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Tokenizing weather derivatives on blockchains could expand climate hedging
CoinDesk argues tokenized weather contracts could automate payouts with smart contracts and reduce counterparty risk, potentially opening hedges to farmers and small businesses.
CoinDesk argues tokenizing weather derivatives on public blockchains could become a practical, real world use case for crypto as climate related financial risks grow faster than the traditional weather derivatives market.
The outlet says the existing market remains tiny, opaque, and largely inaccessible to those most exposed, despite the need for hedging. It adds that tokenized contracts could use smart contracts to automate payouts based on pre set thresholds and help lower counterparty risk, which it frames as a barrier for non institutional participants like farmers and small businesses.
CoinDesk also points to ongoing efforts to bring reliable meteorological data on chain, describing these projects as aiming to solve the oracle problem so weather finance products can be scalable and transparent.
The article cites a warning from Canada’s Prime Minister Mark Carney in a 2021 book about climate risks, saying registered weather loss events have tripled since the 1980s and inflation adjusted losses have increased fivefold, with potential threat to assets worth 20.0% of global GDP. It notes that, in its example coverage, weather derivatives can be tied to measures such as heating degree days and cooling degree days.