Tracking on-chain vs off-chain carbon credit retirements: volumes, growth rates, and quality signals

Why It Matters

The voluntary carbon market retired approximately 164 million tonnes of CO₂-equivalent credits in 2024, yet fewer than 25 million of those retirements occurred on-chain through tokenized carbon platforms (KlimaDAO, 2025). That 15 percent on-chain share may appear small, but it represents a 340 percent increase from the roughly 5.7 million on-chain retirements recorded in 2022, making tokenized carbon one of the fastest-growing segments in climate finance (Toucan Protocol, 2025). Traditional off-chain registries operated by Verra, Gold Standard, and the American Carbon Registry continue to process the majority of retirements, but their systems face persistent challenges around transparency, double-counting risk, and verification latency. As corporations, sovereign buyers, and compliance markets demand higher integrity standards, the question of where and how credits are retired has become a meaningful signal of market quality. Tracking on-chain versus off-chain retirement volumes, growth rates, and quality indicators is no longer a niche blockchain exercise; it is a window into the structural evolution of carbon markets themselves.

Key Concepts

On-chain retirement refers to the permanent removal of a tokenized carbon credit from circulation on a blockchain. When a credit is bridged from an off-chain registry (such as Verra's VCS) to a blockchain, it is tokenized into a fungible or semi-fungible digital asset. Retirement burns the token, creating an immutable, publicly auditable record that the underlying offset has been used and cannot be resold. Platforms like Toucan Protocol, KlimaDAO, and Carbonmark facilitate this process on Polygon, Celo, and other networks.

Off-chain retirement follows the traditional registry workflow. A credit buyer submits a retirement request to the issuing registry, which marks the credit as retired in its centralized database. While registries publish retirement data, the records are not always real-time, granularly searchable, or independently verifiable without contacting the registry directly. Verra (2025) processes approximately 120 million retirements per year across its VCS program, making it the largest single retirement venue.

Bridging and tokenization is the mechanism connecting the two systems. Toucan Protocol's Base Carbon Tonne (BCT) and Nature Carbon Tonne (NCT) pools aggregate credits that meet minimum quality criteria (vintage, methodology, and verification status) before tokenizing them. In 2023, Verra paused new bridging requests to review tokenization safeguards, then partially reopened the process in mid-2024 with stricter requirements including serial number locking and retirement-only bridging (Verra, 2024). This policy shift slowed on-chain supply growth but improved quality assurance.

Quality signals differentiate high-integrity retirements from bulk commodity transactions. Key indicators include project vintage (newer vintages generally reflect more rigorous methodologies), methodology type (removals versus avoidance), independent ratings from agencies like Sylvera and BeZero Carbon, and whether the retiring entity discloses the retirement purpose (offsetting specific emissions versus speculative accumulation). On-chain platforms increasingly surface these signals through metadata attached to each token, allowing buyers to filter by quality attributes before purchasing.

Retirement-to-issuance ratio is a critical market health metric. A ratio above 1.0 indicates that demand is absorbing supply, supporting prices and project developer revenue. The off-chain market's retirement-to-issuance ratio has hovered around 0.55 since 2022, reflecting persistent oversupply of legacy credits (AlliedOffsets, 2025). On-chain markets have shown a higher ratio of approximately 0.82, partly because tokenized pools tend to exclude the oldest, lowest-quality vintages and partly because KlimaDAO's bonding mechanism absorbs supply into its treasury (KlimaDAO, 2025).

What's Working and What Isn't

On-chain carbon markets have made genuine progress in three areas. First, transparency and auditability are structurally superior on blockchain-based platforms. Every retirement is recorded on a public ledger with timestamps, wallet addresses, and metadata that anyone can verify without relying on registry access. Carbon analytics firm Carbonscan (2025) reports that on-chain retirement data can be queried and cross-referenced in seconds, compared to days or weeks for equivalent off-chain data requests.

Second, quality filtering mechanisms have matured considerably. Toucan Protocol's selective pooling criteria, KlimaDAO's quality-weighted bonding curves, and Carbonmark's project-level marketplace all enable buyers to select credits by vintage, methodology, and third-party rating. Sylvera (2025) found that the average quality rating of on-chain retired credits improved from a C+ equivalent in 2022 to a B+ equivalent in 2025, reflecting the market's shift away from low-quality REDD+ avoidance credits toward higher-rated nature-based and removal credits.

Third, composability with DeFi and corporate procurement systems has expanded use cases. Carbonmark, launched by Toucan and KlimaDAO in 2023, provides a fiat-accessible marketplace that processed $47 million in retirement transactions in 2025 (Carbonmark, 2025). Corporate buyers including Celo Foundation, Polygon Labs, and several large logistics companies now retire on-chain credits as part of verified sustainability reporting workflows.

However, significant challenges persist. Supply constraints remain the most pressing issue. Verra's 2023 bridging pause and subsequent restrictions reduced the flow of new credits onto blockchain platforms. On-chain supply grew only 12 percent in 2025, compared to 85 percent in 2022, and pool diversity has narrowed (Toucan Protocol, 2025). Without broader registry cooperation, on-chain markets risk becoming a curated but limited subset of the overall market.

Regulatory uncertainty also creates friction. The EU's Markets in Crypto-Assets Regulation (MiCA), implemented in stages through 2025, classifies certain tokenized carbon credits as crypto-assets subject to disclosure and custody rules (European Commission, 2024). The Commodity Futures Trading Commission (CFTC) in the United States has issued guidance suggesting that tokenized carbon derivatives may fall under its jurisdiction. These regulatory developments increase compliance costs for on-chain platforms and create uncertainty for institutional participants.

Fragmentation across chains dilutes liquidity. Tokenized carbon exists on Polygon, Celo, Ethereum mainnet, Solana, and several Layer 2 networks. Cross-chain bridges introduce security risks and user friction. The lack of a unified on-chain carbon standard means that a BCT on Polygon is not natively interchangeable with carbon tokens on other networks, complicating portfolio-level analysis for large buyers.

Finally, off-chain registries still dominate institutional trust. Most corporate sustainability reports reference Verra or Gold Standard serial numbers, and auditors are more familiar with traditional registry documentation. The International Council for Voluntary Carbon Markets (ICVCM, 2025) has not yet formally recognized on-chain retirements as equivalent to registry retirements for Core Carbon Principles compliance, creating a credibility gap that limits institutional adoption.

Key Players

Established Leaders

• Verra — Operates the Verified Carbon Standard (VCS), the largest voluntary carbon registry with over 2,000 projects and approximately 1.2 billion credits issued to date.
• Gold Standard — Premium registry requiring UN Sustainable Development Goal contributions, with 84 million credits issued in 2024.
• KlimaDAO — Decentralized autonomous organization that has absorbed over 26 million tokenized carbon credits into its treasury and drives on-chain retirement demand through its bonding mechanism.
• Toucan Protocol — Infrastructure layer for tokenizing carbon credits, operating the BCT and NCT carbon pools on Polygon with over 22 million tonnes bridged.

Emerging Startups

• Carbonmark — Fiat-accessible carbon credit marketplace built on Toucan/KlimaDAO infrastructure, processing $47 million in transactions in 2025.
• Flowcarbon — Backed by a][ Capital, tokenizes carbon credits as Goddess Nature Tokens (GNT) with a focus on nature-based project quality.
• Senken — Berlin-based platform offering curated on-chain carbon credit purchases with project-level transparency and ESG metadata.
• Thallo — Enterprise-focused carbon credit tokenization platform connecting project developers directly with corporate buyers on blockchain rails.

Key Investors/Funders

• Andreessen Horowitz (a16z) — Led Flowcarbon's $70 million funding round and actively invests in ReFi (regenerative finance) infrastructure.
• Polygon Ventures — Ecosystem fund supporting carbon tokenization projects building on the Polygon network.
• Celo Foundation — Supports on-chain carbon offset initiatives through its Climate Collective and ecosystem grants.
• Allegory Capital — Climate-focused crypto fund investing in tokenized carbon market infrastructure and DeFi climate protocols.

Examples

KlimaDAO treasury-driven retirements. KlimaDAO, launched in October 2021, uses a protocol-owned liquidity model to accumulate tokenized carbon credits. By January 2026, the DAO's treasury held over 18 million tonnes of carbon, and user-initiated retirements through the platform exceeded 1.2 million tonnes cumulatively (KlimaDAO, 2025). The protocol's bonding mechanism creates consistent buy-side pressure, contributing to a retirement-to-issuance ratio of 0.82 in its pools. KlimaDAO also introduced a retirement aggregator that allows users to retire credits from multiple pools in a single transaction, reducing gas costs by up to 40 percent.

Carbonmark's corporate adoption pipeline. Carbonmark launched its enterprise API in mid-2024, enabling corporate procurement teams to integrate on-chain carbon retirements into existing sustainability management platforms. By the end of 2025, the marketplace had onboarded 85 corporate accounts and facilitated retirements linked to verified sustainability disclosures (Carbonmark, 2025). Notable adopters include Celo Foundation, which retired 12,500 tonnes through the platform for its 2024 carbon neutrality commitment, and a major European logistics company that used Carbonmark's API to automate monthly retirements tied to freight emissions.

Gold Standard and Toucan selective bridging pilot. In September 2024, Gold Standard and Toucan Protocol launched a controlled pilot allowing selected Gold Standard-certified credits to be tokenized with enhanced metadata including SDG impact tags, third-party ratings, and project-level monitoring data. The pilot covered 500,000 credits from clean cookstove and community forestry projects in East Africa (Gold Standard, 2025). Retirement analytics from the pilot showed that buyers paid an average 22 percent premium for Gold Standard-tokenized credits versus generic BCT pool credits, confirming that on-chain quality differentiation translates into price signals.

Senken's direct project marketplace. Senken has taken a different approach by bypassing carbon pools entirely, instead listing individual projects with full provenance data and allowing buyers to retire credits at the project level. By early 2026, the platform listed over 350 verified projects and had facilitated 420,000 tonnes of project-specific retirements (Senken, 2026). This model appeals to buyers who want to tell a specific impact story rather than retire from an aggregated pool.

Action Checklist

• Benchmark on-chain versus off-chain volumes. Track quarterly retirement data from Verra, Gold Standard, KlimaDAO, and Toucan Protocol to identify growth trends and market share shifts.
• Assess quality signals before purchasing. Use third-party ratings from Sylvera, BeZero Carbon, or Calyx Global to evaluate the integrity of credits in both on-chain pools and off-chain registries.
• Evaluate regulatory exposure. Review MiCA, CFTC guidance, and emerging national frameworks to understand compliance requirements for tokenized carbon holdings.
• Pilot on-chain retirements. Corporate sustainability teams should run small-scale on-chain retirement pilots using platforms like Carbonmark or Senken to test workflows, audit trails, and reporting integration.
• Diversify across retirement venues. Avoid concentration risk by retiring credits through both traditional registries and on-chain platforms, ensuring that retirement records are recognized by relevant auditors and standards bodies.
• Engage with standards development. Participate in ICVCM and VCMI consultations on the recognition of on-chain retirements to help shape interoperability standards.

FAQ

How do on-chain carbon credit retirements compare to off-chain retirements in volume? On-chain retirements reached approximately 25 million tonnes in 2024, representing about 15 percent of the total voluntary carbon market retirement volume of 164 million tonnes (KlimaDAO, 2025; AlliedOffsets, 2025). While the absolute volume remains a minority, on-chain retirements have grown at a compound annual rate exceeding 60 percent since 2021, compared to roughly 8 percent annual growth for off-chain retirements. The gap is narrowing, but traditional registries remain the dominant retirement venue for institutional buyers.

Are on-chain carbon credits higher quality than off-chain credits? Not inherently, but the quality filtering mechanisms are improving. Early tokenized carbon pools (2021 to 2022) attracted criticism for including older, lower-rated credits. Since then, platforms like Toucan and KlimaDAO have introduced vintage restrictions, methodology filters, and rating-based pool criteria. Sylvera (2025) data show that the average quality rating of on-chain retired credits has improved from C+ to B+ over three years. However, quality ultimately depends on the underlying project, not the retirement venue. High-quality credits exist in both on-chain and off-chain formats, and low-quality credits can also be tokenized if pool criteria are insufficiently stringent.

What are the main risks of on-chain carbon retirements? Key risks include regulatory uncertainty (particularly under MiCA and potential CFTC oversight), smart contract vulnerabilities in bridging and pool contracts, liquidity fragmentation across multiple blockchain networks, and limited recognition by mainstream sustainability auditors and standards bodies. The ICVCM has not yet endorsed on-chain retirements as equivalent to registry retirements for Core Carbon Principles compliance, which may limit the utility of on-chain records for corporate claims.

Can on-chain and off-chain retirement systems interoperate? Interoperability is improving but remains incomplete. When credits are bridged from Verra to Toucan, the original Verra serial numbers are locked and cross-referenced, creating a traceable link between the two systems. However, bridging remains restricted due to Verra's 2023 policy review, and Gold Standard's pilot with Toucan is limited in scope. Full interoperability would require registries to formally recognize on-chain retirement records and for blockchain platforms to adopt standardized metadata schemas compatible with registry databases.

What role does DeFi play in carbon credit retirements? Decentralized finance infrastructure enables novel use cases for carbon markets. KlimaDAO's bonding mechanism creates automated demand for tokenized carbon, its liquidity pools allow price discovery, and yield farming incentives attract capital into carbon-backed instruments. Carbonmark's fiat on-ramp removes the requirement for buyers to hold cryptocurrency, making DeFi-powered retirements accessible to traditional corporate purchasers. However, the DeFi layer also introduces complexity, smart contract risk, and potential regulatory scrutiny that traditional registry retirements do not face.

Sources

• KlimaDAO. (2025). KlimaDAO State of Tokenized Carbon Report Q4 2024. KlimaDAO.
• Toucan Protocol. (2025). Toucan Carbon Market Infrastructure: 2024 Annual Review. Toucan Protocol.
• AlliedOffsets. (2025). Voluntary Carbon Market Overview: Issuance, Retirement, and Pipeline Analysis. AlliedOffsets.
• Verra. (2024). Tokenization and Third-Party Crypto Instruments Policy Update. Verra.
• Sylvera. (2025). Carbon Credit Quality Trends: On-Chain vs Off-Chain Analysis. Sylvera.
• Carbonmark. (2025). Carbonmark Marketplace Annual Report 2025. Carbonmark.
• Gold Standard. (2025). Pilot Evaluation: Selective Tokenization of Gold Standard Credits with Toucan Protocol. Gold Standard Foundation.
• Senken. (2026). Platform Metrics: Project-Level Carbon Retirements. Senken.
• European Commission. (2024). Markets in Crypto-Assets Regulation: Implementation Guidelines for Environmental Tokens. European Commission.
• ICVCM. (2025). Core Carbon Principles: Assessment Framework and Registry Recognition Guidance. Integrity Council for the Voluntary Carbon Market.
• Carbonscan. (2025). On-Chain Carbon Analytics: Data Accessibility and Verification Benchmarks. Carbonscan.
• Flowcarbon. (2024). Tokenized Nature-Based Carbon: Market Design and Quality Standards. Flowcarbon.