Over the past two decades, Regenerative Finance (ReFi) has emerged from the intersection of environmental, social, and financial movements, driven by technology. With the aim of creating a new financial paradigm fostering economic systems supporting holistic environmental regeneration, social equality, and broad long-term sustainability, ReFi promises innovative solutions for the 21st century. Taking a stance against the traditional financial system, that historically has tended to prioritise short-term profit and growth at the expense of ecological and social health, the question arises: is this a temporary hype or a genuine alternative to the current financial paradigm?
An alternative financial system that focuses on promoting and restoring sustainability and resilience along with monetary gains.
In 2015, John Fullerton of the Capital Institute coined the term “Regenerative Economy” in the whitepaper “Regenerative Capitalism – How Universal Principles And Patterns Will Shape Our New Economy”. Fullerton’s framework embraces a holistic system perspective and is based on eight core principles:
The below figure is a simple illustration of how a regenerative economy contrasts to a degenerative economy.
Although Fullerton is not directly engaged in the ReFi movement himself, his ideas of regeneration and those of regenerative economics constitute an integral part of this movement. You will find a recent interview with Fullerton here.
Emerging from distributed ledger technology (DLT), blockchains, and the consecutive Web3 and decentralised finance (DeFi) movements, ReFi leverages concepts such as tokenisation, smart contracts, and DAOs (decentralised autonomous organisations) to build regenerative economic projects and systems in the real world. ReFi offers a platform to build, evaluate, and explore alternative economic and social systems with new incentive mechanisms and values in a decentralised manner.
Reoccurring principles within the ReFi movement are a focus on community, decentralisation, transparency, accessibility, and bottom-up solutions. Although still small, ReFi has attracted millions of euros in project financing (notably in carbon credit accruals) and hundreds of projects and organisations are now taking form within the broader ReFi ecosystem.
“Wait a minute… blockchain, crypto, and sustainability? Doesn’t Bitcoin require the same amount of energy as some small nations?”
Reading this far, I assume some readers will have questions regarding the energy use of blockchain technology. Now, let’s sort this out. There are different types of blockchains – the two most common species are proof of work (PoW) blockchains such as Bitcoin (the energy-intensive type), and proof of stake (PoS) blockchains like Ethereum and Solana (with a negligible energy consumption). Most if not all ReFi projects are built on PoS blockchains, meaning that in the case of ReFi, energy consumption is not an issue.
It is worth mentioning here that even though PoW blockchains consume vast amounts of energy, with Bitcoin being the best example with an estimated energy consumption equivalent to that of Poland, a large portion of the energy used is derived from renewable energy sources and energy that would otherwise not have been used. The energy consumption of some blockchains (Bitcoin in particular) is a challenge but there is more nuance to this issue than what is usually reported. Now, let’s return to ReFi.
ReFi is a nascent concept with a lot of promises. Two ReFi projects that made a lot of headlines a couple of years ago are the KlimaDAO and Toucan projects. These initiatives aimed to bring carbon credits to the blockchain via tokenisation for trading, transfer, and ultimately taking carbon credits out of circulation. These projects got attention (and criticism) partly due to the demand shock they caused in in the voluntary carbon market (VCM), causing carbon prices to rise dramatically (which was somewhat intentional). Some of the criticism were directed at the VCM itself (which is a complex topic and deserves an article of its own), however, these projects showcased what impact decentralised ReFi projects can have. You can find a good write up on Toucan’s and KlimaDAO’s effect on the VCM here.
In addition to these attention-grabbing projects, there are a plethora of ReFi initiatives in a variety of categories such as:
dMRV uses metrics and frameworks to measure the positive environmental and social impacts of investments, ensuring accountability and transparency. This includes providing data on forest cover, carbon mapping, renewable energy tracking, green bond verification, climate risk assessment, and more. All in a decentralised manner.
Tokenisation involves converting real-world assets like green buildings, organic farms, carbon emission, and land ownership into digital tokens, simplifying investment on a global scale. Tokenisation also facilitates trading and investment in carbon credits and other environmental commodities which can help incentivise emission reduction and nature protection. As mentioned above, the VCM was an early market where the concept of tokenisation was put into practice.
Examples: Toucan, KlimaDAO, MOSS
There are several platforms that are pioneering the decentralisation of energy grids, focusing on measurement, traceability, efficiency, and incentives.
Examples: Powerledger, Reneum, Energy Web
Platforms that enable communities to collectively own and manage land for sustainable development and regeneration are exploring alternatives to traditional land management in terms of incentives, financing, and decision-making.
Examples: Regenerate Barichara
Various projects experiment with incentivising activities that restore ecosystems by building the digital infrastructure to facilitate and fund these efforts.
Examples: Regen Network, Celo Foundation
Although the ReFi movement has gained some traction and momentum in recent years, it remains to be seen whether it is a temporary technology driven hype or the beginning of a new financial paradigm. Moving beyond the buzzwords, technology has in recent years offered platforms and frameworks for a new breed of ReFi projects to emerge. Currently the space is acting as a place for the experimentation and tinkering of alternative economic systems and models.
It is also unclear how much ReFi will diverge from the existing financial paradigm. As traditional finance is starting to seriously investigate the underlying technology (including engagement from commercial banks, central banks, and other financial institutions), will the promises of decentralisation and transparency be fulfilled? Will ReFi gain serious traction in communities around the world, or will the new systems be absorbed into the current centralised financial paradigm?
I do not think I have to inform anyone about the risks associated with blockchain-based projects: hacks, frauds, and flawed tokenomics (the Terra Luna debacle serves as a cautionary tale of how fragile mechanics can break and cause severe ripple effects). Beyond these risks, regulation has posed one of the most severe challenges for the sector. However, regulatory risk appears to have diminished recently, at least in the U.S. where a new “pro-crypto” president has taken office, and whatever you think of the idea of a strategic bitcoin reserve, the space will remain interesting to watch in the coming years.
At RiskSphere, we always keep our eyes open and our ears to the ground to observe and anticipate emerging trends and how sustainability, technology, and finance keeps on shaping our global society of today and tomorrow. With an anticipated increase in regulatory clarity for the sector moving forward, could ReFi be one of the key sustainability trends to follow in 2025? Could ReFi even serve as a silver bullet in a world where climate mitigation and adaptation still struggle to reach, and even slipping away from, the global political agenda?