Blockchain-Based Weather Derivatives Emerge as an Alternative for Climate Risk Management

Warnings have emerged that climate risks could threaten 20% of global economic assets, and blockchain-based weather derivatives are gaining attention as a solution. Canadian Prime Minister Mark Carney pointed out that weather-related disasters have tripled since the 1980s, with losses increasing fivefold. According to the World Meteorological Organization (WMO), global economic losses from climate and weather disasters over the past decade have reached $2 trillion. Weather derivatives are financial products that generate profits when specific climate conditions exceed certain thresholds, and they can be utilized by energy companies, airlines, and farmers. However, the market is fragmented, with a total size of only about $25 billion. Market participation is limited, making it difficult for small farmers and self-employed individuals in emerging countries to access these products. As a solution, 'tokenization' has been proposed, enabling automatic settlements through the use of blockchain and smart contracts. South Korea's weather big data company KWeather and Flare have signed a memorandum of understanding to connect temperature and precipitation data on-chain. Tokenization can contribute to improving financial systems by reflecting and distributing climate risks in pricing.

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