Written by Boys Club Review Guild
Regenerative Finance aka ‘ReFi’ is centered around the belief that it’s possible to create economic systems that regenerate value for communities and the environment, instead of extracting value or resources. ‘ReFi Summer’ is the current movement to combine ReFi theory with the new coordination tools provided by web3 to fundamentally shift the outcomes and impact of our current financial system.
Summer may be winding down but ReFi is still going strong. Grab your sunnies & let’s dive in with a primer.
About ReFi: why should we care?
ReFi refers to systems that use money and other incentive models as a tool to regenerate our communities and natural environments. By putting a price on externalities, aka charging those who create negative outcomes for the world, and rewarding those who create positive outcomes for the world, ReFi can better account for the needs of our current and future selves.
Some hot ReFi trends:
Tokenized Carbon Credits: It’s no secret that crypto and climate have a contentious relationship. However, the tokenization of carbon credits has allowed for the transformation of the voluntary carbon market (VCM). By tokenizing VCM credits, markets can scale with radical transparency — something that has been sorely missing from the VCM as it exists today.
One expression of this is Toucan Protocol. Toucan takes physical carbon credits from various registries and standardizes them into carbon tokens on one blockchain registry. Tokenized carbon credits are deposited into pools to create a commodity or a tradable crypto token. This means that carbon can be used as collateral, incentivizing use, but also offsets transparently.
Social Impact: ReFi is not just about offsetting carbon. ReFi also offers an opportunity to design a regenerative economy rooted in setting all stakeholders up for success — current and future. By enabling local economies to create monetary systems backed by what we want to see in the world, we can all win.
An example of this is Impact Market, a decentralized poverty alleviation protocol that enables any community to implement poverty alleviation systems, like Unconditional Basic Income. Impact Market is currently running one of the largest UBI programs, with 40K+ beneficiaries. It is built with Celo, a carbon negative layer-1 blockchain leading the ReFi movement.
TL;DR — ReFi is the retinol of web3. It’s regenerative, encourages us to do more good, and accounts for the needs of our current and future selves. ReFi is our opportunity to design better financial systems that are more inclusive, equitable and just. ReFi summer is not the end of the ReFi movement — it’s just the very beginning.
Top Refi Projects
ReFi Summer continues to ignite more mission-driven projects focused on using web3 tools for transparency and coordination to deepen climate action. Check out the top ReFi climate projects we love, below.
Sources: Earthbanc, Flow Carbon, KlimaDAO & explainer, Moss, Protein Good Growth & resources, Toucan & SheFi review
There are many more projects that go beyond climate and touch on other aspects of regenerative finance. Consider checking out Climate Collective’s map of ReFi apps to learn about other projects.
What about crypto’s actual energy consumption?
Environmental impact is one of the biggest longstanding criticisms of the crypto industry — everyone from Elon to Bill Gates has a hot take. And TBH, with Bitcoin’s annual energy consumption surpassing many countries (some indices estimate Bitcoin to use more energy per year than the entire country of Argentina), it’s a real concern that deserves a deep-dive.
Let’s start with proof of work vs. proof of stake. Most “alternative layer one” blockchains you’ve heard of (we’ve reviewed a few below) use proof of stake to verify transactions. Bitcoin is, and likely always will be, a proof of work chain, whereas Ethereum has migrated to proof of stake with the Merge. Post-Merge, Ethereum now uses 99.5% less energy. By some estimates, the annual power savings will be roughly equivalent to the energy consumption of the country of Chile.
The second-largest crypto network by market cap moving to proof of stake is a big f-ing deal. Unlike proof of work, where miners compete to solve cryptographic puzzles which requires huge quantities of computational power, a proof of stake network chooses which validator will work on the transaction based on their locked (or “staked”) tokens.
Ok, we love to see it. But isn’t the crypto industry as a whole still consuming enormous amounts of energy?
Well, that depends on what you’re comparing it to. Let’s use Bitcoin’s energy consumption as an example. Compared to the country of Argentina? Not cute. But what about banks? It turns out tradfi banks may use double the energy of the Bitcoin network. Another spicy stat: PayPal’s annual energy consumption currently surpasses that of all of the proof of stake blockchains combined.
Similarly, when comparing blockchain ecosystems, we have to keep in mind that the total energy consumption of a blockchain also depends on the size of the network and the transaction volume. For example, Solana’s total energy consumption is higher than Avalanche’s, but per transaction consumption is far lower.
Curious how the L1 blockchains stack up against each other? We got you, bestie. We’ve listed the major blockchains and their energy consumption below (using data from CCRI’s 2022 report). To produce our ReFi Ratings, we took into account the chain’s energy consumption along with ReFi activity we saw on the network, including ReFi applications, carbon offsets, grants and more:
Sources: Crypto Carbon Ratings Institute, Celo, Ethereum Energy Consumption, Algorand, ClimateTrade, Avalanche pledge, Nori, Bitcoin Clean Energy Initiative, Climate Neutral Cardano, Climate Collective, Project Wren, Flowcarbon, Moss, Toucan, ETH Merge, Watershed, Green America
Boys Club POV
Just like the Boys, ReFi isn’t going anywhere. Even though ReFi summer is coming to an end, the movement of creating more good should be front of mind heading into Fall. With so many opportunities to get involved, there is something regenerative for everyone.