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What Is Regenerative Finance (ReFi)?
Regenerative finance (ReFi) is a term used to describe blockchain projects that are developed such that the resources used over time are regenerated.
ReFi projects use raised capital to attempt to provide a positive financial impact on the world. This can include money earned from crypto token sales or additional funds raised within the project for specific purposes.
Key Takeaways
- Regenerative finance (ReFi) is an alternative financial system that promotes and restores environmental, social, and financial stability along with monetary gains.
- ReFi has found applications in the cryptocurrency ecosystem as a departure from traditional finance.
- Regenerative finance doesn’t refer to any specific cryptocurrency.
- ReFi is a movement toward mitigating climate change and improving equality.
Understanding Regenerative Finance (ReFi)
Traditional finance has often been criticized for putting short-term profits ahead of long-term sustainability.
Michael Kramer, managing partner and director of social research at Natural Investment Services, introduced the concept of "regenerative investing" in 2003. He referred to the new investment style as regenerative because it pulled resources into projects that mimicked operations of nature to recycle energy and matter.
John Fullerton coined the term "regenerative economics" in his 2015 paper, "Regenerative Capitalism." Fullerton stated that traditional capitalism doesn't implicitly prevent negative environmental and societal impacts but encourages exploring a new "form of capitalism that produces lasting social and economic vitality for global civilization as a whole."
Regenerative finance goes a step further than environmental, social, and governance (ESG) investing and focuses on actually recovering and improving the environmental and societal impacts of traditional capitalism instead of just reducing the negative side effects.
ReFi can be implemented in several ways.
Climate Initiatives
Some crypto projects are focused on reducing carbon emissions as well as helping community-led initiatives fight climate change. Organizations such as the Climate Collective help raise awareness for projects that use blockchain technology to deploy regenerative financial solutions.
These projects can assist by helping companies invest in carbon credits, incentivizing regenerative land-use practices, or even creating platforms to help organize climate-saving initiatives.
Cultural Heritage Preservation
Regenerative finance can also help preserve cultural heritage artifacts and historical records by using blockchain to store permanent records. Non-fungible tokens (NFTs) can be used to create verifiable and immutable records on the blockchain for these artifacts, making them an unchangeable part of history.
Traditional methods of recording history or inventorying artifacts are subject to change, but the blockchain locks these records in place. NFTs of some of these items can be minted, allowing cultural centers around the globe to raise funds for the future preservation of historical items.
Goals of Regenerative Finance
Regenerative finance is ultimately designed to create a more balanced, nondestructive economy that incentivizes social and environmental good.
The goal of ReFi is to create an economy that thrives off mitigating climate change, reversing some of the effects of carbon emissions, and pursuing social change.
Risks of Regenerative Finance
As with any Web3 cryptocurrency project, regenerative finance projects can be used in scams. There are always risks when investing in alternative assets such as crypto; regenerative finance isn't immune to these.
Some projects have lofty goals but vague language about how these goals will be accomplished. They try to capitalize on the movement because regenerative finance is trending. Here are a few things to watch out for:
- Lack of token information: You'll want to understand the "tokenomics" or how the tokens are distributed if you're investing in a regenerative finance project. It can be a sign of a scam if a large number of tokens are held by founders or early investors and tokens are unlocked in large chunks. These actions will allow the price to rise, and then investors can dump all their tokens when they unlock.
- Direct connection to your digital wallet: Make sure the project is trustworthy if it wants access to your digital wallet. Scammers can quickly steal the funds in your wallet if you allow access.
- Lack of project road map: The project might never accomplish what it promises if it doesn't have a clear road map with actions that will be taken by a stated time. Make sure the road map is detailed, too.
- Do your due diligence about the people leading the project: Look for documentation or information about the team of developers on the project to gauge their authenticity, experience, and track record for running similar projects.
How to Get Involved in ReFi
Users can log into a chosen web app, connect a digital wallet, and deposit crypto onto the platform to use regenerative finance and can choose from a list of supported crypto to borrow against the collateral deposited when the funds are deposited.
Regenerative finance is generally an automated platform governed by smart contracts. Loans are handled instantaneously and the crypto will be deposited into a user’s digital wallet when a loan is confirmed. There are no monthly payments required but the loan will accrue interest. Loans must be paid back using the cryptocurrency that was borrowed.
What Is Regenerative Finance?
Regenerative finance (ReFi) projects are blockchain projects that are developed so that the resources used over time are regenerated.
What Is an Example of Regenerative Finance?
An emerging idea is a digital carbon market, where the voluntary carbon market is replaced using blockchain networks. The idea is to bring more transparency, availability, and even liquidity to the carbon credit market.
What Are the Principles of ReFi?
ReFi is based on regenerative economy principles conceived by John Fullerton. They are: empowered participation, view wealth holistically, innovative adaptive response, seek balance, edge effect abundance, honor place and community, robust circulation, and in right relationship.
The Bottom Line
Regenerative finance (ReFi) is the crypto-equivalent of ESG investing but with a more direct and flexible approach to making change. Crypto-based projects can often quickly raise capital and generate a return on investment while directing funds toward immediately impactful initiatives.
However, just because a crypto project labels itself "regenerative," it doesn't mean it's a good investment. As with any crypto project, you should research the team, road map, and reputation before allocating any funds to it.