Regenerative Finance (ReFi) powered by Web3 technology
We are inundated with stories, images and videos of a cluster of global problems related to the degrading environment, climate instability, loss of diversity of living things, shortage of essential resources like clean fresh water and air, economic instability and general despondency to overcome them. These series of global problems are referred to as polycrises.
A trait of polycrises is that with compounding effects, the overall impact of these issues exceeds the sum of each specific issue.
Since traditional organizations seem unable, unwilling or hindered (by vested interests) to address these polycrises, new frameworks are emerging to galvanize people and technology to build potential solutions.
The emerging framework is Regenerative Cryptoeconomics (ReCrypto) — a system that regenerates its resource capacity over time. A specific component of ReCrypto is Regenerative Finance (ReFi), which aims to use financial resources for social and environmental impact and not just for profit.
This post dives a little deeper into the opportunity to employ ReFi to develop solutions to address global polycrises.
What is ReFi?
Regenerative finance (ReFi) is a financial framework and practice that follows regenerative principles and helps create a regenerative economy.
It enables more inclusive, transparent, and accessible financial systems, which can empower communities and individuals to participate in decision-making and benefit-sharing.
ReFi fosters innovation and collaboration among diverse actors, which can generate novel solutions and synergies for addressing polycrises.
Solutions that are developed can create systemic change and transformation for a more sustainable and resilient future.
The current challenges that impede the adoption of ReFi include:
- It requires a high level of digital literacy and access to Web3 technologies, which may not be available or affordable for everyone
- ReFi faces regulatory uncertainty and resistance from the traditional financial system, which may hinder its adoption and scalability
- ReFi involves complex and dynamic interactions among multiple stakeholders, which may present coordination and governance issues
- The transition from the current economy that is linear, extractive, and wasteful to one that is circular, inclusive, and restorative
The ReFi framework employs technologies, such as blockchain, artificial intelligence, the Internet of Things and digital governance to provide innovative solutions for monitoring and managing resources, improving efficiency, and enhancing transparency and trust.
By using these technologies, businesses and financial institutions can create regenerative finance models that encourage sustainable practices, improve social and environmental well-being, and support and hasten the overall transition to a regenerative economy.
Digital Governance Supports Global Participation
Global polycrises that plague us today, require the participation of committed individuals across the globe to develop and sustain regenerative solutions. These solutions are unlikely to be developed by legacy / traditional / existing organizations.
Global participation is fostered by Web3 based decentralized governance systems — called Decentralized Autonomous Organizations (DAOs).
Digital governance is the process of establishing and implementing rules, norms, and standards for the use of digital technologies in various domains, such as trade, finance, security, and human rights.
Digital governance can support global participation by:
- Enabling more inclusive, transparent, and accountable decision-making processes among diverse stakeholders, such as governments, businesses, civil society, and individuals
- Facilitating more efficient, effective, and equitable delivery of public goods and services, such as health, education, and justice
- Promoting more innovation, collaboration, and competition in the digital economy, such as e-commerce, fintech, and digital platforms
- Enhancing more resilience, security, and trust in the digital ecosystem, such as cybersecurity, data protection, and digital identity
Digital governance and DAOs in particular, face several challenges and risks; but this post will not address them here.
Digital Governance is an Innovation of Web3 Technology
Web3 technology is a term that refers to a new generation of the Internet that uses blockchain and other decentralized technologies to create a more democratic, transparent, and user-centric web.
Web3 technology supports digital governance by:
- Enabling users to have more control and ownership over their data, identity, and digital assets, such as through tokens, cryptocurrencies and non-fungible tokens (NFTs)
- Reducing the power and influence of centralized intermediaries and platforms, such as Google or Meta, and creating more peer-to-peer and community-driven networks, such as through DAOs, DeFi (Decentralized Finance), and dApps (Decentralized Apps)
- Fostering more innovation and collaboration among diverse actors and sectors, such as through the creator economy, the metaverse, and the token economy
- Enhancing more security and trust in the digital ecosystem, such as through cryptography, smart contracts, and consensus mechanisms
ReFi Solutions are Built with Web3 Technology
Web3 technologies can be used to build ReFi solutions by:
- Enabling users to participate in and benefit from regenerative projects and initiatives, such as through tokenization, crowdfunding, and gamification
- Providing users with more transparency and accountability for the environmental and social impacts of their actions, such as through verifiable data, smart contracts, and governance mechanisms
- Supporting users with more efficiency and scalability for their regenerative activities, such as through layer 2 solutions, interoperability, and composability
Some examples of Web3 technologies that are used to build ReFi solutions are:
- Polygon, a layer 2 scaling solution that enables fast, cheap, and secure transactions on the Ethereum network, and supports various ReFi projects, such as Carbon Base, Climate DAO, and Green NFTs
- Regen Network, a public proof-of-stake blockchain that enables ecological monitoring, verification, and credit generation for regenerative projects, such as soil health, biodiversity, and carbon sequestration
- CoMakery, a platform that connects mission-driven organizations with contributors who can earn rewards for their skills and impact on regenerative projects, such as food systems, renewable energy, and social justice
Similar to digital governance, ReFi also faces some challenges with Web3 technology such as scalability, security, and governance.
ReFi to Develop Natural & Social Capital
ReFi can foster innovation and collaboration among communities and ecosystems to regenerate natural and social capital. Natural capital and social capital are two types of capital that are often used in the context of sustainability and environmental accounting.
Natural capital is the stock or flow of natural resources and ecosystem services that provide benefits to humans, such as land, water, air, biodiversity, climate, minerals, etc. Natural capital is essential for human well-being, production, and life itself. However, natural capital is often degraded or depleted by human activities, such as pollution, overexploitation, deforestation, etc.
Social capital is the stock or flow of social resources and relationships that provide benefits to humans, such as trust, cooperation, networks, norms, values, institutions, etc. Social capital is important for human development, innovation, and resilience. However, social capital is often eroded or undermined by human activities, such as conflict, corruption, inequality, discrimination, etc.
Natural and social capital accounting is the process of measuring and valuing the impacts and dependencies of human activities on natural and social capital. Natural and social capital accounting can help businesses and governments to make more informed and sustainable decisions that consider the full costs and benefits of their actions on the environment and society.
ReFi offers benefits for natural and social capital development, such as measurement, verification, and distribution.
ReFi to Realize Systemic Change & Transformation
ReFi can align with the principles and values of regenerative economics to create systemic change and transformation. Regenerative economics is a new approach to economics that aims to create an economy that respects and restores the natural and social capital that sustains human well-being.
Regenerative economics differs from conventional economics in several ways, such as:
- It recognizes and values the earth and the sun as the original sources of capital, and accounts for the ecological limits and costs of human activities. Conventional economics often ignores or externalizes the environmental impacts and dependencies of human activities, and assumes unlimited growth and consumption.
- It promotes the creation of resources, diversity, resilience, and integrity of interconnected networks at all levels of society, rather than the extraction, depletion, and degradation of resources. Conventional economics often focuses on maximizing efficiency, productivity, and profitability, rather than enhancing the health and vitality of living systems.
- Regenerative economics embraces a holistic, systemic, and dynamic perspective on the economic process, rather than a reductionist, mechanistic, and static one. It considers the economy as a complex adaptive system that is embedded in multiple ecological, social, cultural, technological, and political dimensions. Conventional economics often simplifies the economy as a linear and equilibrium system that is governed by rational agents and market forces.
ReFi Thrives on Regenerative Economic Principles
Some examples of regenerative economic principles and values that ReFi relies on for systemic transformation are:
- Holism: Regenerative economics views the economy as a whole system that is interconnected with other systems, such as ecology, society, culture, technology, and politics. It considers the impact and feedback of economic activities on the whole system, rather than on isolated parts or agents.
- Diversity: Regenerative economics values and fosters the diversity of natural and social capital, such as biodiversity, cultural diversity, knowledge diversity, etc. It recognizes that diversity enhances the resilience, adaptability, and creativity of living systems.
- Resilience: Regenerative economics aims to build the capacity of living systems to withstand and recover from shocks and disturbances, such as climate change, pandemics, conflicts, etc. It supports the development of robust, cross-scale circulation of critical flows, such as energy, information, resources, and money.
- Reciprocity: Regenerative economics promotes the mutual exchange of benefits and services among living systems, such as humans, nature, communities, etc. It encourages sobriety, efficiency, and regeneration of resources, rather than wastefulness, overconsumption, and degradation of resources. Regenerative economics also supports regenerative reinvestment of surplus value into living systems.
Regenerative Finance (ReFi) is a system that uses money for social and environmental impact, not just for profit. ReFi aims to regenerate the resource capacity of the financial system over time.
ReFi may help develop solutions to overcome polycrises by leveraging Web3 technology and fostering innovation and collaboration among communities and ecosystems.
Web3 can enable more inclusive, transparent, and accessible financial systems that support ReFi. For example, Toucan Protocol, Regen Network, and MakerDAO are Web3 platforms and projects that enable ReFi.
ReFi can support natural and social capital formation through initiatives and models such as carbon credits, community currencies, and impact investing. However, ReFi also faces challenges such as measurement, verification, and distribution of value.
What Can You Do Next?
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Thank you for making it to the end of this post. May we build regenerative and restorative solutions so that we can leave the planet in a better state for future generations!
Images in this post were generated from Lexica.art.
Some research for this post was done with GPT-4.