ReFi and Tokenization of Real-World Assets: Pioneering Sustainable Mining through Tokenized Unmined Gold Reserves
Introduction
This article is written within the framework of the ReFi Talents program from the Frankfurt School of Finance and Management. With a longstanding interest in real-world assets tokenization (RWAs), I’ve chosen to explore its application in the realm of natural resources. The focus here is on ReFi (Regenerative Finance) and the tokenization of unmined gold reserves, aiming to pave the way for more sustainable mining practices.
In the subsequent sections, I will go through the fundamental principles of ReFi and delve into the concept of tokenization of real-world assets. Furthermore, I’ll spotlight a noteworthy example — Alternun, a ReFi project poised to disrupt the mining industry. The insights shared are derived from an interview with Alternun’s visionary CEO, Santiago Jose. For additional information about Alternun, you can explore their Instagram or visit their website.
What is Regenerative Finance (ReFi)?
ReFi is a concept that integrates financial practices with social responsibility, sustainability (ESG) and regeneration. It aims to create economic systems that go beyond generating financial returns to focus on restoring and enhancing social, environmental and economic well-being. It also places a focus on long-term thinking, circular economy principles and community empowerment. Some examples of ReFi are: social enterprises that address community needs, clean/renewable energy projects, supporting blockchain-based carbon offset projects, backing sustainable agriculture initiatives, etc. The advent of ReFi means the end of extractive business models that rely on inputs of finite materials in their operations or deplete capital in the process and produce waste. On the other hand, a regenerative business model is the one that leaves capital intact.
What is Tokenization of Real world assets?
Real-world asset (RWA) tokenization is the process of converting physical assets into digital tokens that can be traded on a blockchain network or distributed ledger (DLT). The fractionalization of real-world assets digitally enhances liquidity as it allows for the creation of tokens representing a fraction of the asset, making it possible for a wider range of investors to participate in ownership (fractionalised ownership). This can be apply to every type of assets, like natural resources.
Examining the case of Alternun a ReFi project that aims at disrupting the gold mining industry
Environmental and Social Issues of Gold Extraction
The traditional methods of gold extraction have long been synonymous with environmental degradation and unsustainable practices.The environmental impacts of traditional gold extraction are well-documented — from the use of chemical products and fossil fuels to water pollution, deforestation, and significant carbon emissions. The social impacts are as big as the bad environmental consequences: community displacements, human rights violations and inequitable distribution of benefits. Important remark, if you ever go to a regio where there is mine extraction, you will notice that these regios are the poorest in Columbia as the revenue of the mining industry doesn’t benefit to the local community
Digital exploitation: New Regenerative Business Model for the Gold Mining Industry
To address the environmental and social issues generated by gold mining, Alternun seeks to revolutionise the mining industry through the innovative concept of Digital Exploitation. Digital exploitation is a transformative approach of the exploitation of a gold mine where gold remains in its natural state until strictly needed. The gold is thus unmined but tokenized and can be sold without the need of being extracted.
Digital exploitation introduces a collateralized liquidity pool with a threefold purpose: a 30% recovery pool for environmental casualties, 50% for project development, and 20% for operations. This groundbreaking system facilitates earlier profit realisation, allowing stakeholders to access funds upfront rather than waiting for extended periods. By keeping gold in its natural state, securely stored and not extracted in a finite business model, the environmental impact is significantly reduced.
Empowering the Local Communities to become Owner of the Mine
Community tokens are allocated to various stakeholders, including miners, cryptocurrency enthusiasts, and environmental activists. These tokens are digital assets that surpass traditional cryptocurrencies by combining financial growth with environmental conservation. Moreover, they also serve as a testament to the inclusivity of the project by empowering individuals and creating local economic activity.
Community Engagement: A Vital Element of Sustainable Gold Mining
The success of this model depends on community involvement. If the community is not actively engaged, the risk of illegal mining practices persists. Quality job creation becomes a key element, ensuring that the local population benefits economically from the gold mine. In regions often marked by poverty, the initiative aims to stop rural exodus and foster local economies. Investors who acquire these tokens actively contribute to the avoidance of mining activities, ensuring the preservation of valuable gold reserves and the protection of surrounding natural ecosystems, all while reducing carbon emissions. This distinctive feature positions Alternun as a web3 company acting for positive change, empowering individuals to make a meaningful impact on the planet while participating in a gold-linked investment opportunity.
Summary of the Benefits of Gold Mine Tokenization (Digital Exploitation):
- Upfront Financial Viability: Tokenization eliminates the temporal constraints associated with traditional extraction, enabling immediate financial realization.
- Sustainable Mining Practices: tokenization orchestrates a systematic approach to gold extraction, aligning with sustainability objectives and mitigating environmental impact.
- Local Job Creation:A palpable allocation within the liquidity pool for community projects ensures the creation of local employment opportunities, fostering economic resilience.
- Community Empowerment: Tokenization imbues the local community with a tangible stake in the resources, fostering a sense of ownership and collaborative prosperity.
- Mitigating Urban Migration: The strategic emphasis on local job creation aims to counteract the prevalent trend of urban migration, fostering regional development.
To go beyond…
Redefining the Global North’s Perception of Gold
The transformative potential of digital exploitation also challenges preconceived notions about gold storage in the Global North. Rather than storing gold in distant bank vaults, this approach advocates for gold to remain in its natural state until necessary. It gives birth to the concept of natural subterranean storage. This shift in perspective challenges established norms and prompts a reevaluation of the intrinsic value of gold.
Legal Imperatives: Advocating for Systemic Change
The culmination of this paradigm shift necessitates a recalibration of legal frameworks to accommodate the arising of RWAs tokenization in the mining industry and more broader in the extraction of natural resources for a better redistribution of the money to the local community and mitigate the environmental damage. Alternun is currently working with the Government of Columbia to draft a law aiming to make digital exploitation of gold mines the norm.
Conclusion
Tokenizing unmined gold reserves offers a transformative solution for sustainable mining practices. By reducing the need for physical extraction, this approach minimises the environmental impact, preserves biodiversity, mitigates social challenges, ensures transparency, and broadens investment opportunities.
Governments should embrace tokenization in the gold mining industry as it presents an opportunity to revolutionise an age-old practice, making it in alignment with ESG’s targets and the urgent need to protect our planet’s resources for future generations.