hypercerts are essentially a way to bring the carbon credits market structure to any arbitrary set of impact goals. The key goal here, is to develop newer funding models to support public goods.
The carbon credit market works as follows. There are individuals/organizations which sequester carbon, who can ratify this carbon with ratings agencies. Then they can sell the sequestered carbon as carbon offsets, allowing other organizations to purchase their offset impacts retroactively for their own offsetting commitments.
The critical property here is the ability to fund activities in retrospect. The final funders can fund impact that has been definitively made as opposed to promises of impact. This is useful for civic organizations, because it’s often hard to predict the impact of a social impact startup before the impact has been made.
Traditionally, civic organizations are either:
- Government based, deriving most of their funding from a public system which works but also tends to be quite risk-averse
- NGOs and non-profits which tend to have significant funding bottlenecks and donor obligations and are therefore also risk-averse
- Social Enterprises which are less risk-averse but also require an explicit profit motive to raise investment, as opposed to raising on the vague promise of greater impact.
Hypercerts will potentially enable the risk-tolerance of social enterprises but also avoid the requirement for an explicit profit motive, as the impact of a project can be evaluated retrospectively. Hence, investors can be incentivized from an impact return as opposed to a financial return.
The core idea, from the perspective of contributors building impactful goods, is this: if you can reasonably expect to get funded retrospectively for your work once you produce a positive impact, then you can work now, in expectation of a probabilistic future cash flow.
The crucial aspect for this to work: funders need to retrospectively fund impact, and send credible signals that they will do so in the future.
This diagram from the hypercerts website illustrates the principle quite nicely.
The SDK documentation is a little hard to find, linking it here.