that companies can record every single trade on the chain without the data cost
concerns of existing legacy technologies.

Scalability refers to a blockchain’s capacity to handle an increasing volume of transactions without compromising
performance. The BSV blockchain stands out as the only public blockchain with the ability for limitless scalability.
This capability is evident in its consistent expansion of transaction throughput, driven by regular advancements in
the maximum block size. Enlarging these blocks directly translates into a higher number of transactions processed
per second, resulting in increased transaction fee rewards for miners.

This distinctive feature sets the BSV blockchain apart from other blockchain protocols that artificially restrict block
sizes. As a result, it maintains low transaction fees and swift processing times while simultaneously enhancing
miner rewards as the network gains wider adoption.

In addition to scalability, BSV is renowned for its low transaction costs. The platform aims to keep transaction fees
consistently low, making it cost-effective for users and businesses alike. This affordability is vital for enabling a
wide range of use cases, from microtransactions in content monetisation and IoT device communication to supply
chain management and digital identity verification. BSV’s combination of scalability and low costs positions it as
an attractive choice for entrepreneurs and developers looking to build innovative applications on a blockchain that
can accommodate both high volumes and tight budgets.

Its robust underlying protocol ensures stability and reliability, facilitating the seamless implementation of such
performance enhancements through straightforward adjustments to the maximum block size.

13
Looking forward
The blockchain revolution is still in its early stages, and the full potential of this technology is yet to
be realised. Looking forward, we can anticipate even more innovative applications of blockchain in
addressing ESG challenges. From carbon offset marketplaces and sustainable supply chain tracking
to decentralised renewable energy grids and enhanced corporate governance, blockchain will
continue to serve as a catalyst for transformative change.

The pursuit of ESG goals is not the responsibility of any single entity but a collective effort
that transcends borders and industries. As we move forward, fostering collaboration between
governments, businesses, NGOs, and blockchain innovators will be crucial. Blockchain can facilitate
transparent, cross-border partnerships that enable the sharing of data and resources in the pursuit
of common ESG objectives.

The path to harnessing blockchain for ESG is not without its challenges. Security, privacy, and
regulatory compliance will remain paramount concerns. However, as we have seen with past
technological advancements, a combination of innovation and prudent regulation can create an
environment where blockchain thrives as a force for good.

Another critical aspect of the future of blockchain in ESG is education and awareness. We must
continue to educate stakeholders about the benefits and potential pitfalls of blockchain technology.
This knowledge-sharing process will empower individuals and organisations to make informed
decisions and leverage blockchain for positive ESG impact.

The integration of blockchain with ESG goals is not just an exciting prospect but a necessity for
our planet’s future. The world faces pressing environmental challenges, social inequalities, and
governance issues that require immediate attention and innovative solutions. Blockchain has
demonstrated its potential to drive transparency, accountability, and sustainability, making it a
formidable ally in our quest for a better world.

As we look ahead, let us remember that it is our collective commitment to responsible practices,
our determination to embrace innovation, and our unwavering dedication to ESG values that will
pave the way for a sustainable and prosperous future. Together, we can harness the full potential of
blockchain to build a world where ESG goals are not just targets but enduring realities.

14