During the Global Climate Action Forum (GCAF) 2024 held in Phnom Penh from May 16-17, the Security Token Offering (STO) Alliance and Carbon Credit Alliance were formed, with the aim of highlighting how this exchange can aid Cambodia in reducing its carbon emissions, while also deepening the country's capital markets.
In February 2024, a Memorandum of Understanding (MOU) was signed between the Co-CEOs of KS Green Co. Ltd. – Kevin Wook Lee and Sung Hung Cho – and H.E. Sou Socheat, Director General of the Securities and Exchange Regulator of Cambodia (SERC).
Through this MOU, KS Green is providing consultation, knowledge, experience and technical skills in financial technology to the SERC, particularly in regard to the STO Exchange and Carbon Credit STOs. During the signing and an earlier courtesy meeting between KS Green and the Cambodian Ministry of Environment (MoE), it was announced that the STO Exchange would be officially introduced and publicised during GCAF2024.
KS Green’s Co-CEO, Lee, is also the Chairman of the W-Foundation – the South Korean non-profit organisation that co-organised GCAF2024 along with the MoE.
At the GCAF2024, KS Green also signed an MOU with the Malaysian NASDAQ listed company, Greenpro Capital Corp. (GreenX), to signify the official establishment of the Carbon Credit Alliance, Climate Action Alliance, and STO Alliance. The MOU’s scope of collaboration includes the development of STOs and Real World Assets (RWAs), educational programming, training and study on exchange, resource sharing, technical consultancy, and more.
What Is The STO Exchange in Cambodia?
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In an STO exchange, tokenised digital securities, known as security tokens, are sold as public offerings. Such ‘tokens’ can be used to trade real financial assets – such as equities, real estate, and carbon credits – with all token transactions validated using blockchain technology.
“It's not really different from [regular] securities, but it uses blockchain technology, meaning we can fractionalise real world assets to pieces, allowing even individuals to invest from [as little as] $5 in assets that can cost a lot, like real estate, carbon credits, many kinds of real world assets,” shared Lee, during an interview with B2B Cambodia.
During the panel discussion, he also mentioned how establishing the STO exchange could help to attract more Korean investors to the country, especially given the growing presence of Korean banks in Cambodia.
“As I am Korean, [I can say that] there are already older Korean banks established in Cambodia, and Koreans are known to mostly trust Korean banks… so it's really much easier to bring Korean investors to the country,” remarked Lee.
Also we are preparing to use fiat currency, the US dollar, [for the STO exchange] so that makes it more stable as well. Cambodia is really the best place for Korean finance (investment). As we're preparing [the exchange] in collaboration with the SERC, we are looking forward to opening the market, and we hope to really revitalise the market for carbon credits as well
When Will The STO Exchange Launch In Cambodia?
Lee explained that KS Green, prior to signing the MOU in early 2024, had already been in discussions with the SERC about establishing the STO exchange since 2023, with the shared goal of bringing in more global investors and finding a good listing product.
He added that the platform is currently undergoing testing, with a launch tentatively expected for the third quarter of 2024.
Why Introduce Carbon Credit STOs To The Cambodian Market?
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As sustainability and climate action continue to be a major focus of economies worldwide, interest in carbon markets – specialised markets through which carbon credits and offsets can be traded – is growing, with Southeast Asia being a hub for many carbon credit projects.
Carbon credits essentially work as permits for emissions, meaning companies can purchase carbon credits to get permission to generate a certain amount of carbon dioxide or greenhouse gases.
Carbon credits are generated through projects that avoid or remove emissions, calculated per one less tonne of carbon dioxide or greenhouse gas equivalent released into the atmosphere – examples include forestry projects, renewable energy projects, waste to energy projects and more.
“Southeast Asia is now a place where [there are] a lot of new carbon credit projects and green projects… being made,” affirmed Lee. “But these carbon credits are a little far away from individuals. How can they invest in it? Is it only for the companies?”
There is an increasing demand from individuals that also want to invest in carbon credits, either for the purpose of profit or their devotion to addressing climate change. Through the STO exchange, individuals can be brought together to collaborate as one towards the mutual goal of reaching net zero [emissions].
Lee also spoke of how Cambodia is an idea place to establish an STO exchange because as an emerging market with a fairly nascent securities sector, many of the country’s financial laws, regulations, and policies are not as rigid as they are in certain developed countries, allowing for a faster adoption of new financial instruments and structures.
“Cambodia already has a financial policy and structure, but [it is still] unlike countries like Korea and Singapore that already have numerous ways of fundraising, each [regulated by an existing] security law and financial law, so when establishing an STO exchange [in those countries] there can be a lot of contradictions in the existing law [that make it more difficult], requiring having to change [the law] to start the STO market," he said.
In some ways, Cambodia doesn’t have the same types of laws or regulations that apply in Korea or Singapore, which explains why we are able to [establish an STO market here] much faster.
How Are Carbon Credits Being Verified On The STO Exchange In Cambodia?
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The rigorous verification process of carbon credits, to ensure high quality credits and to avoid issues like double counting, was also touched upon during the STO Exchange session’s panel discussion. The exchange was proposed as a secure option for verified carbon credits, given the use of blockchain technology – each carbon credit, converted into a digital token, is assigned a unique code and can be individually traced on the blockchain.
“To tokenise a carbon project you have to verify it, and really only once you have verified that you can list [on the exchange],” shared Yee Kai Liow, Senior Consultant at DFDL Cambodia.
There's more data available, there's assurance and transparency in the market, which probably was a bit lacking in the carbon market prior to the security token initiative.
“Through blockchain technology we can track down all the [carbon projects],” added Lee. “Even in Korea, the Ministry of Environment’s registry uses blockchain technology to save data. Blockchain is already helping to track carbon credits [in some parts of the world], however, it’s not applied worldwide yet,” added Lee.
Through the STO exchange, we cannot solve the worldwide problem [of carbon emissions], but at least we can establish a collaborative body for Southeast Asia and the Asia-Pacific. [This way we] can work together to solve and avoid problems and use this collaboration to strengthen our mutual goal of reaching net zero.
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