Regenerative Finance: What, How, Why?

Do you ever hear about something for the first time and then start seeing it everywhere? This happened to me recently with Regenerative Finance. A member of the R Planet discord said we could see our efforts as regenerative (not knowing #ReFi herself) and from there… things took off.

Suddenly I was seeing #ReFi everywhere, a refreshing change from the usual degen shill posts and engagement traps. Here were people using finance, crypto and web3 to change the world for the better. People more concerned about the positive impact they were making for the planet as a whole than filling their own bank accounts.

In my previous life as a social justice and inclusive economics campaigner, I was familiar with many concepts that overlap with #ReFi — things like sustainable capitalism, microfinance, fair trade and the circular economy. At first I thought Regenerative Finance would be a new branding of these older concepts, which in some ways it is, but as I began to dig deeper and see the fantastic work being done I realised it was something new in its own right.

So, for this week’s R Planet Together discussion, we are going to be looking at Regenerative Finance — what it stands for, how it works and why we need to get involved.

This all comes from the perspective of someone new to the idea, but the hope is that we can go on this journey together and meet a lot of wonderful people and projects along the way.

What is Regenerative Finance?

The first thing to understand about Regenerative Finance (ReFi) is that it seeks to invert the extractive economic systems that we currently have. If sustainable finance is trying to ensure these systems remain stable over time, regenerative finance seeks to build systems that promote rejuvenation across a number of key areas that include not just economic, but ecological and social metrics as well.

It is a relatively new concept, that came mostly from the work of John Fullerton and his report on Regenerative Capitalism in 2015. This report synthesised a number of ideas from the impact investing and sustainable business sectors at the time, along with earlier movements in regenerative agriculture. The approach taken in this paper had a central core idea:

The universal patterns and principles the cosmos uses to build stable, healthy, and sustainable systems throughout the real world can and must be used as a model for economic-system design.

From this idea, further concepts about taking a more holistic view on wealth; honouring community; the efficient use and reuse of materials; working in collaboration with the biosphere; and taking a balanced approach to our economic activity emerged across a wide variety of sectors and potential use cases.

The notion that this regenerative approach could represent a ‘new stage of capitalism’ found traction within the decentralised, self-organising leanings of the crypto sector. Here there were people best positioned to take up such a holistic view that sought to be both highly dynamic and adaptive, while able to utilise capital in ways that break through current points of institutional friction, misplaced incentivisation and gatekeeping.

How does it work?

ReFi primarily seeks to achieve its aims by bypassing many of the narrow assumptions on what makes a healthy economy. This includes the obsessive focus on GDP as a metric for success; the idea that regulation is the only way to rein in market forces; or that shareholder profits should be the main focus of business activity.

By taking a regenerative approach to investments, product design and business models, financial returns are seen as only part of the overall package. The notion on whether any of these things are ‘successful’ takes the broader view into account and this then changes the factors that feed into design and decision-making.

Current sustainability initiatives that focus on drastically increasing the efficiency of resource use is part of the story, but it is perhaps only a stop-gap. Ultimately, Regenerative Finance states that we need systems that actively nurture the creation of resources so that they can be used by future generations. This requires an interdisciplinary approach, of which finance can be the fuel that helps generate energy for activities that promote both a flourishing and productive output. Systems where significant parts of that output are fed back to ensure that the foundations from which resources are taken (whether they be ecological, economic or social) are continuously replenished.

The alliance of regenerative finance and cryptocurrency/blockchain comes primarily from the sphere of Decentralised Finance (DeFi). The ReFi x DeFi partnership is a powerful combination that can create the self-sustaining and globally accessible systems required to ensure a regenerative ethos is built into the core of projects building upon these ideas.

Various DAO structures are utilised, with DeFi protocols that can incentivise users to act in a more regenerative rather than extractive way. Blockchain also enables the tokenisation of regenerative assets and things like carbon credits, providing access and liquidity that can be traded in an efficient manner. These systems are also being used to track supply chain usage, alongside things such as environmental impact, in order to create a verifiable understanding of how resources are being used in a sustainable manner and by whom.

Beyond these more global, decentralised elements provided by blockchain, there are also elements of localism involved in the regenerative approach. By taking an approach that seeks to strengthen local communities and their resilience, the often smothering nature of global supply chains (and the way in which they can suddenly come to a halt) can be mitigated.

This speaks to the holistic approach taken, that not only looks at where the most financial returns might be made — but how making economic returns can best strengthen a community while supporting both the local population and its surrounding ecosystem, as well as the connections it has with other communities further afield.

Why should we take this approach?

We are seeing clear evidence that the current global socioeconomic order is starting to unravel — indeed, just this past weekend we have witnessed another huge shock to the banking system that could have been catastrophic. These events occur because the current goals of our financial systems are skewed toward profiteering, with little concern over the long-term impact of the methods used or their sustainability over time.

There is a pressing need for alternatives. Regenerative Finance is one option that is gathering speed because it combines the ultra-nimble and decentralised nature of crypto and blockchain, with a purpose-first approach that seeks to utilise capital for positive social and environmental causes rather than purely to extract profit.

This isn’t just a mission founded on integrity, though, as important as such an approach is. Rather, it is also one that recognises the existential threat that our current systems are leading us towards. That has at its foundation the acknowledgement that economic systems based on extraction have an inherently limited timeframe before bringing about various kinds of systemic collapse. This existential threat is real, the need to mitigate against it is pressing, and our current systems are not incentivised to do so quickly enough.

Conclusion

Regenerative Finance is an important area for all of us interested in #Web3forGood, because it seeks to provide new models for using resources — financial, labour, environmental etc. — that circumvents the more predatory nature of how the status quo operates.

This article only touches the surface and doesn’t dive into the many years of consistent hard work put in by a growing number of projects to bring these ideals to fruition. What we can do from here is seek these projects out; listening to their founders and those involved in implementing regenerative finance as a viable alternative that should be supported in our own individual ways.

It is clear that we need a new way of organising global society. One that uplifts rather than exploits local communities, has a compassionate view on the wellbeing of humanity as a whole, and keeps in clear view the moral and societal obligations we have to one another and the ecosystems that sustain us all.

Regenerative Finance isn’t the only alternative available, but it is one that is gaining momentum within web3 and is at the forefront of how the convergence of technology and community can build towards a better future. It is worth the time, energy and resources of all those interested in #Web3forGood to explore the possibilities available and contribute to the projects that resonate with us the most.