Regenerative finance (ReFi) overview
Regenerative finance (ReFi) is based on the principles of regenerative economics, a concept championed by John Fullerton and grounded in the work of ecological economist Herman Daly. The core idea is that to solve the systemic issues our world faces, we must transition from extractive economic models to those that emphasize regeneration—aligning economic growth with environmental restoration and social well-being. A widely recognized example of this shift is the transition from monoculture farming to agroforestry, which not only restores soil health and biodiversity but also generates financial returns.
To transition towards a regenerative economy and connect those who have the financial resources with those who have ideas and projects focused on regeneration, the right financial tools are needed—this is where regenerative finance comes in. It’s important to clarify the terms “regenerative finance” and “ReFi”, as they are often used interchangeably, but there is a distinction. Regenerative finance generally refers to the broader approach of funding projects aimed at regenerating ecosystems or communities, whether through traditional or decentralized financial systems (Web3). ReFi, on the other hand, specifically refers to Web3 solutions designed to fund regeneration projects. Simply put, if a project utilizes traditional financial methods, it cannot technically be called ReFi.
Why Web3 for fundinge can be a promising direction:
- The total market capitalization of cryptocurrencies exceeds $3.5 trillion, making it a rapidly growing financial market.
- Global, regional, and local initiatives are emerging to regulate cryptocurrencies, meaning the market is becoming more structured and can offer protection for investments and philanthropic efforts.
- There is growing interest from investors in cleantech, both from blockchain-related sectors and those open to exploring blockchain as a new way to invest in cleantech. The projects I analyze on CarbonAdvisor.org are proof of this. Funds raised by cleantech projects from Web3 sources amount to hundreds of thousands—and even millions—of dollars.
However, a key disadvantage is that Web3, as a decentralized ecosystem, can be complex to navigate and understand, which may be a barrier for some.
ReFi Funding
Once you’ve decided on your regenerative project and are considering Web3 for funding, the next step is selecting the appropriate funding model. Please note that some of them, like green bonds, are regulated by the government. However, most are outside the regulatory scope, although they are not prohibited. Here are several ways to secure funding:
Non-Return Models
Fundraising for public goods
Fundraising for public goods involves raising funds to support initiatives that benefit the wider community, without the expectation of financial returns for contributors. This model focuses on addressing systemic issues and creating value that is accessible to all, such as environmental or community projects.
Token sales for the project
Token sales are similar to fundraising and benefit the wider community, but they provide digital tokens to supporters. These tokens can be nominal or represent utility within the project’s ecosystem. Token sales take various forms, such as Initial Coin Offerings (ICOs) or Initial DEX Offerings (IDOs), enabling projects to launch their tokens on centralized or decentralized platforms, respectively.
Grants
Grants provide financial support to projects from organizations, foundations, or ecosystems that aim to fund initiatives aligned with their mission, such as environmental regeneration or social impact.
Return-Obligation Models
Selling of Asset-Referenced Tokens (ARTs)
Selling Asset-Referenced Tokens (ARTs) in the cleantech industry allows companies to attract investments by issuing tokens tied to the value of assets such as renewable energy credits, carbon offsets, or clean energy infrastructure. For example, a company could issue tokens referencing the performance of a solar farm or wind energy project, enabling investors to benefit from the revenue generated by these assets without direct ownership. This approach provides a scalable and transparent way for cleantech firms to secure funding while promoting investments in sustainable and impactful projects.
Selling of Asset-Backed Tokens (ABTs)
Selling Asset-Backed Tokens (ABTs) in the cleantech industry differs from ARTs by offering direct ownership or claims on tangible assets, such as solar panels or wind turbines. Unlike ARTs, which only reference asset value, ABTs give investors a share of the actual physical infrastructure, providing them with rights to revenue generated by these assets, such as energy sales or carbon credits. This approach offers greater transparency and security, as the tokens are directly collateralized by the asset itself, making it particularly appealing for investors seeking tangible backing for their investments in sustainable projects.
Selling of Green Bonds
Green bonds, as a traditional financial tool issued by governments, corporations, entities on blockchain, become more accessible and transparent when managed on decentralized platforms. By utilizing smart contracts, decentralized green bonds can automate interest payments and principal repayments, ensuring both transparency and operational efficiency while attracting a broader range of investors.
Fixed-term deposits
Fixed-term deposits, unlike green bonds, are shorter-term, time-bound investment tools where investors provide capital to fund specific regenerative finance (ReFi) initiatives, such as clean energy portfolios or sustainable agriculture projects. Returns are fixed and agreed upon upfront but are tied directly to the success of the underlying projects, making them moderately riskier compared to green bonds. These deposits are typically more accessible to smaller-scale investors and offer flexibility in investment terms, catering to those who prefer shorter durations and project-level impact over large-scale infrastructure financing.
Lending pools
Lending pools are decentralized funding mechanisms where multiple investors contribute capital into a shared pool that is used to provide loans to borrowers. Unlike fixed-term deposits, lending pools allow for greater liquidity and flexibility, enabling investors to withdraw their funds (depending on pool conditions) or reallocate them to other opportunities. Borrowers, often vetted or required to provide tokenized collateral (e.g., carbon credits or renewable energy assets), access the capital for projects or ventures. Investors earn variable returns, typically in the form of interest payments, which fluctuate based on the demand for loans and the performance of the pool. Lending pools are particularly suited for supporting multiple borrowers and projects simultaneously, offering diversification and decentralized governance.
Private Investments
A decentralized financing model where private investors directly fund borrowers or sustainable projects, often secured with tokenized collateral like carbon credits. Investors earn returns through interest payments, while borrowers gain flexible access to capital, fostering a direct connection to impactful initiatives.