Impact investing is an investment strategy where investors look to generate not only financial returns but also positive societal or environmental outcomes. It focuses on supporting businesses and initiatives that are addressing the world's major challenges, like climate change, inequality, and poverty. Regenerative finance (ReFi), on the other hand, is a subset of impact investing that goes a step further to fund projects and companies that actively restore and replenish social, environmental, and financial systems. Today, regenerative finance is being built upon the foundation of blockchain technology, a decentralized, transparent, and immutable digital ledger. Leveraging blockchain in this realm brings significant benefits, including increased transparency, efficiency, and accessibility, along with the potential to democratize the investment landscape. In this article, we will explore three such innovative blockchains or infrastructures that are enabling the applications of ReFi.
Regenerative Finance (ReFi) is a rapidly evolving sector, providing a vast opportunity to benefit both investors and the environment, with Celo establishing itself as a hub. As a carbon-negative EVM-compatible blockchain, Celo offers unique features like native stablecoins (cUSD, cEUR, cREAL) and plans to back these with 40% natural capital backed assets, such as forest NFTs and carbon offset tokens. It has attracted significant entities like Kickstarter and Deutsche Telekom, thus creating demand for eco-friendly projects and pioneering the ReFi movement.
Celo's architecture is designed to encourage real-world impact. Features like mobile-first technology, native stable currencies, and carbon-negative status through automatic offsets from Project Wren contribute to its distinctiveness. It has enabled projects like Impact Market, the world's largest UBI project, aimed at poverty alleviation. The platform's Climate Collective has further plans to transition 40% of the Celo Reserve to tokenized natural assets.
However, building on Celo comes with liquidity challenges, considering more active financial communities exist in other ecosystems like Ethereum and Solana. To combat this, Celo is initiating a $100 million 'DeFi For the People' initiative, partnering with renowned DeFi projects like Curve, Sushiswap, and Aave. Despite these hurdles, Celo remains focused on its mission of building a regenerative financial system, aiming to serve as a unique platform for ReFi within a diverse, multi-chain ecosystem.
Chainlink is a revolutionary platform enhancing blockchain functionalities by connecting smart contracts to real-world data, events, and payments securely and reliably using oracles. The platform's broad applications range from climate markets to digital measurement, reporting, and verification (MRV), registries, exchanges, and more, fostering a dynamic climate ecosystem. A notable facet of Chainlink is the Community Grant Program, focusing on funding initiatives to reduce systemic risk in developed economies and inspire technological leaps in developing regions.
A critical initiative under the Chainlink Grant Program is the development of blockchain-based parametric insurance solutions for emerging markets. Collaborating with ACRE Africa and Etherisc, Chainlink aims to aid over 250,000 Kenyan smallholder farmers by providing affordable insurance policies to mitigate climate change effects. Another grant was issued to Green World for their project AIRS—a hybrid smart contract application using satellite data to incentivize individuals rehabilitating designated land areas by dispensing tokenized "regenerative carbon" assets as rewards.
The successful execution of these projects hinges on the quality of data infrastructure, which is paramount for hybrid smart contracts that rely on accurate real-world event confirmation. Chainlink is dedicated to creating this essential infrastructure, incorporating open-source satellite data, drones, and IoT devices to track various environmental factors. This data is pivotal for applications like carbon credit marketplaces, regenerative agriculture projects, and parametric insurance solutions, thus highlighting Chainlink's significant role in blockchain-based solutions.
The Polygon blockchain, previously Matic Network, is a layer two solution enhancing Ethereum's scalability and interoperability through rapid transaction processing and reduced fees. Polygon Labs plays a pivotal role in this ecosystem, driving the advancement of Regenerative Finance (ReFi) by developing protocols, fostering partnerships, and implementing blockchain technology in practical applications. The aim is to reshape economies to be more inclusive, sustainable, and resilient, with Polygon's proof-of-stake (PoS) chain serving as a key facilitator, hosting activities beyond carbon focus to areas like air quality, climate, biodiversity, soil, and water.
Polygon's PoS chain has supported several significant projects, notably the Toucan Protocol, the first carbon credit bridge on the network, among others like Nori Protocol, KlimaDAO, and Regen Network. In an impactful instance of ReFi innovation, Solid World announced the launch of liquidity pools for carbon markets on the Polygon network in May 2023. Efforts are also being made to accurately track supply chain emissions with the help of Interwork Alliance. A unique application of this technology is found in REBO bottles, which generate plastic credits on the Polygon network in real time as they are used.
Polygon's commitment to environmental sustainability is demonstrated by its efforts to reduce carbon footprint, marked by Ethereum's transition from proof of work to proof of stake, which significantly lowered the carbon emissions of the Polygon PoS chain. Polygon is also dedicated to offsetting its carbon emissions and going carbon negative for future transactions, thus setting a sustainability benchmark for other blockchain networks. Last September, at the Green Blockchain Summit 2, Polygon reiterated its commitment to driving ecologically sound, systems-focused economies, alongside its institutional collaborations in areas like Hedge Fund tokenization, showing its potential as a leader in the field.
In summary, impact investing and regenerative finance serve as influential forces aiming to create positive societal and environmental change alongside financial returns. Regenerative finance, an evolution of impact investing, seeks to replenish and restore the systems it engages, carving out a transformative path in the financial world. This revolutionary approach has found a sturdy ally in blockchain technology, with its unparalleled transparency, efficiency, and democratizing potential. We've examined three groundbreaking blockchain infrastructures that are fueling the applications of regenerative finance, each contributing to a paradigm shift in the way we invest and interact with the economic ecosystem. These innovations underline the potential of technology-facilitated regenerative finance to shape an inclusive, resilient, and sustainable future. Coinchange’s Research Team has written a 50+ page research report titled: Institutional DeFi in 2023, Regenerative Finance (ReFi): fostering adoption through blockchain innovation which will be published on July 14th. Sign up here to be the first one to receive a copy.
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