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Climate Tech - Software

Climate Tech - Software

Bringing ESG to the blockchain with Topl CEO Kim Raath

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Two of the defining startup trends this year are blockchain innovations and technology to address environmental, social, and governance (ESG) issues. At the intersection of these dynamics sits Topl, a four-year-old startup using blockchain technology to track, tokenize, and trade corporate ESG commitments. SPEEDA Edge managing editor Max Lockie caught up with CEO Kim Raath, Ph.D. just as she's gearing up to raise Series A funding to learn more about her company's global impact blockchain.

SPEEDA Edge
Topl’s tagline is a “blockchain for global Impact monetization.” Our audience understands the blockchain part, but the second part of that—global impact monetization—could you unpack what you mean by that?
Kim Raath, Ph.D.
KIM RAATH
Topl is building an impact economy on the top of the Topl Blockchain. We’ve created the tools and products necessary for companies to go through a digital and sustainable transformation across all their value chains using our technology.  We can do this with a very wide range of tangible assets and even intangibles, for example, diamonds as they move from mine to marriage. In this case, we can even track the social and environmental practices tagged to that physical asset. 
You can think about these as ESG commodities moving alongside the physical commodities. When we say Topl is this impact monetization engine, the technology is used to help these value chains by adding that impact piece to physical commodity assets. It's an evolution of how we track not only the physical goods, but also the associated environmental and sustainable practices that are being claimed toward that good. Our slogan actually says, “You change the world. We help you prove it.” 
These value chains are truly trying to undergo a digital and sustainable transformation, and they want to be able to prove their environmental or labor practices, take living-wage farming, for example, is actually happening. Those are the types of platforms we've supported to date. We have everything from coffee moving from bean to brew to COVID-19 test kits that were tracked to maintain strict temperature standards. 
The other side of the impact monetization engine answers the question, how can you track your impact and at the same time monetize it by either having a premium added to your product or proving that certain claims are true that you couldn't prove before?
Screen Shot 2021-09-23 at 11.00.37 AM
SPEEDA EDGE
Great so I was about to ask what your clients look like and you gave examples of coffee, diamonds, and COVID-19 test kits. So within these organizations that are your clients or partners, which group is actually handling the implementation? What does that integration look like within these other organizations?
RAATH
Unfortunately, a lot of the blockchain and ESG decisions are still being made in the executive suite. A lot of the first conversations are key and happening either with a chief sustainability officer or even a CEO that may be getting some board pressure to implement some traceability or proof from an ESG perspective. As that decision moves down through an organization it can either be implemented by a blockchain novice—it might be your IT department or your supply chain product groups—or it can even be blockchain-forward people that have actually started implementing blockchain, and they've actually brought teams into their different organizations to start implementing these different technologies.
But what we've done is really focused on how to make it easy for anyone with little developer experience by focusing on how to make it so easy that anyone could start using it and make it as low touch or no touch as possible? So we started building APIs and software development kits to make it really easy. You don't have to host your own blockchain nodes, but you can still access the blockchain.
SPEEDA EDGE
Okay, so are we talking about your Torus product now? That’s the catch-all for the API in the SDKs that you guys provide?
RAATH
That is the hosted node service, the actual product is BaaS (Blockchain-as-a-Service). BaaS is powered by Torus, which is essentially a gate between the blockchain and the user.
Screen Shot 2021-09-23 at 11.27.49 AM
SPEEDA EDGE
One last tech question—The Topl blockchain. For people familiar with Bitcoin, Ethereum, etc. what distinguishes it from blockchains that people may have heard of before?
RAATH
One of the focus areas for us is inclusivity. So, what that means was a design decision at the blockchain layer about how to make it lightweight enough so a $30 smartphone can actually access the blockchain and be able to create granular data verification? Thinking about that from the most disenfranchised individuals all the way to the biggest organizations. So you could have a farmer self-reporting that they are receiving the living wages that are being claimed at the end of the value chain. 
And then there's the energy efficiency piece. We are a Proof of Stake blockchain and not a Proof of Work blockchain, making the Topl Blockchain 10 million times less energy-intensive than earlier Proof of Work blockchains [like Bitcoin]. And then one of the biggest things we've done from a commodity market perspective, a lot of the blockchains out there right now are very focused on DeFi—and I do think DeFi might be the killer app that we are seeing for blockchain adoption—but for commodities, I always use the analogy of the difference between tracing assets versus tracking balances. 
So the analogy can further be explained as tracking your bank balance versus what is in your wallet. Having a $5 bill, a $1 bill, and a $10 bill, and all three of those have unique identities versus having a $16 bank balance. Now you have three assets with three unique identities, and in your bank balance, you just see the total balance. So there are some technical decisions we made to take commodity differentiation to the next level and being able to take an asset and tag it. 
Even if you think about a carbon credit, for example, You can have a unique actual carbon sink with a unique geolocation that has a unique repository—and then the carbon credits that come out of that actually have unique characteristics and can actually be burned, so you know that the depletion of that carbon storage that happened at that point. And the same thing accounts for physical assets like farms or mines or so forth. 
Screen Shot 2021-09-23 at 11.29.30 AM
SPEEDA EDGE
I think that distinction of tracking balances versus tracking a changing asset is a really clear one here.  So, changing topics, let me just ask—how did you get the idea for this company?
RAATH
I am from South Africa. I grew up in a mining and agriculture family so I essentially grew up in the first mile of the supply chain. I learned a lot about the claims that are being made once these products make it to the end of the supply chain, and also saw how difficult it is to capture some of this information. 
And before I came to the US on a track scholarship, I spent a year working in disaster relief implementation all around the world. I went to 18 different countries and the iPhone just came out that year. I was surprised at the tech leapfrogging that had already taken place in these areas, I didn't think I would have access to the internet in a lot of these remote regions, especially where we were doing a Tsunami rebuilding project in Thailand, for example, we were in extremely remote disaster-stricken areas. 
During that time, I was very fascinated with the role we had to play as a South African organization. We were the hands and feet reporting back to the bigger organization about the impact that was being made in these areas. And I really wanted to understand how we could use technology to connect the dots. Could the most disenfranchised individual have a self-reporting mechanism through a censorship-proof network so that the impact can truly be reported from the source to the biggest organizations? Could we really have tamper-proof chains of evidence?
And so that actually spurred a fascination with the concept of network topology. That's where the name Topl comes from.  When I came to the US I studied math as an undergrad to understand that much better. And it was only when I came to Rice University for my Ph.D. where I was working on statistics and focused on risk measurements in data when I really started to think about the game theory of people recording information accurately. In this program, we had a cohort of students that were actually exposed to a lot of the blockchain community. We had some of the big banks come down to Rice University here in Texas, and talk to us about how blockchain has been implemented and this seminar is where I met my two co-founders.  They have both been in the blockchain space since its inception. 
When the three of us actually sat down, that's when we asked the questions around building a blockchain for the problem space I had come from where sustainability meets technology. Is it building a fresh new blockchain from scratch, or is it using an existing blockchain and just adapting some of the functionality? For about two years we watched the space grow and we realized that we might have to build something from scratch to allow us to create a more inclusive blockchain, rather than just trying to manipulate some other technology that we have zero control over. 
That's when we said: OK no one is focused on this specific space right now. Back then, in 2017, when you said ESG people had no idea what it was. When we were saying we would build a blockchain to tie your commodities with their ESG characteristics people thought it was fascinating but asked why would you care about it. And now everyone's talking about ESG! But when we started it wasn't as big of a buzzword as it is now. 
Screen Shot 2021-09-23 at 11.29.49 AM
SPEEDA EDGE
And just speaking for our platform, sustainability is one of the most active components and our climate tech reports are among of the most popular. So, we're also seeing a lot of interest in this.
Anyway, the company was founded in 2017, and you closed your seed round at the end of last year in December.  In between that time, there was a little thing called ICOs that were very popular. You went the venture capital route instead of an ICO, what was behind that decision? It seemed like every blockchain company at the time was choosing a different route.
RAATH
We raised our angel round, or launch round, during the crypto winter that you're talking about. When the ICOs came out in 2017-18 we were very adamant about going through the legal routes really trying to figure out what that looks like. 
And as we started talking to people and just watching the space, we started seeing that there can be an equity mapping to the token eventually, but it became a decision around more decentralization and how slowly you decentralize so that you can have control over the ecosystem. Our focus at inception was all about users. If we can get feedback from the user, we can iterate that underlying protocol much quicker than having to manage a big community and have this decentralized ownership or distributed ownership that doesn't allow us to update the protocol as the user is informing. We're very commercially focused on a user-driven blockchain.
So, yes, we could have just done a token sale for raising capital but we went the traditional VC route.  We've truly wanted to drive the utility of the blockchain before we decentralize it. Before we create the token that allows you to be able to stake in Topl’s network. 
SPEEDA EDGE
So your investors were just as interested in the supply chain and sustainability aspect as the blockchain aspect? 
RAATH
Yes, I would say the majority was more interested in the application and understanding than there was a need for infrastructure to actually address this problem space. They all understand why blockchain is necessary, and why you can just build a bunch of platforms, but they really got the market that we went after and understood that there was no one building for that market, no one actually catering to that market. So yes it was more than even just the blockchain itself. 
Screen Shot 2021-09-23 at 11.32.14 AM
SPEEDA EDGE
Do you still see the market the same way? Where you are one of if not the only blockchain forward companies doing this type of work? Or have you had, maybe not even competition but potential strategic partners or other interested parties entering the space?
RAATH
Unfortunately, the impact space is not something the blockchain community necessarily sees as first of mind, let's just put it that way. There are the CELOs of the world that are focused on inclusivity and really focused on that from a transactional perspective. So there are some types of groups that are moving in that direction... I think the space is still more focused on DeFi and NFTs and even though a diamond on top of a blockchain is an NFT, people don't necessarily connect those dots even though we've been talking about NFTs since 2017.
Topl’s approach has been very commercially focused, asking what is an actual usable NFT, like a diamond. What does that look like? Carbon credits. What does that look like? How do you use this technology to create these assets now? From an adoption perspective, I completely understand why a lot of the other blockchains are so focused on Defi, NFTs, and the gaming and event space because of the developer communities. So when I talk about the user, I don't necessarily talk about the developer. Yes, they're one of the users, but I'm talking about the user that the developer is actually building platforms for. We’re really focused on the actual user of the tool that the developer has access to. 
So from a total accessibility perspective, it's making it easy for the developer, but making it really easy for the users. It's making blockchains boring so users don't even feel that they're interacting with the blockchain. In this journey we've been on I've seen some protocols built on other protocols or essentially layer two solutions built on layer ones, but not really anyone the infrastructure necessary to create this environment. And we knew it was a hard problem that we are trying to solve, and the complexity of the problem was also one of the biggest reasons for building a layer one. 
Technology-wise we are closely aligned with Cardano and have been since the beginning. Interoperating with them would never be difficult for us. Cardano’s taken off a lot lately. When we were in the early stages we loved IOHK and their consensus research. So because of those decisions, when the time comes to interoperate with these other bigger chains, it would be completely doable. But if we were layer two we couldn't necessarily do that.
SPEEDA EDGE
You would have been picking a blockchain and been kind of stuck with it if you had gone with a layer two solution.
RAATH
Right, exactly.
SPEEDA EDGE
So last question, what does the rest of the year look like for you? What are you focused on right now in terms of product and growth?
RAATH
The biggest thing we've been focused on from a layered perspective is that the Topl blockchain sits at the bottom of our stack, essentially, and then we have the tooling layer. What we've done is really created environments for what we call reference customer programs. So again, talking about this from a user inclusive perspective, what other products can we actually provide that make it even easier than Blockchain-as-a-service.
A reference customer program we just ran this summer, successfully, with more than 10 customers signed up, is this traceability as a service tool. It’s like the "Squarespace for traceability" but it's completely open-source. So you might not be tech-savvy but you can start there and then you can build it out further, but we're utilizing the customer to give us feedback over the next two quarters to help develop the product with us. 
We are also just about to launch our registry as a service program which was the other user request that we were constantly getting where ultimately the blockchain is used to track for instance carbon credits, tokenize them, and then transact them on linked exchanges. That's from a product perspective and, obviously, from a tech perspective, we are still doing a lot of improvements. From a smart contract perspective, we have a bunch of plans on that side, making even our smart contracts more dynamic so you can put some complex business logic in there, simplifying  transactions
And then from a business perspective, I'm actually going out for our next fundraise. And so that’s where I will probably be the busiest.

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