ReFi Leverages DeFi to Create Regenerative Economic Systems
Whether you’re a crypto maximalist or a passive observer, you’re probably well aware that the media’s attention on decentralized finance (DeFi) has been mostly unfavorable. However, looking beyond the headlines, builders, innovators, and activists within the regenerative finance (ReFi) space are working towards the betterment of humanity.
Specifically, ReFi serves as a new economic model for impactful initiatives by leveraging the capabilities of blockchain technology. This means we no longer need to rely on inefficient, traditional systems and outdated, siloed approaches. Let’s explore how ReFi projects are setting forth on a path of economic resilience and regeneration.
What is ReFi?
Regenerative finance, or ReFi, is an economic paradigm that operates at the intersection of sustainability and web3. ReFi is based on the theory of regenerative economics, an economic system that works to regenerate capital assets — goods and services that contribute to our well-being — but is rooted in DeFi.
The purpose of ReFi is to shift from the extractive economic model that plagues our planet and society, towards a future where profits and purpose are able to coexist. ReFi harnesses the power of DeFi for more than just the creation of money. Possibilities for impact could be anything from providing capital for humanitarian projects to delivering new tools for the unbanked in developing economies. In a basic sense, ReFi focuses on using capital to address systemic issues, regenerate natural resources, and create public goods for civilization.
How Does ReFi Work?
The traditional business paradigm emphasizes resource extraction through a linear economic process — extracting, producing, consuming, and waste — leading to a depletion of finite resources. If this model continues, it’s only a matter of time until all natural resources are depleted.
A regenerative economy is the proposed solution. Instead of the unsustainable ‘take-make-waste’ model, a regenerative economy designs activities that cause positive externalities, extending the lifespan of products, and restoring natural resources.
John Fullerton describes the ideal regenerative system as “self-organizing and self-sustaining.” The current economic system’s traditional structures, bureaucratic red tape, and siloed operations can make attaining a regenerative economy feel impossible, but what if there was already a system that eliminated silos, provided transparency, and removed centralized controlling entities?
DeFi does just that.
ReFi is anchored in DeFi with the philosophy of enabling regenerative economies. Through ReFi, global systemic issues can be reframed, where money is the tool for sustainable solutions. ReFi leverages capital to incentivize changes that produce positive externalities, placing value on regeneration instead of extraction. With ReFi, outputs are designed to be inputs. ReFi makes it possible to align traditionally fragmented incentive systems. According to Kevin Owocki’s Greenpilled, “with programmable blockchain-based economic systems, there’s a new opportunity to design crypto-economic incentive systems to be aligned with one another.”
Instead of the unsustainable ‘take-make-waste’ model, a regenerative economy designs out activities that cause positive externalities, extending the lifespan of products, and restoring natural resources.
The outcome is a regenerative crypto-economic system, which is renewing and regenerating forms of capital (i.e., social, material, financial, living, intellectual, experiential, spiritual, and cultural), meaning that they are creating more resources and are resilient against shock — it’s essentially a pluralistic financial infrastructure for the planet.
Image source: Greenpilled
Traditional finance, or TradFi, approaches are too myopic to address the system failures that we’re facing. Focused on incentivization of businesses that optimize for short-term financial performance over long-term viability and sustainability, the outdated approach to value creation is no longer a fit for society. The goal of ReFi lies in redefining the process and purpose of value creation towards one of the shared values — generating economic value in a way that also produces value for society by addressing its challenges.
Why Do We Need ReFi?
ReFi’s value lies inherently in its thesis — that money can be used as an instrument to address systemic inequities and bring forth sustainable solutions. More importantly, ReFi emphasizes solutions that would result in a net positive rather than a net-zero effect. Since real impactful change can only be achieved by creating positive-sum solutions, yielding neutral outcomes would diminish the regenerative quality of ReFi.
ReFi flips the script by throwing away the notion of accumulation in favor of circulation. Accumulating wealth is no longer the goal; rather, wealth is a means to the goal. The capabilities of purpose-driven missions, such as impact investing, are elevated through ReFi’s technology. With the ability to reach more people, increase transparency, and remove centralized control, ReFi is able to equitably circulate wealth into the ecosystem and regenerate parts of our economy that have historically been neglected.
Although the regenerative economy is often conceptualized in terms of addressing climate change and Earth’s depleting resources (which are very important), ReFi’s scope extends far beyond that, aiming to invest in projects which create a public good. Public goods are non-excludable and non-rivalrous. These are resources that, for the most part, benefit civilization.
Some examples of public goods are public parks, streetlights, open-source software (e.g., Ethereum, Wikipedia), roads, and clean air — basically, things that we use and have come to depend on every day. In typical traditional economic systems, those working towards creating public goods are disincentivized, either through a lack of monetary compensation or scalability. Through ReFi platforms, such as Gitcoin, projects working towards public goods are incentivized to continue innovating.
ReFi offers us a glimpse into a flourishing future. A future where positive externalities are rewarded, economies are self-sustaining and regenerative, and financial prosperity is equitable and inclusive. ReFi has the potential to reshape the global economy and make tangible impacts on the lives of people and societies. In addition to being applied to concerns like environmental sustainability, ReFi has the potential to provide solutions for global poverty, healthcare, education, and a myriad of social issues.
What Does the Future Hold For ReFi?
The future of ReFi looks bright as more developers, investors, and entrepreneurs are drawn to the concept of regenerative economics and its potential applications. At the time of writing, Gitcoin has provided over $72.4 million worth of funding to open-source software projects. In efforts to address global coordination efforts, Gitcoin and UNICEF are collaborating on a quadratic funding initiative as Gitcoin begins to transition to a decentralized protocol, allowing any community to coordinate its own grant funding rounds.
Projects on the Celo blockchain ecosystem have collectively raised over $77 million in funding to support financial inclusion, cross-chain communication and interoperable security, and regenerative finance. Currently, there are over 100 ReFi projects and organizations building towards the mission of a regenerative future.
ReFi Landscape 2022. Source: ecosapiens.xyz
In the foreseeable future, we will see a proliferation of innovative ReFi projects, providing sustainable economic solutions and mobilizing funds for creating public goods — and that’s just the tip of the iceberg. As ReFi continues to grow, there will be a culture shift toward business expectations. Demands for a more regenerative economic system will prevail over conventional business complacency. Positive externalities imparted by ReFi could cause a ripple effect where we would see broad adoption of web3, leading to innovations toward a future where sustainability and prosperity coexist in perfect harmony. ReFi is, in effect, the answer to our decentralized call for reform, offering a path to economic resilience, regeneration, and a more equitable and inclusive global system.
A version of this article initially appeared in BanklessDAO’s DeFi Download newsletter on December 8, 2022.
Meesh is a product designer, analytical thinker, and innovative powerhouse, exploring the intersection of web3, culture, and creativity through writing. When she’s not designing or writing, you can find her curating live music spaces or capturing 35mm film photography.
Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.
Chameleon is a designer and creator in the web3 space.
BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.
This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.
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