Can Crypto’s Regenerative Finance Movement Help Communities Manage Their Carbon Footprints?
Not even this small, out of sight and out of mind nation can escape the pressures of globalization. Inhabitants are increasingly resorting to logging and deforestation, often illegally, to improve their livelihoods. The entrepreneurs are looking for a solution in crypto.
A couple of projects in Suriname look to connect its indigenous people, who currently operate on the fringes of the financial and trading systems, with global markets through crypto. BioTara, founded and led by John Goedschalk, aims to “unlock the potential of Amazonia’s bioeconomy by empowering local communities to engage in the global marketplace” through a franchise program. Local people set up production facilities that produce goods from the Amazon, such as cosmetics, in a small-scale and sustainable way.
Blockchain is key in two ways, says Goedschalk. It provides “radical traceability and transparency by logging every step of the chain” while crypto directs the revenue from the franchises “to the communities that are often ‘unbankable’ or financially excluded and marginalized.”
Over the past year or so, crypto-hippies, climate scientists and everyone in between have been building what they’ve called regenerative finance (ReFi). This type of crypto project aims to build economic systems that revive nature instead of “degenerating” it and harming the people who live in it.
Much of the effort in this area has focused on carbon offsets or credits: financial instruments representing permitted carbon emissions or reductions in emissions (eg afforestation) traded in voluntary markets such as Gold Standard or Verra. These have often been shown to be of low quality and provide no further carbon reductions. The idea is that putting these assets on a blockchain brings transparency and traceability to an otherwise opaque market, increasing market participation along the way.
There is another idea: a hyperlocalized brand of ReFi. Using technology, communities can be organized to pool their resources into a manageable organization, building ecosystems that can avoid extractive systems. In the BioTara example, blockchain brings supply chain traceability and crypto facilitates access to global markets.
In others, blockchain and tokenization either enable the formation and governance of these organizations or create reliable systems for monitoring and reporting. Blockchains like Cosmos, Hedera Hashgraph, Celo, Regen Network and Topl are key to this equation.
Exactly where the technology figures into any of these projects is somewhat TBD or to be built. Many of them, like ReFi Barichara in Colombia, have started with a focus on building regenerative ecosystems in collaboration with local communities, which is a big task. “The secret sauce is in the synergy between weaving projects and communities,” said Antonio Paglino, who heads ReFi Barrichara, another region in Colombia that is currently in the early stages of being “regenerated” through a community-crypto collaboration. .
Many of these ReFi projects are now in stages where they are working out exactly how and where to add crypto to the mix.
But the model is just beginning to be published around the world, with seed-stage projects popping up anywhere from Suriname’s BioTara and KOKODao in Colombia to The Shamba Network in Africa.
Making this work is not a simple process – and it is not immune to pitfalls common to traditional investment vehicles.
Firstly, it is difficult to convince investors to finance the projects. “People are looking for silver bullets as opposed to the incremental work of reconfiguring value and supply chains,” said BioTaras Goedschalk.
The market for these tokens either does not exist or is quite small, making investment in the projects difficult to sell. The space needs “capital that is strategic, thoughtful, experimental and long-term oriented,” said Lucia Gallardo, CEO of Emerge, a sustainable impact group building technology.
At the same time, attracting investment from public crypto markets is often not a suitable option. “Web3 ‘degens’ expect to find in ReFi projects the same benefit and short-term return as other Web3 [non-fungible token] projects offer,” said Ana Maria Mahecha, founder of KOKODao, which aims to protect small-scale forests in Colombia.
For example, KlimaDAO and Toucan Protocol tried to turbocharge carbon neutrality using blockchain – but dumping their carbon credits on crypto markets turned out to be a wilder ride than they expected.
KlimaDAO is a major project in the broader ReFi space, launching in 2021 with much fanfare and $17 million in funding. The idea was to create a digital reserve currency backed by natural resources, specifically carbon credits/offsets. KlimaDAO used on-chain carbon offsets issued by another protocol, Toucan, which takes off-chain carbon credits from Verra into its polygon-based platform.
Together, KlimaDAO and Toucan will bring “transparency and market activity within what is currently an opaque, heavily intermediary market, while empowering ordinary people to participate in climate action and scale this key market,” said KlimaDAO’s Natacha Rousseau.
A few months later, millions in carbon credits had flowed into the system. Many of these were found to be related to long-dormant low-quality green projects. Because they could be exchanged for KlimaDAO’s token, which was valued higher than the original Verra credits, traders could make money with little climate positive impact. Verra finally stopped tokenizing its retired displacements on Toucan in May 2022.
The storm passed, and KlimaDAO said in October that it has locked in more than 18 million tonnes of carbon dioxide equivalent, or about 2% of Verra’s voluntary carbon market. Verra has also softened its stance, ending a public consultation on carbon tokenization in January.
Protecting these community-driven ReFi projects from “degenerative” systems is a challenge in itself. “We need deeper discussions about underlying incentives and value dynamics to ensure we’re not just digitizing and deploying the same processes that got us to where we are today,” Gallardo said.
This means the space needs “deeper innovation” than simply digitizing or tokenizing natural resources and hoping the markets will sort it out. Gallardo added that there are particular gaps around data collection to assess the impact and unintended consequences of projects.
There is often a “disconnect” between the Web3 projects and the needs on the ground, such as the fact that many people do not have smartphones, so most crypto wallets are of no use to them, Mahecha said.
On top of that, each “indigenous community has its own idiosyncrasies, so the amount of individual work that needs to be done for a specific community to accept any of these ReFi tools is enormous and very labor intensive,” Mahecha said.
Often it is no easy process to be accepted by these groups. Mahecha described local people’s reluctance to participate. The particular region of Colombia she works in has been ravaged by war for the past few decades, which only heightens people’s wariness of strangers. Once they get to know the team and start to see that the model works, they open their arms, she said.
Still, supporters of ReFi believe they can really make a difference in the world – and perhaps rehabilitate crypto’s ever-deteriorating image.
“We need to collectively talk about regenerative finance at all levels – from peer-to-peer relationships all the way up to the international macroeconomic landscape,” Gallardo said. While blockchain can help with some of this, integrating crypto into existing ecological initiatives does not automatically mean that regenerative finance is being used. […] We need to be intentional and thoughtful about how we recreate value.”
