How Web3 Can Solve Climate Change with Regenerative Finance (ReFi)
From child labor in the fast fashion industry to the exponential growth of student loan debt, the financial systems in place today have largely become extractive and exploitative. Resources such as fossil fuels have optimized our production processes, but that has come at the cost of global warming. Regenerative Finance, also known as ReFi, leverages blockchain technology to incentivize the reduction of the global carbon footprint and to regenerate natural resources.
Regenerative Economics
The ReFi movement stems from the theory of regenerative economics. A regenerative economy is based on the idea that nature has universal patterns and principles that created healthy and sustainable systems on planet Earth. The current, deplorable state of our environmental systems can be explained due to humanity’s collective decision to prioritize immediate gratification over sustainability: for example, our extensive use of fossil fuels at the cost of our planet’s health. Regeneration calls for us to align our processes with universal, natural principles in order to increase systemic health.
Leading regenerative economics proponent, The Capital Institute, distills these universal principles into eight “Principles of Regenerative Vitality”, outlined below:
The Goal of ReFi
ReFi’s mission is to simultaneously incentivize the reduction of the global carbon footprint while disincentivizing degenerative behavior. This is done by moving from a transaction-based approach to a holistic, relationship-based one. ReFi brings capital toward social enterprises, environmental initiatives, and other sustainable projects.
The difference between ReFi and non-Web3 environmental, social, and governance (ESG) measures lies in the incentive structure. Blockchain technology allows for mechanisms that encourage regeneration, whether that be by opening the average person up to new markets or increasing transparency to ensure the equitable flow of capital. It also allows for mass coordination as we have already seen with various DAO projects, which is crucial if any material change ought to be made to the environment.
ReFi in Action
According to Nihar Neelakanti, the founder of the climate change metaverse project Ecosapiens, a regenerative economic model must do the following:
- Determine the value of preservation/regeneration of specific environmental resources
- Package that value into a tradable asset
- Create liquidity for such asset
The first step toward building a ReFi ecosystem is pricing natural assets by their value as “carbon sinks”. A “carbon sink” is a system or item that keeps or removes carbon from the Earth’s atmosphere, and in ReFi, the more carbon removed/prevented, the more valuable a carbon sink is. This value is represented by carbon credits, and investment in carbon credits signifies a commitment to the transition to a low-carbon economy.
Currently, the process of measuring, reporting, and verifying the carbon capture potential involved in determining carbon credits is hindered by bureaucratic processes and transparency issues. Blockchain technology can be used to solve these problems by creating a more equitable and optimal solution for credit issuance and liquidity.
The ReFi ecosystem today consists of energy-efficient Layer 1s and Layer 2s, carbon suppliers tokanizing carbon, infrastructure tools including Impact-2-Earn & Metaverse projects, DAOs and NFTs.
ReFi Projects
The following projects are representative examples of different constituent components in the ReFi ecosystem.
- Solana is a Layer 1 blockchain that is incredibly energy-efficient and carbon-neutral. The Solana Foundation consistently purchases offsets and makes improvements to reducing emissions. Due to this, one hour of blockchain runtime for Solana consumes less energy than one Bitcoin transaction.
- Wildchain is a Metaverse project that allows users to “digitally adopt endangered animals and support real-world conservation initiatives.” They take real-world animal population data and replicate that in their game so each digital animal has its real counterpart. Adopted animals are represented by carbon-negative NFTs powered by the Celo blockchain which solidifies ownership and commitment to the ReFi cause.
- Flowcarbon is a carbon supplier. It allows consumers to directly buy and offset carbon straight from the project developers. All of this is tokenized and transparent on the blockchain which solves the current problem of duplicity.
- A popular example of Impact-2-Earn is StepN, which is a lifestyle app created to promote a healthier lifestyle through incentivized walking. StepN also has a commitment to carbon offsetting which it dedicates a portion of its profit.
- KlimaDAO “uses a stack of technologies to reduce market fragmentation and accelerate the delivery of climate finance to sustainability projects globally.” To this date, the organization has absorbed 17,306,604 tons of carbon.
Conclusion
Web3 has often been touted as environmentally negative. The ReFi movement provides a space for innovators and advocates to challenge that claim. By streamlining global coordination and allowing transparency, sustainability projects are able to tackle climate change in a more efficient way. Whether you are an artist, a developer, or even if you simply want to be an observer, there is a space in ReFi for you.
