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Crypto Moving towards ESG: What Is Regenerative Finance (ReFi)?

by Sergei Khitrov
  • Crypto's impact on ESG has recently become a point of contention.
  • The past decade has seen a growing interest in ESG issues among investors.
ESG
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Crypto adoption is unrelenting thanks to its decentralized nature, which means there is no single point of control or failure. Cryptocurrency is also global, so it can be used by anyone, anywhere. Additionally, transactions made with cryptocurrency are typically very fast and cheap.

But, it is still relatively new and thus very volatile. And, because crypto is not yet widely accepted, it can be difficult to find places to spend it. Most importantly, crypto's impact on environmental, social, and governance (ESG) has recently become a point of contention.

ESG Concerns of Crypto

The past decade has seen a growing interest in ESG issues among investors. This trend appears to be driven by many factors, including increasing awareness of the risks associated with climate change and other environmental issues, as well as a growing recognition of the importance of social and governance factors in creating long-term value.

When it comes to cryptocurrencies, ESG generally refers to a coin's impact on these three areas. For example, a cryptocurrency focused on energy efficiency would be considered to have a strong ESG profile.

So, lauded for their transparency and decentralization, cryptocurrencies have some ESG concerns, too, which need to be considered. For example, the reliance on electricity for mining can lead to environmental concerns, as can the lack of regulation around exchanges and the volatility of cryptocurrencies.

There has actually been increased focus on ESG in the crypto industry, which offers a potentially more sustainable and responsible way to invest in this new asset class.

Crypto Electricity Consumption

The electricity consumption of Bitcoin mining has been a controversial topic. Some estimate that it currently consumes more electricity than all of Ireland, while others claim it is not as bad as it seems. Regardless of the exact number, it is clear that Bitcoin mining requires a lot of energy.

According to a recent study, the overall electricity consumption of the crypto industry has increased significantly over the past year. But, the fact remains that the crypto industry is still in its infancy and is making efforts towards mitigating its impact on the environment while promoting global financial inclusion.

Already, steps are being taken to try to reduce the amount of energy consumed by cryptocurrency mining. For example, some mining operations are using renewable energy sources.

Another way these concerns are being eliminated is through the energy-efficient consensus mechanism Proof-of-Stake. The second largest cryptocurrency Ethereum recently shifted to the PoS algorithm, which has cut down its energy consumption by ~99.95%.

This update, called 'The Merge', has not only significantly reduced the amount of energy consumed by the network but also helped to improve the overall efficiency of the Ethereum blockchain.

Crypto Moving Towards ESG

As more and more investors seek to align their portfolios with their personal values, the crypto industry is moving towards ESG. ESG investing considers a company's environmental impact, its treatment of employees and other stakeholders, and its adherence to good governance practices.

Crypto projects that focus on sustainability, social good, and decentralized governance are becoming more popular, and there is increasing interest in ESG-themed crypto assets.

As the crypto industry matures, we can expect to see more projects and assets focused on ESG themes. This is a positive trend, as it will help to make the industry more sustainable and aligned with the values of a growing number of investors.

Besides PoS, another manifestation of the ESG trend is Regenerative Finance (ReFi), which focuses on building sustainability-related projects and helps build a more equitable and regenerative economy. Unlike traditional cryptocurrencies, which tend to be focused on speculation, ReFi projects are intended to be used for real-world applications.

The New World of Regenerative Finance (ReFi)

ReFi is an experiment with the potential to create financial incentives to draw down carbon emissions, regenerate the environment, and reverse climate change, which Messari commented about in a tweet. It requires capital to bring sustainable and positive change for all stakeholders. It basically redefines the user's relationship with wealth and the current financial system.

At the core of ReFi is equitable accessibility and distribution. It is a layered idea that promotes regeneration and preservation rather than exploitation.

ReFi is a crucial tool for fighting climate change and promoting sustainable development by investing in projects that improve the environment and provide social benefits. This way, ReFi can help finance the transition to a more sustainable future. Moreover, ReFi can also help create jobs and support local economies.

So, ReFi can take many forms, including green bonds, carbon offsets, and impact investing. In ReFi, the value of preservation/regeneration is first defined. Then by using blockchain technology, it is tokenized to be transformed into a tradable asset. At last, liquidity is generated for that asset through various applications of Web3.

For example, DAOs are decentralized organizations that run on smart contracts. They have the potential to revolutionize the way we do business. NFTs are non-fungible tokens that can represent digital or physical assets and are already being used in various ReFi applications; Impact-to-earn models allow users to earn rewards for participating in impactful activities; and, the Metaverse is a decentralized virtual world, which is a new frontier for ReFi and offers a unique platform for opportunities.

This space is fast growing, with more than 100 ReFi companies in existence today. We can divide all projects into the following categories:

  1. Impact-2-Earn (Dotmoovs, Sweatcoin, Sweetgum Labs)
  2. Metaverse (Climate guardians, Wildchain, Woodies)
  3. DAOs (EarthFund, Gitcoin, KlimaDAO)
  4. NFTs (Carbonable, MetaTrees, Sapling)

Recently, Gitcoin's Founder, Kevin Owoki send out a tweet announcing the creation of a venture capital studio that will be focused on building and funding regenerative Web3 projects. This initiative is a big step for ReFi, and as the ReFi movement gains momentum, we can expect to see more and more projects launch coins that are focused on sustainability and social good. So, this is a positive development for the crypto industry, which is sure to have a lasting impact on the world.

Conclusion

As the world increasingly turns its attention to ESG issues, the crypto industry is following suit with ReFi, which is designed to finance sustainability-related projects and help build a more equitable and regenerative economy.

Unlike traditional cryptocurrencies, which tend to be focused on speculation, ReFi is to be used for real-world applications.

With investors increasingly looking for ways to support projects that are working to positively impact the world, ReFi projects offer a way to do that while also earning a financial return. So, what does the future of ReFi hold? One thing is certain: the landscape is evolving rapidly, and new innovations are poised to upend traditional finance.

Crypto adoption is unrelenting thanks to its decentralized nature, which means there is no single point of control or failure. Cryptocurrency is also global, so it can be used by anyone, anywhere. Additionally, transactions made with cryptocurrency are typically very fast and cheap.

But, it is still relatively new and thus very volatile. And, because crypto is not yet widely accepted, it can be difficult to find places to spend it. Most importantly, crypto's impact on environmental, social, and governance (ESG) has recently become a point of contention.

ESG Concerns of Crypto

The past decade has seen a growing interest in ESG issues among investors. This trend appears to be driven by many factors, including increasing awareness of the risks associated with climate change and other environmental issues, as well as a growing recognition of the importance of social and governance factors in creating long-term value.

When it comes to cryptocurrencies, ESG generally refers to a coin's impact on these three areas. For example, a cryptocurrency focused on energy efficiency would be considered to have a strong ESG profile.

So, lauded for their transparency and decentralization, cryptocurrencies have some ESG concerns, too, which need to be considered. For example, the reliance on electricity for mining can lead to environmental concerns, as can the lack of regulation around exchanges and the volatility of cryptocurrencies.

There has actually been increased focus on ESG in the crypto industry, which offers a potentially more sustainable and responsible way to invest in this new asset class.

Crypto Electricity Consumption

The electricity consumption of Bitcoin mining has been a controversial topic. Some estimate that it currently consumes more electricity than all of Ireland, while others claim it is not as bad as it seems. Regardless of the exact number, it is clear that Bitcoin mining requires a lot of energy.

According to a recent study, the overall electricity consumption of the crypto industry has increased significantly over the past year. But, the fact remains that the crypto industry is still in its infancy and is making efforts towards mitigating its impact on the environment while promoting global financial inclusion.

Already, steps are being taken to try to reduce the amount of energy consumed by cryptocurrency mining. For example, some mining operations are using renewable energy sources.

Another way these concerns are being eliminated is through the energy-efficient consensus mechanism Proof-of-Stake. The second largest cryptocurrency Ethereum recently shifted to the PoS algorithm, which has cut down its energy consumption by ~99.95%.

This update, called 'The Merge', has not only significantly reduced the amount of energy consumed by the network but also helped to improve the overall efficiency of the Ethereum blockchain.

Crypto Moving Towards ESG

As more and more investors seek to align their portfolios with their personal values, the crypto industry is moving towards ESG. ESG investing considers a company's environmental impact, its treatment of employees and other stakeholders, and its adherence to good governance practices.

Crypto projects that focus on sustainability, social good, and decentralized governance are becoming more popular, and there is increasing interest in ESG-themed crypto assets.

As the crypto industry matures, we can expect to see more projects and assets focused on ESG themes. This is a positive trend, as it will help to make the industry more sustainable and aligned with the values of a growing number of investors.

Besides PoS, another manifestation of the ESG trend is Regenerative Finance (ReFi), which focuses on building sustainability-related projects and helps build a more equitable and regenerative economy. Unlike traditional cryptocurrencies, which tend to be focused on speculation, ReFi projects are intended to be used for real-world applications.

The New World of Regenerative Finance (ReFi)

ReFi is an experiment with the potential to create financial incentives to draw down carbon emissions, regenerate the environment, and reverse climate change, which Messari commented about in a tweet. It requires capital to bring sustainable and positive change for all stakeholders. It basically redefines the user's relationship with wealth and the current financial system.

At the core of ReFi is equitable accessibility and distribution. It is a layered idea that promotes regeneration and preservation rather than exploitation.

ReFi is a crucial tool for fighting climate change and promoting sustainable development by investing in projects that improve the environment and provide social benefits. This way, ReFi can help finance the transition to a more sustainable future. Moreover, ReFi can also help create jobs and support local economies.

So, ReFi can take many forms, including green bonds, carbon offsets, and impact investing. In ReFi, the value of preservation/regeneration is first defined. Then by using blockchain technology, it is tokenized to be transformed into a tradable asset. At last, liquidity is generated for that asset through various applications of Web3.

For example, DAOs are decentralized organizations that run on smart contracts. They have the potential to revolutionize the way we do business. NFTs are non-fungible tokens that can represent digital or physical assets and are already being used in various ReFi applications; Impact-to-earn models allow users to earn rewards for participating in impactful activities; and, the Metaverse is a decentralized virtual world, which is a new frontier for ReFi and offers a unique platform for opportunities.

This space is fast growing, with more than 100 ReFi companies in existence today. We can divide all projects into the following categories:

  1. Impact-2-Earn (Dotmoovs, Sweatcoin, Sweetgum Labs)
  2. Metaverse (Climate guardians, Wildchain, Woodies)
  3. DAOs (EarthFund, Gitcoin, KlimaDAO)
  4. NFTs (Carbonable, MetaTrees, Sapling)

Recently, Gitcoin's Founder, Kevin Owoki send out a tweet announcing the creation of a venture capital studio that will be focused on building and funding regenerative Web3 projects. This initiative is a big step for ReFi, and as the ReFi movement gains momentum, we can expect to see more and more projects launch coins that are focused on sustainability and social good. So, this is a positive development for the crypto industry, which is sure to have a lasting impact on the world.

Conclusion

As the world increasingly turns its attention to ESG issues, the crypto industry is following suit with ReFi, which is designed to finance sustainability-related projects and help build a more equitable and regenerative economy.

Unlike traditional cryptocurrencies, which tend to be focused on speculation, ReFi is to be used for real-world applications.

With investors increasingly looking for ways to support projects that are working to positively impact the world, ReFi projects offer a way to do that while also earning a financial return. So, what does the future of ReFi hold? One thing is certain: the landscape is evolving rapidly, and new innovations are poised to upend traditional finance.

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