The climate crisis is one of the most pressing issues in the modern world. People are demanding action from their governing bodies, who are then putting pressure on companies. While organizations are slowly integrating sustainability action plans into their operations and increasing their spending on alternative energy sources, it is still a drop in the ocean compared to what could be done.
Unfortunately, the traditional financial system isn't fit to satisfy the level of financing required to make broad changes. This is due to the fact that it rests on a narrow set of profit criteria for the benefit of shareholders; incentives aren't aligned in a way where sponsoring holistic investments is attractive to stakeholders. That's where Regenerative Finance (ReFi) comes in.
ReFi is a relatively new financial structure that determines investment opportunities based on Environmental, Social, and Governance (ESG) criteria while utilizing the power of blockchain and Web3.
Regenerative Finance Uncovered
Regenerative Finance is a rising market player in the climate finance sector, straddling the spheres of climate action, Web3, and cryptocurrencies. It enables millions of crypto holders to take meaningful climate action and receive rewards in just a few clicks.
ReFi employs crypto as a means to solve the systemic problems of traditional finance by changing the concept of wealth — by using capital to create healthy and fair social and environmental systems, DeFi participants can contribute to the resolution of pressing social issues such as injustice, inequity, and ecological crises. The primary goal of ReFi is to re-imagine and re-develop financial systems to help make the world a better place, working on stabilizing the climate by mitigating and sequestering greenhouse gases, restoring natural ecosystems by cultivating biological diversity, and instituting social justice.
The fundamental distinction between ReFi and conventional finance is that Regenerative Finance focuses on the system's long-term health over short-term financial gains. Such investments usually have lower return rates in the short term, as they're designed with a complex issue in mind — returns become greater over time as they help create a more sustainable tomorrow.
So how would this work in practice? ReFi is linked to physical initiatives that incorporate Web3 elements such as AI, 5G, IoT, and remote sensing data processing with distributed ledger power. A farmer, for example, could set up a regenerative land and water project to restore harm done by a polluting manufacturer. Material assets and concrete outcomes could be funded through tokenization and then tracked — as their value is realized, profits can then be shared within the regenerative finance economy.
Why Does Decentralized Finance Need Regeneration?
Considering that crypto is gaining trust among institutional investors and big businesses, DeFi supporters are currently tasked with regenerating the crypto economy. Regenerators are looking to utilize crypto mechanisms in a way that can have a positive impact on the planet by investing and taking actions relevant to the real economy.
Once crypto enthusiasts have focused their ambitions beyond holding and meme coins, blockchain protocols can better provide the pillars social institutions need to take on some of the world's most pressing challenges. Decentralized finance and cryptocurrency have the potential to attract billions of dollars to the carbon market without having to negotiate diplomatic terms for each country, which slows down decision-making on carbon pricing and cross-carbon trading.
The crypto community is rooted in a philosophy of liberalism, reflected in the decentralization and self-governance of projects by their communities. As the community accumulates more wealth, it becomes possible to develop blockchain-powered solutions that help local communities, take climate action, and uphold sustainability. A regenerative future can only be accomplished by operating together to develop and facilitate new solutions that change people's mindsets and navigate economic, environmental, and social development.
ReFi and Carbon Offsetting
Carbon offsetting is a primary ReFi instrument currently in use. Here's how an offset is created: the whole system works as a marketplace, with intermediaries connecting credit buyers and credit producers, and third-party organizations confirming regenerative actions by the credit producer.
Today, global carbon markets remain fragmented and ineffective — that's where blockchain-based solutions come in to resolve challenges such as poor accounting, inefficiency, lack of liquidity, high compliance costs and barriers to entry, issues of Monitoring, Reporting, and Verification (MRV), ensuring financial additionality, and stakeholder inclusion and equity.
Regenerative finance has the prospect of becoming a trillion-dollar economy. Carbon offsets already account for a billion-dollar market, which is expected to rise from 1.7 billion tonnes in cumulative demand for carbon offsets to up to 3.6 billion tonnes per year over the next 30 years. ReFi's impact is growing too — in 2021, more carbon was transacted on-chain than off-chain, and 5% of all carbon credits created now exist on-chain.
ReFi Projects to Look Out For
Celo — Natural Asset-Based Currency
The Celo Protocol is open-source, proof-of-stake, and the world's first carbon-negative blockchain supporting a commitment to green Web3 sustainable development. Celo supports ReFi efforts and encourages climate-conscious contributors to help grow its ecosystem. Its community-led initiative, the Climate Collective, fights climate change by aligning demand for Celo stablecoins (cUSD, cEUR, cREAL) with an aim to help the planet — as demand for these coins rises, more nature-backed assets get allocated. The Celo protocol also promises to back 40% of its USD-equivalent stablecoin with natural capital assets, encouraging the protection of rainforests and other natural assets.
KlimaDAO — Market Maker
KlimaDAO is at the center of the new ReFi economy. Its team has launched a decentralized and open market for carbon, with a token that incentivizes users to govern this new green economy. The protocol's mission is to ensure that pro-climate projects are profitable enough by improving access to and demand for carbon offsets.
KlimaDAO repurposes usual DeFi infrastructure and has built a treasury backed by carbon credit, which lowers the supply of carbon credits and grows the price, making it costly for polluters to delay changing their operations. In partnership with Toucan, KlimaDAO has shown how traditional markets can be influenced — more than 5% of voluntary carbon market credits have been tokenized with Toucan since October 2021, and the carbon price has grown two to three times as a result.
Open Forest Protocol — Vertically-Integrated Value Creator
Open Forest Protocol can be described as a community-driven verification tool for forestry and conservation efforts. It's an open-source, blockchain-powered protocol that creates a transparent and secure means to store information, designed to be easy to use for forestation project operators who aren't acquainted with blockchain or crypto. It gives land users, NGOs, government administrations, and others the ability to measure and verify the carbon on their land so they can recoup results-based payments, with the major aim of attracting carbon financing for small-scale reforestation initiatives.
INC4 has a stake in Open Forest Protocol — one of our senior team members guides the project alongside the core OFP team. Here's a closer look at the project through the eyes of Alina Tustanovska, INC4's COO and Product Delivery Manager for Open Forest Protocol.
As COO at INC4 and Product Delivery Manager for Open Forest Protocol, could you elaborate on your journey to becoming a friend of the NEAR protocol?
"I adore working with the Open Forest Protocol, and its mission reflects my desire to avert climate change and scale global forestation. When the INC4 team was contacted to help guide the building and development of the Open Forest Protocol, we offered to build on the Ethereum blockchain — a tremendously successful network with an extensive dApp ecosystem — but their team insisted on building on NEAR protocol. We ran a stress test to see if NEAR could indeed deliver what our client wanted, and it passed with flying colors. NEAR offered a wonderful end-user experience for people just getting started with crypto, affordable transaction costs and fast processing speed, fast user onboarding, and — being carbon-neutral — a perfect fit for the Open Forest Protocol's purpose."
Can you explain the mission of the Open Forest Protocol and how it uses blockchain technology to achieve it?
"OFP runs on NEAR and is on a mission to fast-forward a fully on-chain carbon economy. The team is starting with a data auditing platform to make forestation transparent, accountable, and scalable. The traditional forestation industry lacks a unified, transparent, and affordable MRV system, and OFP wants to offer exactly that — an easy-to-use blockchain platform to measure, report, and verify environmental data. The team is currently developing an explorer, project operator and validator dashboards, and a field app."
What exactly is the technology behind the Open Forest Protocol's operation?
"OFP brings together blockchain, NFT, and MRV technologies. It's built on the decentralized NEAR blockchain, which allows the project to be open-source and transparent, without barriers to the caring community our climate crisis needs. OFP uses NFTs for land plot registration — once onboarded, all project information is permanently stored and updated in the token's metadata, so all details stay accessible, transparent, and easily traceable. Combined with satellite, AI, and IoT technologies, OFP's MRV tools enable forestation projects and validators to act quickly and transparently."
Who are the main participants, and how does the Open Forest Protocol work?
"The main components are: projects that upload data to prove the forest exists and support internal verification; validators who stake on data outcomes to ensure the smooth running and regulation of the project; carbon financing and investors who support projects financially, which determines how many hectares of forest can be preserved; and the community, which governs the protocol and helps build the foundation for the future of decentralized forest management. To register a project, the operator provides data that's stored on-chain as NFTs through the application; OFP validators then verify the uploaded information, which sets the foundation for blockchain-native carbon credit tokens."
Build with INC4 to Make the World a Better Place
As we can see, although just becoming more well-known, ReFi is already shaping up to be one of the major pillars of DeFi and Web3. Just as traditional finance has evolved to a point where people seek out ethical shopping choices, ReFi has the potential to take DeFi from a place of self-interest and make it a force for widespread societal change. Reach out to INC4 if you want to join the regenerative finance movement, utilize blockchain to address climate change, and support conservation and biodiversity by creating a more equitable and sustainable financial system.