Tokenization does not rise or fall on whether an asset can be placed on-chain. The harder question is whether the unit behind the token can be measured in the real world and verified by an independent party.
That is the article’s central argument. Renewable energy certificates can work with blockchain rails; carbon credits usually do not. A blockchain can keep track of claims, ownership and transfer. It cannot prove that the underlying thing exists, or that it matches what the claim says it represents.
The bottleneck is not minting a token but establishing a trustworthy fact
The piece opens with a simple example. Take a rock, mint a token that represents it, and store the rock somewhere. The token can then trade around the clock, be split into smaller pieces, settle quickly and circulate in a market with more liquidity and, increasingly, regulatory support.
But the author argues that this framing misses the real difficulty. In a narrow sense, almost anything can be put on-chain. In a practical sense, that says very little. The core issue is whether the object referenced by the token is real and whether it matches the description attached to it.
The article uses food traceability to make the point. A can of tuna in a Lisbon supermarket may carry a QR code showing the vessel, catch date, fishing area and the path from the catch onward. If the unloading crew applies the wrong label, the system breaks immediately. Traceability systems work only after data has been entered, and the first step remains highly exposed.
The same logic explains why so-called blockchain chicken succeeded. It was not built as a tradable financial asset. It was built as an immutable provenance record intended to show that the chickens really were premium free-range poultry after years of food-safety scandals. The value was in the proof, not in financial packaging.
So the article says the wrong question is whether an asset can be put on-chain. Of course it can. The right question is whether a project can verify facts in the physical world. That is what separates a strong tokenization model from a weak one.
What a token does, and what it cannot do
From an economic standpoint, the article describes a token as a claim. It states that a unit exists and that the holder owns that unit. Blockchains are good at the ownership side of that equation. They prevent double spending, make transfers visible and keep claims from being copied or forged in transit.
What blockchains do not do is verify the existence or quality of the underlying unit. They cannot confirm that the asset behind the claim is real or that it matches the terms of the claim.
That is why environmental markets serve as such a useful case study in the article. The same technical stack can lead to two very different outcomes. One path records verified facts. The other records assertions that are hard to substantiate or, in some cases, entirely fabricated.
Why RECs are easier to tokenize
A renewable energy certificate, or REC, represents 1 megawatt-hour of clean electricity delivered to the grid. The article puts the market at about $22 billion to $28 billion, growing 14% a year.
RECs are easier to place on blockchain infrastructure because the unit they represent can be measured in a more objective way. Once power enters the grid, electricity from clean and polluting sources mixes together. To deal with that, physical meters are installed at solar and wind generation sites before the electricity reaches the main grid. When a meter records a specific quantity of clean power, it triggers an official REC document.
Companies use those certificates to show that a given amount of clean electricity was actually generated and injected into the system.
The article stresses the economic point here. The validating party is not a person with a strong incentive to manipulate the record. It is a meter, and behind the meter sits the grid itself, described as a non-voluntary third-party verifier with no stake in anyone’s sustainability report. To alter the reading would mean tampering with infrastructure the seller does not own.
In information-economics terms, the piece says there is very little asymmetry around the core attribute. Buyers and sellers face the same objective dataset, and that dataset is produced by equipment outside both parties’ control.
When a REC is tokenized, the token is effectively wrapping a unit whose quality has already been validated by an independent system. Blockchain infrastructure inherits that fact pattern. Its contribution is to cut transaction costs, which is what a liquidity technology is supposed to do.
Power Ledger and TraceX
The article points to Australia-based Power Ledger, which has spent years working on peer-to-peer neighborhood solar trading and now runs a REC trading platform called TraceX.
On TraceX, generators and corporate buyers can trade certificates directly instead of spending weeks on bilateral paperwork and legal processing. The article says that in early 2025, the platform completed more than 1.2 million REC trades in a single month and was connected to the registries that issue the certificates in the first place.
TraceX has already integrated with M-RETS, described in the article as one of the largest voluntary REC registries in North America, and planned a mid-2025 integration with ERCOT, the Texas grid operator. ERCOT alone issued more than 32 million RECs in 2023, according to the article. Power Ledger says users can save as much as 72% in administrative costs.
The significance of that example, in the author’s view, is not that blockchain created trust. The trust base already existed in the measurement system. Blockchain reduced friction in how the verified unit was traded.
Why carbon credits break down more easily
Carbon credits, in the article’s account, suffer from a more basic problem. Each credit is a numbered tradable unit representing 1 ton of avoided carbon emissions. Companies that promise shareholders and the public that they will reach carbon neutrality or net zero often buy those credits to offset emissions they continue to produce.
The problem is that many of these units depend on a counterfactual story, such as what would have happened if trees had not been cut down. There is no independent hardware system that can verify that claim. As a result, the metric itself is deeply subjective.
Tokenization does not fix that weakness. It can make it more dangerous. Once credits are pooled on-chain and treated as interchangeable, quality differences at the asset level are easier to hide.
The article is careful on one point: the issue is not blockchain in the abstract. The issue lies in the specific way these credits were pooled and traded.
Toucan and KlimaDAO
In 2021, Toucan built a bridge that brought carbon-credit tokens on-chain. Around the same time, KlimaDAO created incentives for users to deposit those tokens into its treasury and supported prices through purchases, in theory raising the cost of pollution.
Capital poured in. KLIMA’s market capitalization moved past $1 billion before market attention turned to the quality of the assets that had been bridged in.
The article argues that the incentive design pushed the pool in the wrong direction. KlimaDAO used newly issued KLIMA tokens to buy pooled carbon credits at prices above the actual value of many of the lower-quality credits sitting underneath. If a holder owned a strong credit that could fetch a good price in the ordinary market, swapping it for a mispriced pooled token was unattractive. If a holder owned a credit nobody wanted, and the pooled token traded above that credit’s value, bridging and selling became the rational trade.
The result was adverse selection. The pooled token ended up filled with the weakest credits because those were the ones most worth sending into the system.
What CarbonPlan found, and why Verra stepped in
The article says a CarbonPlan researcher found in 2022 that most carbon credits bridged through Toucan came from projects that had already been shut out of the mainstream carbon-offset market because of quality concerns.
Because Verra’s retirement information was public, CarbonPlan could identify which credits had moved on-chain. The article says 99.9% of them came from projects too old to qualify for the standard aviation carbon-offset market, while another 28% came from “zombie projects” that had not sold carbon credits for years until crypto demand revived them.
One example cited in the piece involved a hydropower project in China that completed its first retirement through the bridge 15 years after launch.
The article also cites a 2024 meta-analysis published in Nature Communications that examined nearly 1 billion tons of carbon credits, about one-fifth of all issued credits, and found that fewer than one in six had actually reduced emissions.
Verra, described as the largest carbon registry, eventually banned the practice in May 2022, stopping retired credits from being turned into tradable “digital ghosts.” The article says the price of KLIMA carbon credits fell from $3,600 to single digits. KlimaDAO then used more than $1 million of its own funds to retire some of the least valuable carbon credits it held.
The author’s conclusion is blunt: tokenizing a flawed unit does not repair it. It industrializes the flaw. Once a measurement problem is linked to a liquidity engine, the bad unit moves faster, reaches more buyers and can trade at inflated prices.
A practical test for tokenization projects
The article proposes a test that can be applied well beyond environmental markets, and it has little to do with token mechanics themselves.
- Is there an independent witness that measures each unit?
- Can that witness be spoofed?
- Most importantly, can the borrower or seller own or control that witness?
If a barrel of oil in a tank or a ton of grain in a warehouse is tokenized, the whole structure depends on someone proving that the oil or grain is actually there and stays there. If the person doing the proving is the same person borrowing against the collateral, the collateral base is far weaker than it looks.
The article notes that commodity trade finance has been blowing up this way for more than a century, with warehouse receipts issued against metal that had already left storage or never existed at all.
The Brazil cattle-collateral case
The article then turns to livestock, described as one of the largest stores of value on earth for people who lack access to formal credit. Banks have historically been reluctant to lend against cattle. A cow may be discounted by as much as 60% because lenders often cannot tell whether the animal is healthy, where it is, or whether it is still alive.
A few days before the article was published, 10 dairy cows at a farm in Paraná, Brazil, became the first livestock formally registered as collateral on the country’s stock exchange.
Each cow wore a smart collar made by agritech company Cowmed. The collar tracks health, behavior and location, hashes that data and generates a cryptographic identity tied to the loan. Using the 10 cows as collateral, the farmer borrowed about $20,000. The system can even detect a cow’s death and let the farmer substitute another live animal. Cowmed is currently monitoring 100,000 cows worth nearly $400 million, according to the article.
Still, the article does not present the system as a cure-all. Even if smart collars are widely adopted, they only show that a collar is sending health and location data. They do not prove by themselves that the collar is on the registered cow, that the registered cow is the pledged cow, or even that the thing at the other end is necessarily a cow.
The loopholes farm inspectors used to catch still exist. A collar can be put on the healthiest cow while a sick cow is pledged. It can be moved between animals. False data could, in theory, be fed into the system. So the collar does not eliminate the need for farm inspections.
What it does change is frequency. A yearly inspection can become a daily record. Fraud now has to be sustained continuously. And once data is being recorded, the same cow can no longer be pledged to three lenders at once as easily as before.
The article draws a contrast with power meters. A grid meter is fixed in a place the seller cannot move. A cow walks around, and the reliability of the collar depends on the person who put it on the animal.
A cow without a collar is so hard to verify that banks apply a 60% haircut. A collared cow is not fully verifiable either, but verification becomes cheap enough that lenders may accept a smaller loss. That raises the cow’s economic value. At the same time, the article notes that the transaction was only three days old, so there are not yet many comparable cases.
Measurement quality sets the ceiling for tokenization
The piece closes by bringing the discussion back to measurement. Successful tokenization depends on a chain of reliable metrics. Higher-quality assets rely on automated, tamper-resistant sensors such as grid meters, satellites and weighbridges, where sellers cannot easily manipulate the data. Lower-quality assets depend on hypothetical forecasts and self-reported calculations, as in carbon offsets.
Even seemingly strong measurement systems are not as complete as they sound. A meter can prove that a megawatt-hour existed, but not that it was near you or available when you needed it. The article says that for years, a company in Ohio could buy certificates from a Texas wind farm producing power at 3 a.m. and claim to be operating on clean energy.
That is why markets are now slicing the unit more finely, printing the production time and the production grid on each certificate. Water credits follow a similar pattern. Watershed credits may be easier to sell than to defend, because measuring whether a river became cleaner is one thing; proving that a given project caused that improvement is another.
In other words, the metric determines how accurately an asset can be tracked, and each improvement in the metric changes what the certificate actually means.
In a normal market, buyers and sellers dispute value all the time, and prices move. That is ordinary. But there still needs to be a hard anchor, such as a company’s real revenue or the actual weight of a barrel of oil. Over time, market prices reconnect with those facts. Remove that anchor, as with subjective carbon credits, and price can drift away from reality.
The final point is simple. Tokenization is an accelerator. If the underlying asset is verified, tokenization can create wealth. If it is not, tokenization speeds up the spread of a bad market. Blockchain does not distinguish truth from fiction. Liquidity does not create facts. Institutional capital does not create facts either. A highly efficient trading system wrapped around a worthless real-world asset is still just an optimized scam.