IO offers a pricing mechanism based on an evolving consensus of the costs of externalities. The pricing mechanism is based upon a definition of externalities and a calculation of their associated costs. The costs calculated are then incorporated into the price on a smart contract.

To price externalities effectively, a wide consensus on the definition and pricing of impact must be reached. An evolving taxonomy of metrics will be defined ongoingly by a coalition of stakeholders that are both affecting and affected by these impacts. These will be defined by a democratic process and stewarded by subject matter experts discussed later.

Pricing smart contracts

Any supplier using the IO will have a price that they give for their good or service. That price is defined as a “Base Price”. When a supplier connects with IO, the oracle’s taxonomy gives each data point an “externality score” as defined by the DAO. The externality score is a score that will correspond to the different metrics and pricing defined by the Impact Oracle DAO (discussed later).

The externality scores are aggregated and are added and/or subtracted from the price stated in the contract depending on positive/negative impact. This result is a new price for the contract reflecting the “true” cost of the transaction.

If a contract has positive externalities, those are rewarded in the form of compensation for the impact embodied. For example, eliminating the use of pesticides and regenerating soil health is rewarded by the treasury, according to conditions defined by the IO. The result is an adjusted contract, reflecting externalities in its price.

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This price can be adjusted, meaning, adjusting the potential profit or impact of a transaction to reprice the contract. After the seller decides that the price is right, the contract is offered at this price to the buyer.

The Treasury, a Market-Making Mechanism

All compensation is paid for from the treasury. The treasury can be thought of as a vault with a mix of crypto-assets, IO tokens, and fiat currencies that underly the token's value. This mix of assets plays a role in “market-making” for “Refi” assets.

The treasury will hold fiat endowments, crypto endowments, staked funds, tokenized carbon credits, tokenized land, and a variety of tokenized offsets. The treasury is directly connected to DEXes, tokenized carbon markets, and impact projects on the blockchain. When a contract offsets negative externalities associated with it, the funds go towards offsets already in the treasury.