WELCOME TO THE AGE OF REGENERATIVE FINANCE REFI by KyotoFDN

It is transparent how much carbon is removed by each company at a point in what is regenerative finance time because a digital measurement, reporting, and verification (MRV) process dynamically adjusts the share carbon value, preventing companies from adjusting climate claims. Carbon shares and carbon credits are environmental claims bought in the VCM and of high quality, adopting the principles of additionality[xxx], durability, and measurability. Carbon shares suit nonstatic carbon value climate projects such as NBS, and carbon credits suit static solutions such as direct air capture (DAC).

The Power of Web3 Registry-Networks

As the community strives for increasing decentralization, exemplified by platforms such as Ethereum, DAOs offer valuable insights into decision-making and coordination structures within technology-enabled, decentralized, and polycentric governance models. Furthermore, it is important to note that even after the initial codification of governance principles on the blockchain, significant off-chain governance is still required. Many blockchain organizations face challenges in clearly defining rules for continuous adjudication and conflict resolution. Poor management of these aspects may result in forking, a specific governance mechanism in which a community splits into different groups with diverging principles. Regenerative finance is a new financial paradigm that seeks to build a financial system that is in harmony with the natural world, rather than just exploiting and depleting it. It is based on the idea that finance should work in a way https://www.xcritical.com/ that supports the health and well-being of the planet and its people.

Terra Tuscany: Sustainability leaders gather in Italy for climate summit

The UN considers carbon neutrality by 2050 the most urgent mission[cxxi] because of the severity and urgency of the climate issue. Although countries have committed to carbon neutrality, barriers exist at the corporate and multi-tier supply chain levels. Insurance guarantees are essential and there is a need to evaluate high-quality projects to warrant the cover.

Regenerative Finance: Using Financial Motivation to Incentivize the Regeneration of Natural Resources

  • Despite this undoubtedly positive shift, it’s still clear that if Web3 financial systems are going to be sustainable, they’re going to have to be deliberately designed with self-renewing processes in mind and work to help mend the planet.
  • These assets are realised on the balance sheet by accounting procedures that are similar to capital market financial instruments.
  • Projects often reside in a different location to the registry, with project documents governed by project jurisdiction laws and contractual arrangements with the registry.
  • Schlager and Ostrom (1992) argued that efficient resource use is dependent on institutional settings, ranging from hierarchical to decentralized organizations, and is moderated by the respective environment.
  • A bit about me, my name is Nihar Neelakanti, Co-founder and CEO of Ecosapiens, a metaverse enabling consumers to fight climate change.

A circular economy requires companies to contribute to a sustainable production model, keeping raw materials longer in production cycles, recycled with less waste and ensuring the continual supply of raw materials. VCM Web3 projects have begun to leverage ReFi and tokenized carbon is used as collateral in decentralized finance (DeFi) debt markets. The Paris Agreement 5th Article[lxviii] is dedicated to REDD+, meaning carbon credits from REDD+ activities can be sold to other countries to offset their emissions for NDC. All results are registered and serialized within the REDD+ Registry and issued to the master account of the government as RRUs with unique serial numbers to avoid double counting. Countries can trade RRUs on the REDD+ Exchange operated by Xpansiv CBL,[lxix] the world’s largest carbon exchange. This is a reserve where 20 percent of carbon credits are deposited to cover claims; but there are significant gaps in wildfire risk cover.

regenerative finance

Blockchain and regenerative finance: charting a path toward regeneration

Shipping emissions will be regulated including the EU-ETS, which commences in 2024, where vessels will need to report emissions by law. The IMO could impose a global carbon tax, but it will take time to decarbonize with net-zero fuels like hydrogen or ammonia. Cyber and climate change are intangible risks, both with the potential to create positive and negative externalities, especially if they occur simultaneously. These externalities are far-reaching due to the connected Internet, Internet of Things, and digitisation reaching the tipping point. There are many forces engaging the correlation of the two largest risks we know today.

regenerative finance

The DeFi Regulatory Landscape: Opportunities and Challenges

The ReFi landscape is diverse, with over 500 active solutions categorized into various roles such as ecological currencies, impact verification, microfinance, and more. These solutions often integrate existing technologies to maximize usability and impact, emphasizing a hyperlocal focus, agility, and a decentralized ethos. And a new generation prioritizing environmental and community well-being enters the workforce. Early adopters have the advantage of shaping the system’s future, and greater diversity among them enhances its resilience. Furthermore, they deploy the Web3 and sustainability megatrends that fuse together, to create the Regenerative Finance model. – It leverages Decentralized Finance (DeFi) and blockchain to counteract the impacts of industrialization and systemic financial imbalances.

regenerative finance

The State of ReFi: A Comprehensive Look at Web3 Regenerative Finance

ReFi on blockchain is based on estimating the value of natural assets based on their regenerative and conservation properties. Regenerative systems leverage regenerative finance to achieve robust properties of growth. In extractive systems, resources are depleted and the system loses capacity over time. In sustainable systems, resource availability is not depleted over time and the system is steady. Regenerative systems must grow over the long term and must, therefore, be resilient and cannot be extractive. As ReFi continues to evolve, we can expect to see more and more innovative and impactful projects emerge and bring the benefits of blockchain technology to the real world.

What is the Tragedy of the Commons and How Does ReFi Aim to Solve It?

Carbon credits vary in quality, and credits may be invalidated so insurance will protect commitments to emissions reduction against loss of carbon offsets on the balance sheet with cover for third-party negligence and fraud. Protection products need to wrap around digital carbon platforms to obtain the smart capacity required for (re)insurance risk transfer. Independent verification from recognised registries (such as ISO 14064[xxxvii]) will direct buyers towards high-quality projects. Captives can address uninsured risk by investing in carbon offsets, acting as the underwriter to address sustainability behaviour of a parent company by providing underwriting credits to reduce premiums while putting money back into the captive owner for carbon usage. Carbon pricing results from externalities when market prices of goods and services do not reflect the future cost of climate change. A carbon risk charge sends a demand signal that reducing emissions means paying less carbon tax and utilizing more carbon-neutral technologies.

How Does Blockchain Technology Contribute to ReFi?

We’re on a mission to easily enable any individual to fight climate change with the world’s first carbon-backed NFT. Ownership grants you access to the Ecoverse, our vision for a full-stack sustainability platform, DAO, and metaverse. Carbon suppliers are the carbon brokerages responsible for bringing carbon on-chain to underpin other applications. Today, there are several projects in the carbon supply niche, including Toucan Coin, Flow Carbon, and Regen Network. Once MRV is completed, these carbon credits are issued by agencies such as Verra and CAR, among others, and sold via brokers, eventually making their way to buyers.

If ReFi is correctly implemented and widely adopted, the world would see adequate funding of public goods, ergo mitigating the detrimental effects of the tragedy of the commons. Since carbon credits do not expire and can be traded multiple times, secondary market players have been buying vintage credits and holding to sell at a higher price, thereby slowing the retirement process. Rating agencies, using baseline emission factors, are assessing carbon projects’ quality by providing carbon scores based on whether a project is reporting accurately, over-reporting, or over- crediting on emissions reductions. Permanence risk is rated to look at the likelihood the carbon will not remain intact for an atmospherically significant time period. There is no carbon stored by RES projects, so rating does not apply as there is no reversal risk. Carbon offset registries issue credits based on defined certification protocols and track the retirement of credits to ensure that two purchasers cannot claim the same verified carbon reduction.

In the quest imagine a bold transformation of the global financial system, we turned to the profound wisdom embedded within living systems. Toucan’s Carbon Bridge connects conventional carbon credit registries with an open, blockchain-based meta-registry, the Open Climate Registry. There needs to be a way to verify that only certified carbon credits are being moved on-chain, where they can then be traded or integrated into other blockchain-based applications.

In a regenerative financial system, economic activity benefits all of the system’s living participants, instead of unsustainably extracting resources, unfairly distributing profits, and ignoring the value of living ecosystems. Although still in its early stages, ReFi has the potential to fundamentally transform how we use money and finance as tools to help life thrive on our planet. Describing their activity as ‘DeFi that defies climate change’, KlimaDAO have set up their own cryptocurrency token called KLIMA which is backed by real-world carbon assets. This means that when someone purchases this token via a cryptocurrency exchange, they’re funding the removal of a defined amount of CO2 from the atmosphere.

Ethereum, for example, switched to a Proof-of-Stake mechanism, reducing the energy required for creating ETH by 99.95%. Despite this undoubtedly positive shift, it’s still clear that if Web3 financial systems are going to be sustainable, they’re going to have to be deliberately designed with self-renewing processes in mind and work to help mend the planet. The traditional financial markets have long been modelled on the extraction of value and exploitation of people – empowerment for the few whilst relying on the labour of many. Key characteristics of ReFi include prioritizing systems thinking for ecological and social impact, fostering a culture of proactivity, and valuing coordination and collaboration. These elements collectively aim to create a bridge to a regenerative financial system.

Sustainable financing could help fund a renewable energy project, hence lowering carbon emissions. ReFi, on the other hand, would invest in initiatives that both generate clean energy and repair local ecosystems, resulting in a net beneficial impact. ReFi tries to restore and revitalise ecosystems and communities, whereas sustainable finance seeks to maintain the status quo and minimise harm.

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. Participation with intangible value allows engagement with national markets that may require years to engage, allowing exchange of value over a larger time frame. Incentives to developed markets must be made by governments to de-risk and offer businesses to support the transfer of carbon market intangible capability by recognizing value and benefits within their tax schemes and pooling the risk. Agriculture accounts for 14 percent of global related CO2[xcviii]  as high levels of carbon emissions are released during farming and nitrous oxide fertilizer is responsible for 50 percent of agriculture emissions. While carbon offsets are sold by farmers for emission- reducing initiatives with carbon sequester in the soil, there is little action reducing nitrous oxide and many registries do not require on-the-ground measurements of nitrous oxide emissions in their protocols.

Malaysia has the Bursa Carbon Exchange (BCX)[cxiii], a subsidiary of the stock exchange of Malaysia, and the first Shariah-compliant carbon exchange. The Malaysian government is considering a carbon tax for transformation in energy systems. The Vietnam Ministry of Natural Resources and Environment is establishing a national carbon registration system for all businesses and organisations generating carbon credits in 2023[cxiv]. In this paper, we define the structure of the ReFi stack and explain how different approaches can address present limitations in climate change accounting, markets, and governance.

Blockchain technology has the potential to address these existing power imbalances and establish the necessary decentralized digital infrastructure to create a digital data commons. However, technology can simultaneously entrench or even aggravate the status quo of centralized control and extractive economics. The fragmentation of global carbon pricing systems can be interpreted as a market failure because it leads to a socially suboptimal distribution of goods and services.

Blockchain and smart contracts form the backbone of decentralized finance (DeFi), offering more decentralized, inclusive, transparent, and secure alternatives to traditional finance, while also removing the middle man. More research and engagement with the ecological and regenerative economics theory are needed to define how ReFi can create a more sustainable and equitable economy by prioritizing the regeneration of natural resources, community well-being, and long-term value creation. On the other side is the regenerative economy, which places great emphasis on a balanced, circular flow of capital.

Chia sẻ
Facebook
Twitter
Pinterest
LinkedIn

Đăng ký nhận thông tin

Quý khách vui lòng điền đầy đủ thông tin để được hỗ trợ

Bài viết mới nhất

0902191519

ĐĂNG KÝ NHẬN BÁO GIÁ

Báo giá sẽ được gửi vào Email củ quý khách ngay sau khi hoàn tất đăng ký