ReFi and the realization of a regenerative economy
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ReFi and the realization of a regenerative economy

Published Wed Nov 23 2022

KlimaDAO is widely recognized for its pioneering role in the nascent Regenerative Finance, or ReFi, movement, which is employing the Web3 tech stack to retool the global financial system so that it is in balance with the needs of the planet. As Forbes recently recognized, ReFi will be a key trend in 2023 and beyond. However, this endeavor is in fact part of a long tradition that goes at least as far back as the Industrial Revolution of the nineteenth century, when environmental thinking as we know it first began. More recently, since the publication of The Limits to Growth in 1972 and the growing awareness of scientific breakthroughs detailing our planetary limits through the 1990s and beyond, it has become increasingly apparent how urgent this retooling is.


One of the most influential recent thinkers in this domain is John Fullerton, founder and president of the Capital Institute. Fullerton coined the term 'regenerative economics’ to refer to a reimagining of economics and finance in service to all life. In the words of the World Economic Forum, in its article launching the Crypto Sustainability Coalition (which KlimaDAO partners with):

Regenerative economics focuses on the creation of systems that restore and preserve the physical resources essential for planetary well-being.

Rooted in systems thinking, Fullerton’s work on the regenerative economy is crystalized around the following eight principles:

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The eight principles of a regenerative economy

To ensure the economy has what Fullerton describes as ‘regenerative vitality’, these eight key principles must all be present. Importantly, Fullerton stresses that the principles work together in an integrated whole, overlapping and interacting. What follows is a brief overview of each of the principles, as well as a discussion of some of the ways that KlimaDAO specifically and the ReFi movement more generally can contribute to planet-scale regeneration.

1. In right relationship


Our species is one part of a complex, interconnected web of life and, while in some ways humanity has come to feel ‘separate’ from the natural world, in reality there is no distinction between 'us' and 'it'. We are all connected to one another and to all locales of our global civilization, and harm done to one part of that web affects the other parts. Thus, the scale of the human economy needs to be in right relationship, or synergistic collaboration, with the biosphere in which it is embedded. The decentralized internet we call Web3, which is diametrically opposed to the surveillance capitalism model that originated in Web 2.0, has at its core the aim for networks of individuals to construct better, less-mediated relationships across outmoded boundaries.

2. Views wealth holistically

True wealth must be defined and managed systemically in terms of the wellbeing of the whole. This can only be achieved through the harmonization of multiple kinds of capital beyond the conventional financial, material, and technological capital, to include social, cultural, and experiential capital. All of these forms of capital rest on the foundation of natural capital and, specifically, on healthy ecosystem functioning, upon which all life—inclusive of our human economies—depends. Outdoor apparel company Patagonia, led by renowned rock climber Yvon Chouinard, is an example of a large multinational company that is structured around a holistic view of wealth that recognizes the importance of these multiple types of capital to human and non-human flourishing.

3. Innovative | Adaptive | Responsive

Innovation and adaptability are essential qualities in a world where change is both constant and accelerating. Consequently, the entrepreneurial dynamism associated with a free enterprise system and the free flow of capital is recognized by regenerative economics as essential. However, both innovation and adaptability must be channeled in a way that is responsive to the changing dynamics and essential needs of systemic health rather than short-term individual desires. In 2018, Delton Chen, Joel van der Beek, and Jonathan Cloud published a paper in which they developed what they termed the Holistic Market Hypothesis and Chen’s vision of a ‘global carbon reward’. They stated that, rather than attempt to account for CO2’s negative externalities downstream (e.g. as a carbon tax), they should be accounted for in our currency—and thus our economy—itself. Famously, science fiction writer Kim Stanley Robinson runs with this idea in his novel The Ministry of the Future, but this is not merely fiction; Robinson believes this vision of the future is possible (see his 2020 article for Bloomberg) and, indeed, the ultimate vision of KlimaDAO is for KLIMA to become a carbon currency.


4. Empowered participation

In a successful interdependent system, all parts must contribute in some way to the health of the whole. Empowered participation means that each actor must be connected to the larger whole in a way that enables them to not only negotiate for their own needs but also contribute to the health and wellbeing of the larger system in which they are embedded. Empowered participation is a non-negotiable quality of systemic health for the entire system. The Ethereum and Decentralized Finance (DeFi) tech stack that ReFi builds on allows all people to transact across borders, with the barriers to entry being much lower than the traditional financial system. Web3 therefore provides the infrastructure to ensure the regenerative economy is able to foreground equity, in terms of, for example, including the Global South and all corners of the globe as full partners in an economically equitable future.

5. Honors community and place

Each human community consists of a complex mix of peoples, traditions, beliefs, and institutions shaped in unique ways by long-term pressures of geography, human history, culture, local environment, and changing human needs. Honoring this, a regenerative economy must nurture healthy and resilient communities and regions and respect their individual history and place. Therefore, while the eight principles apply to all places, each community must define how the overall pattern applies based on their own unique contexts. Providing co-benefits to communities alongside reducing carbon emissions is one way that ReFi can honor and foster specific communities at risk of being ‘left behind’ in global development. The proposal to access funding from KlimaDAO by SCB, Value Network Ventures, and the Bangladesh Bondhu Foundation (BONDHU) to generate digital carbon credits via the distribution of clean cookstoves to Rohingya Refugees in Bangladesh is an example of this in action.

6. Edge effect abundance

Creativity and abundance flourish at the edges of systems, where the bonds holding the dominant pattern in place are weakest. For example, there is an abundance of interdependent life in the salt marshes that grow where a river meets the ocean. A global coordination technology like Ethereum, and its scaling solutions such as Polygon, provide an obvious parallel here. Diverse communities spread across all corners of the globe have come together to create and continually refine a technology that has been characterized as the world computer. Such innovation is not possible for monolithic organizations or states. At the edges, the opportunities for innovation and cross-fertilization are the greatest. Working collaboratively across edges – with ongoing learning and development sourced from the diversity that exists there – has a transformative effect for both the communities where the exchanges are happening and for the individuals involved.


7. Robust circulatory flow

Just as the health of a human body depends on the robust circulation of oxygen and nutrients, economic health also depends on robust circulatory flows of energy and materials where the waste of one part of the whole is food for another (as in biological systems). This entails robust circulation of money outwards to all extremities of the system, as well as the robust circulation of accurate information. Moreover, a healthy economic metabolism also demands toxin-free material and financial inputs, while disposing of waste in a way and on a scale that does not undermine the health of the whole.


8. Seeks balance

Being in dynamic balance is essential to systemic health. Achieving this requires balancing paradoxes using ‘both/and’ thinking rather than ‘either/or’ thinking. Healthy systems harmonize multiple variables in a unified whole instead of optimizing single ones at the expense of others. For example, a regenerative economy seeks to balance analytical thinking with intuitive ways of knowing, and competition with collaboration. It also tries to balance efficiency and resilience, as well as diversity and coherence, and supports structures that balance small, medium, and large organizations in healthy hierarchy, all in service to the health of the whole. ReFi is a nascent space, but one of its emerging strengths is its focus on cooperation and on building the next generation of ‘money legos’ – ensuring that each individual protocol interacts in a transparent, and transparently good, way with the rest of the stack.

ReFi and the future of money

It is abundantly clear that the modern economy falls far short of meeting the principles detailed above. Climate change is a global-level coordination failure, and the economic system that evolved in the twentieth century, and amidst growing Greenhouse Gas emissions and failure to close the emissions gap, there have been devastating effects on the web of life. However, driven by rising population density and highly disruptive technologies such as the printing press and, more recently, the internet, human history has long been traveling toward cooperation at larger and larger scales. In harnessing the power of the decentralized internet to coordinate human action across the borders of nation states, ReFi can make the Web3 tech stack the bedrock technology of a regenerative economic system that emerges over the coming crucial decades. These are early days, but the vision is crystallizing and innovation is already well under way. The recently launched Sushi x KlimaDAO Green Fee integration offers a touchstone example.


Through its integration of KlimaDAO’s carbon token-retirement contract, the Sushi Decentralized Exchange (DEX) offers users on the Polygon chain the ability to instantaneously offset the impact of their actions. For a tiny fee, users can opt in via a switch to automatically compensate for the carbon emissions of their transactions. Through this programmatic offsetting, this new form of financial infrastructure allows for the offsetting of carbon and, more than this, for regenerative, climate-positive action: in fact, the average user is offsetting over a hundred times the climate impact of their transaction when they flick the Green Switch.

This integration is the first of its kind, leveraging Web3 primitives to unlock climate finance. Moreover, the amount of carbon that is offset scales directly with the number of Sushi DEX users that opt in to the Green Fee; tens of thousands of transactions means thousands of carbon credits are retired. Utilizing an energy-efficient and highly scalable stack, programmatic offsetting embodies several of the principles of regenerative economics introduced above. This modular architecture lays the groundwork for a future where programmable mitigation of carbon emissions in all areas of human systems is normal, allowing humankind to more easily achieve sustainable balance with the wider web of life that it is a part of.

Conclusion

The 2007 Stern Review drew people’s attention to the fact that climate change is “the greatest example of market failure we have ever seen”, and one of the foundational ideas behind KlimaDAO and KLIMA as a carbon currency is that this can be reversed:

To properly value carbon, we need to fully integrate the carbon market with the market, and we need to reward participation for those who participate in the carbon market with value or influence, or both.


Realizing the vision of a regenerative economy built on Fullerton’s eight principles will not be easy. However, Web3 has a clear role to play. KlimaDAO is building the technology to account for greenhouse gas emissions (and potentially other negative externalities) at source, as well as laying the groundwork for a financial system in balance with the planet. ReFi will be the base-layer infrastructure of a regenerative economics that will shape the next century, where money works in tandem with the web of life.

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