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ReFi Explained

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Sep 9, 2022
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5 min read
refi-explained

This blog post will cover:

  • What is ReFi?
  • Why do we need ReFi
  • ReFi meets blockchain
  • ReFi blockchain projects to check out
  • Conclusion

All around the world, millions are demanding climate action. Governments and corporations are slowly aiding the transition to a more sustainable economy, but as time goes by it is ever clearer that new solutions are needed to combat the crisis. 

Our current financial systems weren’t built to be environmentally friendly, but to generate profit and satisfy consumers. The same can be said about the crypto space with ever-growing concerns about the ecological impact of practices like mining. However, ReFi, a new financing structure that aims to change the rules of the game is rapidly gaining in popularity.

Today we’ll be taking a look at the potentialities of ReFi in all the ways the blockchain economy can help in creating the sustainable economy of the future. Let’s get right into it! 

What is ReFi?

In short, regenerative finance aims to do what traditional finance does, but sustainably. The ReFi model looks at more than just consumer benefit and profits while promoting the growth into sustainable business models that could help bring systemic change and solve environmental crises. A new innovation of green, sustainable businesses in the current financial system often lacks capital and investment to grow. This is because traditional financial models do not usually consider the social impact a business could have by prioritizing profits.

Why do we need ReFi

Currently, financial markets are often time driven by speculation that prioritizes short-term gain over the long-term goal and health of a company. ReFi works with the opposite logic, generally providing lower returns over the short-term but with a longer time period in mind. Over the extensive halt, the company sets out to innovate the world and build systemic change which would bring further growth and even higher returns. ReFi could help investors earn a lot more while reducing risk and helping shape the world while building a more sustainable economy in the process. 

Regenerative finance can also help in minimizing the risk of market failures. These happen when investors miscalculate market or business conditions and do not allocate resources correctly. The malinvestment creates a bubble, which eventually pops and brings the market into a recession. 

Market failures are an even bigger problem when it comes to the climate crisis. For almost 200 years economic growth has developed without ever considering the emission of greenhouse gasses. Inevitably this will bring serious economic and environmental problems that the market never considered.

However, ReFi by making systemic change a priority could help facilitate the correct allocation of resources and take on the climate crisis head-on.

ReFi meets blockchain

 In the last years cryptocurrency has been in a lot of controversy regarding damage to the environment. Many have voiced concerns regarding the mining practice necessary for maintaining PoW blockchains such as Bitcoin consuming a lot of energy. And with crypto becoming an ever bigger phenomenon, the issue can only be expected to grow.

The crypto market is also well known to be filled with speculations and experiences extreme volatility. Crypto investing is often completely focused on the short-term price movement of the coin and wastes no time in evaluating the underlying value of the project and its sustainability. 

ReFi could therefore be a perfect match for the issues crypto is currently facing. The model would allow for more sustainable growth that would aim for long-term sustainability instead of the current short-term speculating.

ReFi blockchain projects to check out

  • Klima DAO (KLIMA) — is an interesting blockchain DAO project that aims to disrupt the carbon emission market. Klima DAO focuses on the acceleration of carbon assets through market operation, incentivizing companies to pollute less.
  • Toucan Protocol (BCT) — focuses on creating tools to help bring sustainable projects into the blockchain. The project aims to improve existing Web3 infrastructure and solve the common pitfalls of crypto when it comes to sustainability. 
  • Celo Climate Collective (CELO) — a coalition of companies that work and finance Web3 projects fighting climate change. Their Celo blockchain stands out for being carbon negative and helps finance their business endeavors. 
  • MOSS (MOSS) — a project built on the Ethereum blockchain born with the goal of fighting climate change. Each of their MCO2 tokens burns is equivalent to offsetting one ton of CO2 as the project uses the funds to purchase and protect land in the Amazon rainforest.

Conclusion

ReFi could prove to be the change we need to take on climate change once and for all. The traditional financial system needs desperate change if we want to have a sustainable economy. Furthermore, by integrating with Web3 and blockchain technology the potential ReFi has to create a long-lasting impact is practically limitless.

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