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's 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 can 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.

Michael Kramer, managing partner and director of social research at Natural Investment Services, introduced the concept of "regenerative investing" in 2003. He referred to the new investment style as regenerative because it pulled resources into projects that mimicked operations of nature to recycle energy and matter.

John Fullerton coined the term “regenerative economics” in his 2015 paper titled “Regenerative Capitalism.” Fullerton stated 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. 

ReFi can be implemented in several ways.

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.

Traditional methods of recording history or inventorying artifacts are subject to change but the blockchain locks these records into place. 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 that 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 these goals will be accomplished. They try to capitalize on the movement because regenerative finance is trending. Here are a few things to watch out for:

• Lack of token information: You'll want to understand the “tokenomics” or how the tokens are distributed if you're investing in a regenerative finance project. It can be a sign of a scam if a large number of tokens are held by founders or early investors and tokens are unlocked in large chunks. These actions will allow the price to rise then investors can dump all their tokens when they unlock.
  
• Direct connection to your digital wallet: Make sure the project is trustworthy if it wants access to your digital wallet. Scammers can steal the funds in your wallet very quickly if you allow access.
• Lack of a project road map: The project might never accomplish what it's promising if it doesn’t have a clear road map with actions that will be taken by a stated time. 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.

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

Regenerative finance is an automated platform governed by smart contracts. Loans are handled instantaneously. The crypto will be deposited into a user’s digital wallet when a loan is confirmed. There are no monthly payments required but the loan will accrue interest. Loans must be paid back in the cryptocurrency that was 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 can often quickly raise capital and generate a return on investment while directing funds toward immediately impactful initiatives.

It doesn’t mean that it's a good investment just because a crypto project labels itself as “regenerative,” however. As with any crypto project, you should research the team, road map, and reputation of the project before allocating any funds toward it.

Correction - July 25, 2024: This article has been corrected to state that Michael Kramer introduced the concept of "regenerative investing" in 2003.