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What is ReFi? Part I — A tour through the climate crypto rabbit hole
0xCaD3
February 22nd, 2022

Hey there 👋,

My name is John Ellison. I’m a social entrepreneur who has recently found my home leading growth at Toucan.

Over the last four months I've fallen down a rabbit hole at the intersection of climate action and crypto. Here, at the fringes of a movement called ‘Decentralized Finance’ or ‘DeFi’, there are hundreds of projects working to redesign money in order to heal the earth.

I am writing this to help shape and define the regenerative finance movement to increase it’s potential for impact while minimizing risks and unintended consequences.

Disclaimer: The opinions in this piece are solely my own and do not reflect any organization I am affiliated with; however, they have been heavily influenced by my initial work as a contributor at Klima DAO and later as a core member at Toucan and ReFi DAO.

Overview

Below is a quick overview of the article for those who prefer to skim:

I. Introduction

  1. The Regenerative Finance thesis
  2. Our current economic paradigm
  3. Interlinked planetary crises
  4. Redesigning money to heal the earth
  5. Web3 + Climate

II. Three Pillars of ReFi

  1. Pillar I. Stabilize our climate
  2. Pillar II. Restore our ecosystems
  3. Pillar II. Institute justice

III. Conclusion & call to action


Introduction

1. The Regenerative Finance thesis

Mission-driven communities empowered by blockchain technology have the potential to address climate change, biodiversity loss and the underlying social structures that got us here in the first place.

In the article below I will unpack this thesis and explain why the ReFi movement is the most promising application of distributed ledger technology—also known as blockchain.

We call it ‘ReFi’

“ReFi” is the regenerative finance movement at the edges of the third evolution of the internet (Web3). The abbreviation is a signal to it’s origins in DeFi (decentralized finance).

There are many people discussing these ideas in the Toucan community, Regen Network as well as in ReFi DAO which has become a home for the regenerative finance movement with over 40 ReFi founders meeting regularly to support each other to scale climate action using Web3...

2. Our current economic paradigm

ReFi is rooted in the theory of regenerative economics, which explores how to create systems that restore and maintain the physical resources essential for human well-being.

These key resources are rapidly being destroyed by our current economic paradigm. Our monetary system fails to value the role these assets play in developing and maintaining human societies, resulting in a host of negative externalities including greenhouse gas emissions, habitat destruction and social inequality.

Cartoon credit Tom Toro (http://tomtoro.com/cartoons/)
Cartoon credit Tom Toro (http://tomtoro.com/cartoons/)

Justice & Equity

What's worse, the negative consequences of these by-products are unevenly distributed across society, with developing countries and lower socioeconomic classes experiencing their impacts disproportionally. This creates a negative feedback loop that exacerbates systemic injustice and wealth inequality.

In the digital age of climate change and zoonotic pandemics, we are now faced with the need to reimagine the core mental models of our society in order to survive. In the words of Albert Einstein:

“We can't solve problems by using the same kind of thinking we used when we created them."

ReFi represents a promising evolution of technology, organizational models and human consciousness. It has the potential to bridge political divides and catalyze a new era of human prosperity by defining a new financial system that meets the needs of people and the planet while rendering the old, pyramid-shaped monetary system obsolete.

The aim of this article is to provide an overview of how the ReFi movement is showing glimmers of hope to possibly achieve this vision for the future. The next section explores why this matters now more than ever.

3. Interlinked planetary crises

Our unsustainable relationship with the planet is now defined by two interlinked, increasing severe crises: climate change and biodiversity loss.

Cartoon credit: Graeme Mackay (mackaycartoons.net)
Cartoon credit: Graeme Mackay (mackaycartoons.net)

3.1 Climate change

Climate change has emerged as the key challenge of our time, driven by the extraction and burning of fossil fuels (coal, oil and natural gas), land use change and increasing levels of global consumption.

Rising average temperatures are already leading to a myriad of negative global effects, including heatwaves, rising sea levels, ocean acidification and forest fires. Each of these impacts is accompanied by complicated, poorly understood and potentially devastating feedback loop, which could lead to lasting catastrophic consequences.

COP26 represented the last UN Climate Conference with the potential to keep global temperature increase below 1.5°C and avoid the worst impacts of the climate emergency. To achieve this, by 2030 emissions need to have reduced 45% below 2010 levels to remain on track for net zero emissions by 2050.

Image credit: McKinsey (mckinsey.com)
Image credit: McKinsey (mckinsey.com)

Indicators show that while progress is being made, decarbonisation rates need to *double for the 2030 target to be met.*

This not only requires rapid carbon emission reduction but carbon dioxide removal, ecosystem restoration and an equitable transition to a low carbon economy with social justice at its core.

We have less than 9 years in which to drive this transformation, which will require a radical rethink of our current economic system allocates value.

3.2 Biodiversity loss

Alongside climate change there is an interlinked, proportionally terrifying consequence of our unbalanced relationship with the planet: biodiversity loss and ecosystem collapse.

This is being driven by human activity relating to global homogenization of flora and fauna, repurposing of land for expanding human needs, species domestication for agriculture and technological advancement of fishing and farming.

Birds, mammals and amphibians are now going extinct 100 - 1000 times faster than in the millions of years before humans dominated the planet. In the last 500 years alone 869 species have been forced into extinction with 37480 species currently recorded as under threat.

IPBES Biodiversity Intactness Index
IPBES Biodiversity Intactness Index

The UN are seeking to develop a ‘Paris Agreement’ style moment for global biodiversity protection by developing a series of measurable goals. These will be debated and finalized in April 2022 at the UN Biodiversity Conference COP15 event in China.

The first goal seeks to cut extinctions by a factor of 10 by 2050, and to halt or reverse the current increase in extinction rate by 2030. Another goal has been dubbed “30 by 30”, which seeks to ensure at least 30% of land and sea areas are under conservation by 2030.

Complex biological systems are being destroyed to fuel the global economic paradigm driven by GDP and interest-bearing debt.

Restoring and sufficiently protecting our ecosystems will therefore require a whole new way of understanding and creating value. If this cannot be achieved then we are on track for a sixth mass extinction which will have devastating consequences for future generations.

4. Redesigning money to heal the earth

Effectively addressing both these crises requires a redesign of our entire economic system. We need to internalize negative externalities and protect the common resources that all of life depends upon. We need to recognize that we are not separate from each other or from the earth.

Despite the severity and urgency of these cascading existential crises, a promising solution is emerging, and it's about reinventing the core human construct at the heart of both of these crises:

Money.

Money is a human invention. Money has allowed groups of people to trust each other and work together for nearly 5000 years. It acts as a medium of exchange, a unit of account and a store of value, originally backed by physical resources of equal worth.

The only thing that distinguishes the value of a modern banknote from any other paper is trust.

If you look at the driving forces that underpin climate change and biodiversity loss you'll find money at the core. While many people think that money is inherently evil, money is not at fault—its designers are.

Our current economic system is designed in a way that accumulates wealth and power towards a concentrated elite without regard for its impact on the climate, natural systems or society as a whole. Money tells a story of extraction for profit—exploitation of people and natural resources.

It tells a story of a human self that is disconnected from the things that actually matter to human health and planetary wellbeing.

Money can be redesigned to tell a different story, one of reconnection, regeneration and planetary health. In this reframing, the story of money is redesigned to focus human efforts toward addressing climate crisis at scale and matures into ushering in a new era of human well-being, social justice, and harmony with the earth.

This is the regenerative finance hypothesis and the driving narrative behind the three pillars of ReFi.


5. Web3 + Climate

A small, innovative group of technologists at the fringes of the third evolution of the internet have made real progress in pursuit of redesigning money to heal the earth.

For those unsure about the various stages of the internet, Web3 is the movement catalyzed by the emergence of blockchain which has resulted in the creation of internet-native money—commonly referred to as cryptocurrency.

Smart contracts are a relatively recent evolution that leverage blockchain technology to unlock a sandbox of innovation. Smart contracts have enabled open source, programmable money—whose potential for innovation has been paralleled to the invention of the web page.

In the same way that the first and second age of the world wide web redefined much of society as we know it, this third evolution has the potential to disrupt much more than newspapers, hotel chains and taxi companies.

⛓️ Smart contracts and the blockchains they are built upon are the coordination tools we need to address the systemic issues of climate change, biodiversity collapse and social injustice.

Web3 technology provides the foundation for mission-driven communities to communicate shared values, define planet-positive objectives and coordinate large amounts of capital to catalyze a regenerative renaissance.

II. Three pillars of ReFi

We see a pattern emerging across the exploding number of projects experimenting in the ReFi space:

  1. Stabilize our climate - by reducing and removing greenhouse gas emissions—primarily through carbon markets
  2. Restore our ecosystems - by cultivating biological diversity—whose value is likely to be exchanged with carbon market infrastructure
  3. Institute social justice - by regenerating local economies rooted in communities of care

These three pillars provide a framework that can guide the ReFi movement towards its full potential. While there are many risks in pursuing each of these ambitions—our intent is not to outline the full scope of what can go wrong, but rather to highlight the potential of web3 communities to redesign money and heal the earth.

The rest of this article primarily focuses on the first pillar while providing a shorter overview of the second and third pillar.

1. Pillar I. Stabilize our climate

TL;DR

  • Crypto and climate action are compatible. Emerging, low carbon blockchains use ‘Proof of Stake’ (Celo) to secure the network, as opposed to more energy intensive ‘Proof of Work’ (Bitcoin).
  • Voluntary carbon markets face rapidly rising demand but face many challenges that blockchain technologies can solve.
  • The tokenization of carbon credits represents a game-changer in the space—creating a use case for carbon as a collateral asset.
  • Transparency and accountability is also addressed, preventing double counting and potential greenwashing.
  • Toucan and Klima DAO have demonstrated the extent to which ReFi can effect traditional markets
    • Over 5% of voluntary carbon market credits has been tokenized via Toucan since October 14
    • The ‘floor price’ of carbon has been raised by 2-3x as a result of the demand triggered by Klima DAO
  • Rising demand for on-chain carbon stimulates the capital to scale carbon dioxide removal technologies and develop scalable MRV (measurement, reporting and verification) systems

1.1 Seeing beyond Bitcoin’s energy use

An enduring perception of crypto is that it requires a massive amount of energy to function, with large emissions that contribute to the climate crisis. This perspective is largely due to Bitcoin—which continues to grab headlines for its massive carbon footprint.

Bitcoin’s Proof of Work is a proven, yet highly energy intensive mechanism for ensuring consensus about valid transactions on the network.

There are many blockchains built on the Proof of Stake mechanism which are 95-99.95% more energy efficient and are working to prove themselves at scale as we speak.

What makes Bitcoin energy intensive is its ‘Proof of Work’ approach to adding new blocks to its chain, known as mining. Computers compete globally to solve increasingly difficult puzzles to mine the next block, with this processing power requiring a lot of energy.

Many other blockchains however use a ‘Proof of Stake’ approach to adding blocks to their blockchain. Instead of computers competing to be the first to solve a puzzle, one computer is randomly selected to validate the next block.

Proof of Stake

A recent study demonstrated that ‘Proof of Stake’ uses 0.001% of the energy that Bitcoin’s ‘Proof of Work’ does. Polygon is one such ‘Proof of Stake’ blockchain, which has been gaining traction with multiple low carbon projects including Toucan and Klima DAO. The Polygon network consumes 0.00079 TWh annually, releasing just 0.0003kg of CO2 per transaction vs 945kg for Bitcoin.

Polygon is a sidechain to Ethereum (Proof of Work), so bridging activities and settlement is still more carbon intensive than a native Proof of Stake blockchain.

👀 We need to see the world clearly in order to address the climate crisis, so let us not overlook the transformative potential of blockchain as we scale climate crisis solutions in the coming decades.

It is therefore of key importance to not dismiss crypto solutions based on the assumption of high energy use. An unfortunate recent example of this is when a handful of vocal critics triggered the WWF UK to stop the sale of NFTs to support endangered animals. The antagonism arose due to concerns over high energy use, despite the project utilising the Polygon ‘Proof of Stake’ network.

This incident illustrates an underlying rift in values as society grapples with the complexity of calculating carbon emissions and how to value the negative externality of green house gases alongside biodiversity collapse and other issues such as social injustice.

Proof of Work & renewable energy

There is also an emerging trend about Bitcoin being a primary driver to renewable energy adoption and smart grid infrastructure innovation. Square’s “Bitcoin is Key to an Abundant, Clean Energy Future” highlights some of the ideas in this hypothesis and is worthy of note. Max Webster is one of the leading voices of this movement and is worth a follow.

While there aren’t many Bitcoiners currently in the ReFi movement to date, it’s important for all of us to dig beneath the surface of headline claims to understand the complex system change required to redesign money to heal the earth.

The key hypothesis of ReFi is “collaboration over competition.” Climate change is a coordination problem and we need to dispel our tribalist tendencies and work together to pave the way for a brighter future.

Carbon markets are the frontier of the ReFi movement with billions of dollars of volume and rapid, exponential growth.

1.2 Ineffective carbon markets

To reach the aims of the Paris Agreement, we desperately need solutions to accelerate CO2 reduction and removal. Article 6 of the Paris Agreement, agreed in December 2021, seeks to being greater clarity to the role of global carbon markets in driving this transformation.

These markets however currently remain fragmented and opaque, with multiple issues impeding their current effectiveness.

A key focus of the ReFi movement has therefore been on transforming the voluntary carbon market (VCM) so that it can scale with deep accountability and transparency. As organizations increasingly seek to reduce and offset their fossil fuel related emissions, voluntary carbon markets are projected to grow 15-fold by 2030 and up to 100-fold by 2050.

Key challenges to meeting this urgent, growing demand include:

  • Poor accounting, leading to issues like double counting, which can happen intentionally or as a lack of market alignment and standardization
  • Inefficiency — Brokers and traders taking up to 50% of the total value received by project owners; also, a lack of market mechanisms to enable effective price discovery to accurately value carbon of different times
  • Lack of liquidity — Brokers provide the facilities required to match supply and demand and there is no central market from which to source quality offsets
  • High compliance costs and barriers to entry, which exclude smaller or more remote projects from entering credits into the market
  • Issues of Monitoring, Reporting, and Verification - expensive implementation can lead to projects not offsetting the carbon they claim or permanently
  • Ensuring financial additionality - that the project would not have occurred without monetary incentive from the voluntary carbon market.
  • Stakeholder inclusion and equity, especially in projects in developing countries and those with indigenous populations

An additional issue facing VCMs is the pace of scaling future carbon reduction and removal solutions to deliver on the exponential growing demand for carbon credits.

Future credits will likely come from four main sources:

  1. Avoided nature loss, including deforestation
  2. Nature-based sequestration, such as reforestation
  3. Avoidance or reduction of emissions, such as methane from landfills
  4. Technology-based removal of carbon dioxide from the atmosphere

Scaling carbon

For nature-based solutions, current projects are concentrated in a small number of countries and will require significant additional land acquisition to grow at the rate required. For technology based removals, many of these remain at early stage of innovation still requiring many years of demonstration and deployment prior to large-scale commercial growth.

These issues restrict the potential supply of carbon credits from capturing 8-12 gigatonnes a year by 2030 to just 1-5 gigatonnes.

ReFi offers a key solution to fixing these challenges, using mission-driven communities and blockchain to propel carbon markets forward at the pace required to maintain the 1.5°C target.

1.3 Tokenizing carbon

1.3.1 Crypto and climate action meet the mainstream

The emergence of highly liquid tokenized carbon markets enabled by Toucan in partnership with Klima DAO has been the most visible, successful application of blockchain technology to real world problems to date. With coverage in WSJ, Wired and Carbon Pulse the pair are making headway to bring ReFi into the mainstream.

Tokenizing a physical asset involves creating a representation on the blockchain which creates a digital asset that can be programmed, monitored and exchanged. As more carbon credits become tokenized and move onto the blockchain, a myriad of compound benefits emerge, including:

  1. Project owners earn more for their planet-saving efforts
  2. Price discovery is accelerated
  3. Transparency and accountability increases
  4. Planet-positive projects become more economically viable

1.3.2 Tokenized carbon as a commodity asset

Up until the Toucan and Klima DAO launch, tokenized carbon experiments struggled to make significant traction. Toucan’s bridge and carbon pool design enables the creation of highly liquid carbon markets, where tokenized carbon credits are deposited into carbon pools to form a commodity asset—acting as collateral, enabling market speculation and therefore price discovery.

This means that anyone with an internet connection can now use carbon for two primary use cases:

  1. Fully transparent and public offsetting
  2. Collateral (speculation, investment, delayed offsetting)

By holding tokenized carbon credits of varying qualities, companies can hedge against the impact of a rising price of carbon. This will continue to increase demand and provide upward price pressure.

As price pressure increases, this creates greater incentive for companies to invest in deeper climate action. For example, it may become more cost effective to invest in decarbonizing operations and supply chains as the cost of carbon credits rise.

This price pressure can also boost financial support for earlier stage carbon dioxide removal technologies, which despite the urgency and severity of the crisis, currently lack the capital needed to scale due to the low price of carbon.

1.3.3 Caveats of speculation for capital formation

However, it’s important to note that the role of speculation in forming capital markets presents many challenges that need to be carefully addressed for the ReFi movement to succeed.

If ReFi doesn’t finance the best climate crisis initiatives on the ground—the movement will have failed.

If ReFi doesn’t directly result in mitigating and sequestering tens of gigatons of carbon dioxide emissions per year—the movement will have failed.

While it was spectacular to watch the market cap of Klima reach $1B in less than two weeks, the 16M tons accrued in its treasury to date likely resulted in only $30-50M of financing to project owners on the ground. This assumes that owners received on average $1.88 - $3.13 per ton after fees from registries and brokers. Given the older vintages of many of these credits, the actual number financed to projects may be even less.

Klima DAO has done a fantastic job of galvanizing an entire movement towards climate action, but as the treasury now looks to initiate inverse bonding, Klima’s “black hole for carbon” will soon reverse—dumping low-quality credits into the market in order to keep the protocol alive.

This highlights the challenges that the ReFi movement will face when attempting to leverage the ‘carbon as a collateral asset’ use case to scale climate action.

It also highlights the limits of mission-driven communities who also exist to accumulate personal wealth as a primary objective.

1.3.4 Improving transparency & accountability

The tokenization of carbon credits also addresses issues of poor accounting, transparency and scalability. However, it does not address many other carbon market and climate financing issues that need to be urgently addressed.

By bringing carbon credits onto the blockchain they become part of a transparent, publicly available registry that anyone with an internet connection can use verify offset claims. This means that all data relating to the carbon credit are all online at all times: the methodology used, its location and vintage.

🪙 As Toucan bridges carbon credits from multiple registries a ‘meta-registry’ spanning the entire VCM is created, providing one unified, transparent carbon market.

Right now, someone has to dig into a large PDF shareholder report to understand the validity of a corporate’s net zero commitments. If the vision of Toucan’s meta-registry is fulfilled, companies will have a single dashboard where anyone can verify the integrity of their net zero claims.

(A worthy aside: Norweigan company Ducky is partnering with Chainlink to bring carbon emissions data onto leading blockchains which will provide the emissions side of the net zero commitments to be verified on-chain alongside the offsets tokenized by Toucan. Having both emissions and offset data on-chain will provide a crucial improvement in accountability and transparency.)

1.3.5 Catalyzing MRV & enabling price discovery

Toucan’s tokenized carbon credits also retain essential data relating to measurement, reporting and verification (MRV), meaning that this data could also not only become more standardized and accessible across all registries and verification bodies—but it can also create more effective price discovery.

Right now the primary factor determining price is the age of the credit: The older the credit, the lower the price (typically). Age is a poor proxy for quality.

We need more effective measures of quality in order to accurately value the varying types of carbon credits being issued and their net planetary and societal impact.

Fortunately, tokenized carbon and the on-chain market incentives are driving the evolution of digital, decentralized MRV through the likes of Regen Network, Open Forest Protocol, and others which will enable more effective price discovery to incentivize climate positive behaviors and open up new markets.

1.4 The story of tokenized carbon

For several years, many initiatives have experimented with tokenizing carbon offsets. Regen, Nori and Moss are three incredible projects that have undertaken much of the hard, groundbreaking exploration of the space, providing the first examples for how tokenized credits can drive carbon market innovation.

Both Regen and Moss have chosen to work in synergy with KlimaDAO and Toucan Protocol to continue this carbon market evolution. Since October 2021, this partnership has provided expertise, boosted liquidity and helped scale of tokenized carbon markets in a way never seen before.

Regen’s ledger is designed specifically for ecological assets and has a large community of validators (some of whom are indigenous land stewards on the ground) that help secure the network and provide liquidity for Toucan Protocol and the resulting on-chain demand through Klima DAO and others.

Similarly, Moss’s deep impact in the Amazon has provided a large supply of high quality nature-based credits into the ReFi movement.The leadership at Moss have realized the crucial importance of a single, unified standard for on-chain carbon in order to scale their nature-based carbon solutions.

Moss’s decision to convert MCO2 to Toucan’s TCO2 standard reflects the value of a unified well-designed standard. It also highlights the collaborative nature of the ReFi movement at its finest. This stands in stark contrast to the competitive nature of Web2.

1.4.1 Wealth creation & climate action

The success of Klima DAO and Toucan represents the massive opportunity of tapping into two widespread motivations:

  1. Wealth creation & preservation
  2. Creating meaningful climate action

Understanding the dynamics at play here require a much deeper dive. Feel free to explore some of the deep dives into The KlimaDAO side of the story:

1.4.2 Financing the best projects

Toucan curated its first pool (BCT) in collaboration with Klima DAO, with the latter’s expressed purpose of ‘sweeping the floor’ serving to prevent greenwashing of low quality carbon credits used by corporates. BCT was just the starting point. The long-term ambition has always been to build infrastructure that will help finance the best climate crisis solutions.

Toucan’s focus on financing the most regenerative initiatives on the ground is important to emphasize in contrast to Klima DAO’s intentions, recently made clear, to focus is on building highly competitive markets in DeFi for maximum market productivity.

As a major milestone along this journey to finance the most planet positive projects, Toucan recently launched it’s second carbon pool solely for nature-based credits (NCT). This help meets the rising demand from offsetters and investors seeking high-quality credits with unique the benefit of on-chain accountability and transparency.


As the buzz around tokenized carbon has continued, other ReFi projects are seeking to harness the momentum propelled rising price of future carbon credits to scale more durable climate crisis solutions.

Solid World DAO and Eden DAO are two pre-launch examples seeking to address some of the climate financing challenges that restrict the future supply of carbon—both nature and technology based. The fact that both of these projects have voiced their intention to leverage Toucan infrastructure indicates the increasing likelihood that a unified on-chain carbon market will emerge in the near future.

These are just two shining examples that have the potential to bring crucial investment in the immediate future to finance climate crisis solutions before it’s too late. There is a large ReFi director of over 120 projects at the intersection of climate action and web3—many of whom are exploring carbon markets as a core vertical.

Our friend Nirvaan at Celo’s Climate Collective has produced a network map of this directory demonstrating the relationships between these 120 ReFi experiments...

Celo's Climate Collective Map of ReFi (WIP)
Celo's Climate Collective Map of ReFi (WIP)

1.5 Obstacles to scaling on-chain carbon

1.5.1 dMRV

It’s likely that decentralized MRV will be the next frontier—unlocking another key bottleneck required to scale carbon markets with deep integrity. Right now there are a small number of registries (Verra, Gold Standard, Climate Action Reserve, Plan Vivo, etc.) with a small number of staff who physically travel around the world to verify and issue carbon credits. This approach cannot scale to the level required to address climate change in a meaningful way.

The current system has large barriers to entry in terms of size and capital required to become a project that receives carbon credits in the legacy market. In order to scale we need to decentralize the process of measuring, reporting and verifying carbon credits—similar to how Airbnb enabled hosts of individual homes to compete with hotel chains.

A web3-native decentralized MRV platform with on-chain issuance could also address some of the core underlying questions around varying methodologies and their effectiveness.

1.5.2 Competing standards and fragmented liquidity

There has been a recent proliferation of carbon standards as more Toucan lookalikes emerge to take advantage of the opportunity presented by bringing carbon onto the blockchain. Given Toucan has over 85% market share for on-chain carbon, these new standards risk creating fragmentation that will affect liquidity, transparency and potentially accountability.

Flow Carbon

Flow Carbon is an exciting new venture that provides a ‘custodial’ alternative to Toucan’s bridge—specifically tailored for those that don’t want to deal with the complexity of managing private keys (an essential, but technical part of web3). Flow’s custodial model enables a ‘two-way’ bridge so that tokenized credits can be ‘unwrapped’ and brought back into the off-chain world.

This custodial model relies on the trust of a centralized entity in a specific state to perform traditional accounting functions to ensure the integrity of the market. This is likely to provide a vital function to onramp Web2 companies into the on-chain carbon market while Web3 continues to mature. But it is not without its downsides.

Web3 enthusiasts have expressed their concern for centralized custodial models as history has shown these to be vulnerable to censorship, regulation and corruption.

Flow is not just building a bridge. They are creating a vertically integrated carbon business including: Project financing, corporate carbon brokering services, a trading arm, and carbon pools with deep liquidity. They have plans to launch a DAO and token to manage the protocol and sponsor significant liquidity.

Based on rumored fundraising, strategy and early traction, Flow has the potential to play a significant role in scaling climate change solutions.

C3: An Arm of Klima DAO

The pseudo-anonymous Klima DAO offshoot C3 and “AI-based” Likvidi represent examples of competing on-chain carbon standards that prompt questions of integrity, transparency and legitimacy. C3 has openly described themselves as a Toucan fork with token incentives and automated bridging (provided by carbon trader Aither’s API access to Verra and Gold Standard).

Competition should be a welcome aspect of any market; however, the ReFi community should be wary of misrepresentation. It should also be skeptical of short-term, unsustainable liquidity incentives that will fuel arbitrage and highly speculative trading (as in the DeFi 1.0 Yield Farming trend).

Large amounts of capital for short-term incentives will inevitably make many DeFi traders and carbon brokers very wealthy; however, how much of this capital will flow to project owners who are fighting climate change on the ground?

We should also be wary of actors who hide behind fake names. The well-evidenced and sometimes toxic online disinhibition effect explains the lack of restraint represented by many pseudo-anonymous actors, as exhibited by violent social media posts and other aggressive communications.

A question of integrity

This pseudo-anonymous trend present in DeFi (where teams decide to use cartoon avatars and fake names for themselves) presents a threat to the trust-building process required to bring the legacy carbon market and corporate offsetters into the Web3 era.

How can we create an on-chain carbon market with deep integrity when core actors are able and willing to throw away their identities when things go wrong?

⁉️ Will the Fortune 500 be willing to interact with fake names and cartoon characters to fulfill their public net zero commitments?

1.5.3 Focusing on real climate impact

The challenge presented to the nascent ReFi movement is clear:

How can we create meaningful climate impact while avoiding the risks of engaging with the rapidly evolving world of Web3?

It seems to be very easy to make money in web3 these days...

It’s a lot harder to decarbonize the global economy and remove carbon from our oceans and atmosphere.

We need to be painfully focused on removing fossil fuels from our global supply chain and removing carbon dioxide from the atmosphere.

We should also look beyond carbon markets into the political process. How can we remove the grip of fossil fuel interests from our democracies? How can we empower people to influence local governments and enforce climate positive policies?

These are just a few of the many worthy questions for the ReFi movement to explore as we navigate the best way to stabilize the climate using the power of Web3.

2. Pillar II. Restore our ecosystems

Many of the world’s biodiversity hot spots are also potent carbon sinks, with avoided nature loss and nature-based removals assisting in the protection and expansion of natural systems. Additionally, one of the primary ‘co-benefits’ of nature-based carbon solutions center is about the impact on biodiversity.

It seems obvious therefore that the tokenization of carbon credits will lay the foundation for a much larger and broader natural capital asset market—of which biodiversity credits will be key.

2.1 Tokenizing natural capital

The parallel between tokenized carbon and tokenized natural capital is important to emphasize:

😮 We can now create transparent, programmable and digital representations of physical objects and even living beings—we can now create planet-positive money.

🧐 With the evolution of dMRV powered by communities, remote sensors and satellite technology—we will soon be able to monitor the health of individual trees and living organisms in order to create cryptocurrencies that incentivize ecosystem preservation and restoration at mass scale.

The power of this phenomena should not be ignored. This trend has the potential to stabilize the climate, restore ecosystems and cultivate a new era of social justice and equity.

Carbon is just the beginning. ReFi needs to harness this opportunity to protect and restore natural capital—including grassland, forests, coral reefs and all other essential habitats.

Presently, there are a few pioneering organizations that are working on tokenizing natural capital assets and the co-benefits of sequestered and mitigated carbon. Each project specializes in a particular part of the problem and is coordinating resources and information for greater impact.

Some of these pioneers include:

If we are able to work with land stewards to create and deploy these tokenized natural capital markets with significant liquidity, there is potential to create a multi-trillion dollar market that can remove tens of gigatons of carbon, restore millions of hectacres of ecosystems and cultivate social equity for billions.

While this might seem like a lofty and ambitious goal, this is the challenge of our time: How do we redesign the global economy to rapidly remove fossil fuels while caring for 8-9 billion people and the vast life on planet Earth that we depend upon?

Biodiversity represents one core measure of planetary health, but there are many more. We should move beyond the myopic focus of carbon and explore how we can redesign money to protect and heal the diversity of life on earth—including human life.

3. Pillar III. Institute Justice

The third pillar of the ReFi movement addresses the need for humans to design a just society that addresses the vast inequality and systemic biases that plague civilization as we know it. In an economic sense, it’s the emergence of vibrant local economies rooted in communities of care. These living systems connecting people and the planet would produce a resilient ecology of money that will not only stabilize our climate and restore natural ecosystems but also restore social capital in the form of relationships and trust.

One of the most promising mission-driven blockchains in this space is Celo. Rooted in regenerative economics inspired by the work of Charles Eisenstein, Celo’s mission is to enable a financial system that creates the conditions for prosperity for everyone, including our planet.

Screenshot of celo.org as of publishing
Screenshot of celo.org as of publishing

In August 2021 they launched a $100 million DeFi for the People initiative, seeking to make DeFi accessible to the 6 billion mobile phone users around the world. They are also focused on transforming remittance markets, enabling people to simply and affordably transfer value to loved ones around the world without steep fees from financial intermediaries and restrictions from nation states.

Celo is also a Proof of Stake blockchain that claims to be carbon negative—offsetting more emissions than it produces in it’s operation.

The world’s largest Universal Basic Income (UBI) experiment is called Impact Market and is currently being run on Celo as a living manifestation of the organization’s thesis. Self-described as a ‘decentralized poverty alleviation protocol’, Impact Market provides members of vulnerable communities with a basic income that is crowdsourced from people all over the world via the Celo blockchain—all using a simple interface on a smartphone.

As Tomer Bariach of Flori Ventures described in a recent interview on ReFi Podcast, the hypothesis is that when people have their basic needs met they are much less likely to devastate their natural environment in exchange for money. Intuitively, this makes sense.

Money is an excuse used by many to behave in ways that reflect our ‘rational self-interest’ that come at the expense of other people and the planet.

If we can provide people with their basic needs and cultivate vibrant local economies that support deep relationships—we may address the reason why people are cutting down trees and destroying vast ecosystems in the first place.

If we can make a just, equitable diverse, inclusive system, we may just find that the decisions we make benefit the many instead of the few—the earth as well as mankind.

ReFi is ready… are you?

The time to redesign money is here.
The time to address the climate crisis is here.
We have all the tools we need.

What are you waiting for?

Conclusion & call to action

Thank you for reading Part One of the “What is ReFi?” series! This wouldn’t have been possible without the help of my friend Dr. Anna Watson to bring this into a reader-worthy condition after my many months of meandering!

I wouldn’t be here if it weren’t for Klima DAO sparking this fire in me and for Rob at Toucan for responding to my offer of support after launch.

This movement is for you

If you’ve made it this far, you’re likely one of the highly motivated people willing to commit their lives to address climate change in a meaningful way. I’d love to help you get involved to this movement! 🙏🏼

Send me a DM on Twitter (@climateXcrypto) or a message on LinkedIN (John Ellison) with a short story and a description of what you’re after. I’ll do my best to help by connecting you to the right people in this incredible community!

As a part of my learning journey in Web3, I’ve decided to mint this article as an NFT and will offset all associated emissions with NCT. Any proceeds I receive will be used directly towards telling the story of ReFi and inviting more people to join us.

Thank you for this honor

It’s an honor to share some of what I’ve learned working at the intersection of climate action and web3. I’m very grateful to the communities of Klima DAO and Toucan for providing me with the opportunities to respond to climate change in a meaningful way.

Thank you to all the people who sparked ReFi Spring and ReFi Podcast which ended up becoming home to ReFi DAO amongst many other emerging initiatives.

This article just scratched the surface of the ReFi from one perspective—mine.

We all have a biases and blind spots. I’d be grateful if you’d help me see the world through your eyes as well as my own.

With love,

J
@climateXcrypto

Arweave TX
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Ethereum Address
0xCaD3887923B39cD2b0B6d13538C4ecB7C5EE9825
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