ReFi concept overview

It is ReFi projects that are designed to challenge the climate crisis and other threats facing all of humanity.

What is ReFi, and how is it different from DeFi?

Regenerative Finance (ReFi) is a concept in the DeFi marketplace aimed at developing blockchain projects contributing to favorable environmental impacts.

The concept of regenerative economics was introduced long before the emergence of decentralized finance and the idea of a deflationary payment medium, which eventually became the Bitcoin* cryptocurrency. In 1916, economist Silvio Ghezel proposed the concept of a "stable-spending currency" Freigeld with a negative interest rate — this property of money was called "demurrage" and represented a kind of penalty for downtime.

* The Bitcoin protocol includes a deflationary mechanism called "halving," which causes the issuance rate of the BTC cryptocurrency to halve every four years.

The idea behind deflationary currency was to discourage the accumulation of money in circulation, thereby improving consumers' economic activity and quality of life.

Later, the work of another economist, Elinor Ostrom, demonstrated that communities can sustainably and equitably manage shared resources — essentially the concept behind decentralized autonomous organizations (DAOs). Blockchain has become the technology that can translate all these ideas into unified ecosystems.

Blockchain, limited issuance, and concepts like DAOs have formed the basis of decentralized finance (DeFi), but the original vector was quite different.

Decentralized finance focuses on building financial applications using blockchain technology, prioritizing primarily Yield Farming and speculative trading (i.e., short-term or long-term profits). DeFi protocols are usually developed without taking into account their environmental impact.

ReFi projects, on the other hand, focus on environmental and social development in the long term, putting financial benefits on the back burner. Thus, the ReFi market aims to develop ecological decentralized financial ecosystems created in line with ESG initiatives — an approach focused on favorable impacts on both social and environmental issues.

The ReFi market follows key principles that correlate with ESG initiatives:

• Transparency of operations and governance. These principles already underpin decentralized autonomous organizations, but they fit just as well in regenerative systems;
• Ethics in the use of technology and resources in creating financial ecosystems. The idea behind regenerative finance is to develop sustainable and planned growth that can be controlled in a way that takes into account their impact on the environment;
• A focus on the long term. One of the main principles of eco-initiatives is that "long-term impact is more important than short-term financial benefits";
• Emphasis on social equity and justice. Regenerative systems aim to create an enabling environment for everyone to thrive while conserving natural resources instead of exploiting them for short-term benefits;
• Strive to restore and replenish natural resources and ecosystems. ReFi-ecosystems use a portion of profits to care for communities and the planet rather than extracting even more profits.

This way, regenerative finance primarily serves people and the planet rather than capital, as in the DeFi market. Some of the key models of the ReFi market are regenerative agriculture and renewable energy.

What projects exist in the ReFi market?

Regarding its development, the ReFi market is still far behind DeFi. For example, as of March, the capitalization of the decentralized finance market was almost 100 times larger than that of ReFi: $105 billion versus $119 million, according to CoinGecko. At the same time, not a single ReFi project is even in the top 100 crypto projects by market capitalization, but the sphere itself continues to develop.

For example, the ReFi project DOVU provides a decentralized carbon credit market based on the Hedera blockchain. It was created to reduce emissions and, as a result, improve the environment.

Celo developers have even created their blockchain platform to fund and run decentralized applications (DApps) aimed at socio-economic prosperity. Based on the Celo blockchain, ReFi projects have already been released, such as:

• Wasset — a decentralized waste management protocol aimed at making the planet safer;
• Astro Protocol — a set of tools for efficient use of geodata;
• Flow Carbon is a platform for tokenizing carbon credits, which can also be classified as a Real World Asset (RWA) sector.

The Energy Web Foundation team has also created a blockchain called EW Chain, specifically for developing enterprise energy applications. The protocol was launched in 2019 but is not in high demand yet.

ReFi's future and development prospects

It is likely that more crypto projects will gradually introduce ESG-initiated mechanisms into their ecosystems. However, there are still no concrete predictions due to the difficulty of assessing the usefulness of such projects for the future financial system.

Judging by many market metrics, such as trading volumes and capitalization, ReFi projects are still in demand by a small group of enthusiasts rather than a mass audience.

The high popularity of speculative assets such as memcoins clearly demonstrates that the possibility of short-term high profits interests investors more than long-term environmental concerns. In other words, the cryptocurrency market is not yet mature and is rather perceived as a separate ecosystem from the rest of the world, but it is gradually "growing up", and in time the demand for ReFi projects will grow.