Regenerative Finance (ReFi)

Regenerative Finance can be defined as a system that regenerates its resource capacity over time.


What Is Regenerative Finance (ReFi)?

Regenerative systems leverage regenerative finance to achieve robust properties of growth. In extractive systems, resources are depleted and the system loses capacity over time. Resilient systems are able to recover from periods of shock. In sustainable systems, resource availability is not depleted over time and the system is steady. Regenerative systems must grow over the long term and must, therefore, be resilient and cannot be extractive.  

Resource capacity here could be any or multiple of the 8 forms of capital (social, material, financial, living, intellectual, experiential, spiritual, and cultural). ReFi regenerates the resource capacity of many types of capital simultaneously.  

In a ReFi system, financial capital is not an end in itself but is employed in service of each of the other forms of capital.

Because regenerative systems build capacity sustainably, regenerate resources, and are resilient to shocks, ReFi can be employed to prevent systemic risks to humanity and address coordination failures (e.g. inequality issues or social and environmental issues such as climate change).

History of Regenerative Economy 

In 2015, the economist John Fullerton coined “Regenerative Capitalism” stating eight principles that are the foundation of any economic system in order to build a stable and healthy foundation. The principles for a regenerative economy include balance seeking, in right relationship, holistic wealth views, adaptability, strong participation, emphasis on community, solid circulation, and edge effect abundance (meaning population abundance varies in a given ecosystem).

Dr. Sally J, Goerner, with the Research Alliance for Regenerative Economics, explained there are four zones for energy systems to live including energizing flows, resilient and equal structures, common cause culture, and collaborative learning. Dr. Doerner along with a few colleagues created 10 measures for regenerative economics to test for economic health which include the circulation of currency and prime organizational structure.

Another economic model that shaped ReFi is the “factors of production”, referring to the inputs needed to produce goods and services, which combines land (also known as natural resources), labor, capital and entrepreneurship. More efficient production advances economies and improves productivity and quality of life. 

Intersection with Decentralized Finance 

In order for ReFi to address social and environmental causes, the movement likely needs to leverage Decentralized Finance, or DeFi, which greatly facilitates to automate the specific aspects of finance such as the earning of interest, borrowing of money, storing of cash and purchasing of insurance, without the intermediaries and patchwork of regulations of traditional finance.

Decentralized Finance is a set of communities and tools on peer-to-peer networks to remove the need for financial intermediaries, such as banks and brokers, by utilizing blockchain smart contracts instead.

ReFi extends Web3 technology to modify the existing finance model. DeFi can replace traditional financial systems with smart contracts that are automated code stored and run on a blockchain and get activated when predetermined guidelines are met. They act as a term of agreement between the buyer and seller written in code.

In the race to overcome the ‘mass adoption’ barriers to crypto, DeFi is disrupting the ways people manage and access their money on a global scale. However, like traditional finance, DeFi communities push (regulatory) boundaries in pursuit of optimizing returns. Contrastingly, ReFi looks to provide financial support to projects wanting to make a lasting positive impact in the world.

Impact of ReFi?

ReFi has shone a light on the exploitative nature of the present financial system and highlights an alternative that can be of benefit to the world. It has become a fundamental part of the roadmap towards achieving a circular economy, thus eliminating our current linear approach in which we “take, make and waste” our resources. 
ReFi is changing the mindset of the Voluntary Carbon Market (VCMs) with different organizations seeing the potential of web3 to correct some of the issues with VCMs: double counting and the resale of retired carbon credits. 

Equally, ReFi is having an impact in the field of conservation as companies that need to offset their carbon emissions can fund the preservation of a species or area via the use of smart contracts. This creates a win-win scenario in which species are preserved, companies can offset their emissions and communities will be paid for their efforts to preserve vulnerable species.  

There are numerous notable projects within web3 that are paving the way for the ReFi movement. There are also organizations that help to build the infrastructure needed for ReFi projects to flourish.

Four Other Areas in Which ReFi Is Having an Impact 

Although ReFi is mainly associated with carbon projects, it is having a major impact in other areas:

Ocean Conservation 

Certain projects are issuing blue carbon credits which help marine protected areas track the health of their ecosystems and generate revenue to fund their conservation projects.

Regenerative Community Development 

Given that the health of an ecosystem is often dependent on those who inhabit them, there are projects creating commons credits that tokenize the impact of taking private land and returning them to local communities.   

Reforestation and Conservation

The Voluntary Carbon Market indirectly tries to incentivize the funding of carbon reduction projects. ReFi is taking this a step further by leveraging the power of web3 to fund reforestation, regeneration and conservation more directly. 

Preservation of Soil and Water Quality 

Certain ReFi projects aim to solve the problems surrounding soil depletion and freshwater drying up by using web3 to fund the research, development and implementation of sustainable and restorative water practices.

Potential Impact

Beyond the current projects, there’s also promise for ReFi to prompt new economic or social paradigms. People have always come together to create value in the form of progress toward a shared goal, be it the creation of art or the development of infrastructure, but cryptocurrency projects have clearly illustrated that such a group can denominate that value in a novel currency.  As long as the product of a community’s goal is valued by the greater population, we should expect that the world at large should support the community due to the gains from trade that result. This should, in turn, allow any community working toward positive and valuable impact to be regenerative, provided that their impact is valued by any other community that also produces goods or services. We should expect to see a renaissance of online communities as ReFi tooling becomes easier to use, resulting in not just gains from trade, but new forms of trade, as non-financial contributions to human flourishing are recognized and valued between communities.

Authors: Kevin Owocki, CEO and Founder of SuperModular, a web3 venture studio building modular apps for regenerative projects and Evan Miyazono, Head of Network Goods, a team building revolutionary coordination systems within Protocol Labs.

Kevin Owocki:

Kevin Owocki is a blockchain expert, CEO/founder of SuperModular and co-founder of Gitcoin, a venture studio that builds regen web3 projects and has helped to raise and distribute over $72 million for open-source projects. His new business venture SuperModular, aims to build a modular stack of products used specifically for public goods and funding tools. Prior to his career in web3, Kevin spent 15 years in the world of web2, working as a CTO and founder of open-source software and web startups. 

Evan Miyazono:

Evan Miyazono supports technological development in support of human flourishing with new coordination tooling and incentive mechanisms. Prior to leading Network Goods, Evan completed a BS and MS in Materials Science and Engineering from Stanford University and completed a Ph.D. in Applied Physics at the California Institute of Technology before leading PL Research.