What Is Regenerative Finance (ReFi)?

Regenerative finance (ReFi) is an alternative financial system that focuses on promoting and restoring sustainability and resilience along with monetary gains. It has found favor in the cryptocurrency ecosystem and is often used to describe a cryptocurrency project that uses its platform to invest in sustainability, including environmental, social, and financial stability and growth.

ReFi projects use raised capital to attempt to provide a positive financial impact on the world. This may include money earned from crypto token sales, or additional funds raised within the project for specific purposes.

Understanding Regenerative Finance

Traditional finance has often been criticized for putting short-term profits ahead of long-term sustainability.

ReFi is a concept borrowed from John Fullerton, who coined the term “regenerative economics” in his 2015 paper titled “Regenerative Capitalism.” Fullerton ascertained 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. 

There are several ways in which ReFi can be implemented, including the following actions.

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 also can help preserve cultural heritage artifacts and historical records, using the 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. Companies like Monuverse are doing this already, minting NFTs of Italian heritage items to raise funds and preserve history.

While traditional methods of recording history or inventorying artifacts are subject to change, the blockchain locks these records into place. And 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, which incentivizes social and environmental good.

Risks of Regenerative Finance

As with any Web3 cryptocurrency project, regenerative finance projects can turn out to be a scam. There are always risks when investing in alternative assets such as crypto, and regenerative finance isn’t immune to these.

Some projects have lofty goals, but vague language about how those goals will be accomplished. Just because regenerative finance is trending, they are trying to capitalize on the movement. Here are a few things to watch out for:

• Lack of token information: If you are investing in a regenerative finance project, you will want to understand the “tokenomics,” or how the tokens are distributed. If a large amount of tokens is held by founders or early investors, and if tokens are unlocked in large chunks, these can be signs of a scam that will allow the price to rise, then investors can dump all their tokens when they unlock.
  
• Direct connection to your digital wallet: If any project wants access to your digital wallet, make sure it is trustworthy. By allowing access, scammers can steal the funds in your wallet very quickly.
• Lack of a project road map: If the project doesn’t have a clear road map with date and actions that will be taken, then it may not ever accomplish what it is promising. 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.

To use regenerative finance, users can log into a chosen web app, connect a digital wallet, and deposit crypto onto the platform. Once the funds are deposited, users can choose from a list of supported crypto to borrow against the collateral deposited.

Regenerative finance is an automated platform governed by smart contracts, which means loans are handled instantaneously. Once a loan is confirmed, the crypto will deposit into a user’s digital wallet. There are no monthly payments required, but the loan will accrue interest. Loans must be paid back in the cryptocurrency borrowed.

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 often can quickly raise capital and generate a return on investment while directing funds toward immediately impactful initiatives.

However, just because a crypto project labels itself as “regenerative” doesn’t mean it is a good investment. As with any crypto project, you need to research the team, road map, and reputation of the project before allocating any funds toward it.