DeFi, CeFi, and now ReFi – yes, web3 can be confusing sometimes. But, behind these acronyms are important trends that are currently reshaping the way we use and move money, the way we invest, where capital is allocated, and to what end.
ReFi, or Regenerative Finance, is a mission-driven movement standing at the frontier between crypto, impact investing, and sustainable business practices like ESG. In short, ReFi is a movement leveraging blockchain to create financial incentives to lower carbon emissions, regenerate the environment and ultimately reverse climate change.
Yes, that’s ambitious.
But, this fast-growing sector is already developing some of the key infrastructure and applications needed to make a regenerative economy significantly more attractive and drive positive climate action. Under the ReFi banner is a community of financial activists who are working to incentivize a healthy and equitable environmental system.
The goal: redefining users’ relationship with finance and wealth.
Even though ReFi is still an emerging movement today, it already boasts a thriving ecosystem of decentralized protocols, startups, non-profits, investors, VCs, and users – with many success stories.
Why do we need regenerative finance?
The crypto bear market has brought many questions with it. One of the biggest ones is: “What are the real-world use cases of web3?” Well, the blockchain ecosystem has shown time and time again that it is very effective at creating mechanisms that align economic incentives toward a common goal. ReFi simply provides a new common goal and leverages web3 mechanisms to reach it.
So why is it important?
The “regenerative” part refers to a self-renewing process that any system needs to thrive for long periods of time. It also refers to the ability to adapt to unexpected, sometimes threatening circumstances. No system can sustain itself over the long term if it is not designed to continuously regenerate.
In contrast, today’s economy is mainly exploitative and extractive. This means that it treats most economies as places from which wealth (resources, money, labor, etc.) can be extracted. Extractive activities are common because they help build strength and power by concentrating resources.
Applied to the world of Blockchain, these concepts highlight two things:
First, a significant part of the crypto universe is extractive. Unsustainable tokenomics, energy waste, hype and speculation, lack of utility… From a cynical point of view, many web3 projects exist solely to extract wealth from unsuspecting investors.
An obvious example is the ever-growing energy consumption of PoW mining. PoW goes against the principle of regeneration because it incentivizes the use of the cheapest energy in the largest quantities.
Second, the good news is, it is possible to design blockchain systems that are human-centered, holistic, and designed for the long term. The incredible advantage of web3 lies in how it can incentivize regenerative behavior. Smart contracts, NFTs, tokens, and more can be used to drive our economy toward regeneration. But every organization has a role to play.
Offsetting carbon emissions
A big part of being regenerative is making sure you keep your carbon footprint in check. For ReFi companies, it’s usually not enough to be carbon neutral – they aim to be “carbon positive” or “climate positive”.
Today, many organizations use different terms to describe how they tackle climate change. These labels are meant to offer an easy way to recognize their efforts to be sustainable.
To be climate-positive means that a business removes more greenhouse gases than it produces. There are several ways to accomplish this: through significant carbon removals or avoided emissions.
In crypto, avoiding emissions means opting for energy-efficient alternatives when available. And the trend is clearly in favor of “clean” technologies, as shown with the recent Ethereum Merge which reduced the network’s energy consumption by 99.95% by switching to Proof-of-Stake.
Some companies make strong commitments to offset their emissions. For instance, at Mintera we pledge to donate 50% of the company’s profits to partner environmental organizations with a real positive impact on the planet.
Incentivizing net positive actions
With the UN Sustainable Development Goals (SDGs) set to guide global sustainability efforts over the next decade, it’s important to consider how different technologies can support these objectives.
We know blockchain can be used to track environmental impact, enable transparency and accountability, and drive sustainable behavior change.
Here are some examples of how blockchain can help create a more sustainable future:
Gamification: protocols can reward participants who are taking real action to remove CO2 emissions with tokens or NFTs with monetary value.
Accountability: blockchains can track carbon emissions, and climate metrics to help hold governments, corporations, and NGOs accountable to climate goals.
Tokenization: by tokenizing carbon-sequestering assets such as rainforests, or carbon credits, we can incentivize more climate-friendly behaviors, while protecting natural assets.
Leveraging communities: DAOs and other web3 organized communities provide a structure that can facilitate raising funds for climate causes and advocating for sustainable policies.
And there are many more creative ways to use web3 for good.
At Mintera we are launching a 5-years Grant Program to help kick-start and scale green projects initiated by our community. People who want to be rewarded for their climate actions can find many opportunities in the ReFi space.
How you can use crypto in a sustainable way
Contrary to some beliefs, it is entirely possible to invest, use and participate in crypto in ways that are beneficial to the environment.
Here are a few tips that you can act on right now:
- Only use energy-efficient protocols: there are many options - in general, you want to avoid cryptocurrencies that are mined using power-hungry hardware.
- Explore the ReFi space to get a feel of the main projects and possibilities. You can start by having a look at the #ReFi hashtag on Twitter.
- Start offsetting your carbon emission using tokenized carbon credits with projects such as Toucan Protocol.
- Find a like-minded community by joining a DAO dedicated to the climate, like KlimaDAO or ReFi DAO.
And remember, we are still early in the ReFi space. Don’t be afraid to try and learn, be creative, and even start your own projects!