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Invest sustainably in trees with tokens

The Polish start-up “Smart Forest” wants to use blockchain technology and tokenize trees. Investors can invest sums as low as 40 euros in tree plantations. What is supposed to be financially rewarding could also help the climate: After all, trees bind the greenhouse gas CO2

“The investment trees available on the Smart Forest marketplace are not just trees, but above all highly secure assets,” says Iwa Pawlak, co-founder of the young company Smart Forest. Whose idea: a “non fungible token” (NFT) serves as a digital certificate of ownership and authenticity throughout the life of a tree

Buying trees thanks to tokenization

NFTs are non-exchangeable tokens and are based on blockchain technology. This could thus help even small investors to invest in forestry and agriculture. And not only rich forest and land owners, the state or large corporations, as has been the case until now. “Even low-income people, who are currently excluded from many investment opportunities, can buy trees and make a profit,” says Pawlak. The entry level for investing in tree plantations drops from many thousands of euros to just a few euros due to the tokenization of trees.

Paulownia: fast-growing and versatile

“We perform detailed due diligence on the horticultural companies we work with,” explains Iwa Pawlak. “We check not only their experience and competencies, but also the entire business model associated with a particular type of tree.” So far, however, the Smart Forest offering consists of only one genus of tree: called“Paulownia,” it is native to East Asia. Paulownia is a fast-growing tree with strong hardwood and high ignition temperature, Smart Forest explains its choice. The pawlownia wood is about 30 percent lighter than any commercially available hardwood. In addition, it can be used in a variety of ways, for example for plywood, furniture, musical instruments or boats.

Tokenization of entire forests? Paulownia trees in a Smart Forest plantation.

Participate in the sale of trees

Smart Forest has selected the plant, also known as the kiri tree or bluebell tree, primarily based on economic criteria. “First and foremost, we are a marketplace for forestry investment opportunities,” Pawlak says. The economic model of paulownia plantations is already established, he said.

In fact, other companies have already made such plantations the basis of their business:

  • One of them is Greenwood International AG in Switzerland. This company developed a project in 2012 under the name “treeme”, which it realized with large-scale Paulownia plantations starting in 2016. The basic idea: “We offer private individuals to participate in the success of the timber when it is sold after the trees have been harvested,” explains Wolfgang Göse, president of the Grennwood International board of directors.
  • Another example: in 2018, the German “PLAN 8 Cathaia Invest GmbH” touted Paulownia plantations in Bulgaria as an investment. The corresponding fund is fully placed and no new offer is available, it says in the meantime on the website

Even people with low incomes can buy trees and make profits thanks to tokenization.

Iwa Pawlak, co-founder of Smart Forest.

Ecologically valuable NFT trees

Iwa Pawlak sees not only the economic value of Paulownia plantations, but also the ecological one: “One hectare of well-maintained plantation can save up to 30 hectares of natural forest due to its high productivity. Not to mention that paulownia neutralizes more CO2 than any other tree due to its rapid growth.” There’s something to that: that’s how Paulownia was described as a climate hero on the German TV show“Galileo.”

Cheap tokens thanks to plantations in Romania

The Paulownia trees offered by Smart Forest so far are part of plantations in the south of Romania, near Bucharest, in Great Wallachia. There, land can be acquired very cheaply, which allows low prices for the individual tokens as the equivalent of one tree. In addition, according to Smart Forest, the climatic conditions there are such that Paulownia trees grow particularly quickly.

Internet marketplace since 2020

Iwa Pawlak and Alex Rudometov founded Smart Forest in early 2019. In May of the same year, the two participated in the accelerator program of InnoWerft, a startup incubator based in Walldorf, Germany. Smart Forest’s internet marketplace has been online since August 2020. In the future, the company plans to expand its offering – both to other EU countries and to other tree species. According to Iwa Pawlak, the company is currently looking into possible horticultural partners in Bulgaria. In addition, the company is looking for trees that are interesting not only because of their wood, but also because of their fruits, oils or bark.

Integrating blockchain for secondary market

Blockchain technology is not yet integrated into the Smart Forest Internet platform. NFTs are not available. That is expected to change by the end of this year or early 2022. Only then will a trusted registry also be available on Smart Forest’s website. It will then list the trees purchased to date and the respective investors. “Creating an entire marketplace with a secondary market based on blockchain technology is not an easy task,” admits Iwa Pawlak. Nevertheless, when asked about the biggest challenges so far, she points not to technology or finance, but to legal hurdles. As yet, few countries have established rules for dealing with NFTs that provide legal certainty.

The benefits of tokenized trees

  • The NFT is the digital certificate of a tree. It enables trading transactions that would otherwise be difficult or impossible with a tree.
  • For example, tree tokens can be transferred to someone else. The real tree would have to be dug up and transported.
  • Damage to the tree can be prevented. A tree that is several years old in particular would not survive transport.

The digital twin that Smart Forest creates using NFT can be easily passed on or sold. By turning the tree into a token, Pawlak and Rudometov hope, the real tree will become a liquid asset at almost every stage of its growth. Buyers of a token will be informed about the GPS coordinates of the real tree, its planting date, and aboutCO2 offsets and estimated timber prices.

No cryptocurrency of its own

Behind NFTs, as with cryptocurrencies, is blockchain technology. But while bitcoins and ecology-focused cryptocurrencies like EcoCoins are all the same among themselves, an NFT becomes an original by being entered into a blockchain. “We will not issue our own cryptocurrency. The idea behind our project is to be as stable as forest investments can be,” Iwa Pawlak emphasizes. Her company is committed to environmental and financial sustainability. Still, the company aims for an annual return of 8 percent for investors who stick with it from seedling to recovery of a tree.

FAQ – Frequently Asked Questions

Can I control where my tokenized tree is?

Yes. Buyers of tree tokens can see exactly where their tree is located via GPS coordinates. In addition, investors should know the planting date of the real tree as well as the CO2 compensation and the estimated timber price.

Do I have to be a forest specialist to invest in tree tokens?

No. The selection of tree tokens is small. Currently, there is a single tree species that is available tokenized. It takes the conviction that plantations can do something for the climate and CO2 reduction. Then a tree investment via tokens makes sense.

Danger for biodiversity?

It remains to be said that the company name Smart Forest is somewhat misleading. The Polish startup does not tokenize natural and mixed forests, but plantations. Their ecological value is controversial; some environmental activists even refer to them as "green deserts". In particular, they endanger biodiversity. A massive, worldwide expansion of cultivation areas for energy crops could have a similar negative impact on vertebrate habitats as climate change: this was shown in a 2018 study by researchers from Frankfurt, Munich and Durham. Plantations are particularly problematic ecologically if species-rich natural forests have to make way for them.

Dr. Frank Frick

Science Journalist & Editor | Ph.D. Chemist
Main focus: Science | Environment | Chemistry | Energy

Dr. Frank Frick

Wissenschaftsjournalist & Redakteur | promovierter Chemiker
Schwerpunkte: Wissenschaft | Umwelt | Chemie | Energie