article Understanding ReFi: How can it improve voluntary carbon markets?

ReFi is to use money to motivate people to do things that are helpful to the ecology and to regenerate natural resources.

Currency (money) serves three purposes: a medium of exchange, a unit of account, and a store of value. The first two uses make money a great tool, and the third makes money a lifelong goal for many people. But when you think about it, the third use, “store of value,” is also a tool, a way currency issuers use to motivate the masses to achieve their goals. Every project based on blockchain technology can choose to issue coins. A good project can change the “purpose” side effects brought by coins (money), and make money better as a tool to serve people.

This article first briefly discusses the problems brought about by the modern monetary system based on the regulation of loan interest rates, and the innovation of the currency system by blockchain technology; secondly, from the perspective of blockchain project currency issuance, it discusses how to make money a tool and what is ReFi; finally Talk about how to use blockchain technology to solve the problem of voluntary carbon market in the ReFi track.

The Source and Regulation of Money: The Modern Monetary System

In modern society, the usage scenarios of money (fiat currencies, such as RMB, USD, GBP, etc.) are the most extensive in history. Money culture and consumerism make money supreme, and people spend a lot of time making and accumulating money. But when you look up one level, how did the money come and how was it distributed?

In the current economic framework, money comes from two sources: currency (printed by the central bank) and borrowing. The central bank, on the other hand, controls how much money you have by controlling the amount of money issued and adjusting interest rates (credit decreases when interest rates are high).

Credit is very important in the current monetary system, and short-term economic fluctuations are almost entirely determined by credit (interest rates). In the short term, the level of productivity (supply) is relatively stable, and the amount of credit directly determines the amount of demand. Let’s take a look at a short-term credit cycle: central banks lower interest rates and increase credit leads to increased spending, one person’s spending is another person’s income, increased income increases credit, which leads to further increases in borrowing, and the cycle goes on and on. Because the growth rate of expenditure is higher than the rate of commodity production, which leads to an increase in prices, when prices reach a certain level, in order to curb inflation, the central bank will increase interest rates and reduce borrowing, prompting more early repayments and reducing consumption.

In the short-term, the central bank can use interest rates to control the money in the market, but interest rates have little effect on the long-term economy. When economic growth and debt growth in each short-term credit cycle exceeds the previous cycle, credit conditions are getting looser, and despite borrowing a lot of debt, rising incomes and asset prices (caused by borrowing money to invest) keep borrowers in good standing . However, when debt service costs increase faster than income growth, credit begins to decline, a large number of defaults begin to occur, and financial crises occur. At this time, fiscal measures begin to intervene and use taxation to redistribute wealth, resulting in a further increase in the gap between the rich and the poor.

article Understanding ReFi: How can it improve voluntary carbon markets?

So you see, a modern socio-monetary system regulated by borrowing rates can have two outcomes, either economic growth or a lot of defaults. The goal of economic growth is feasible in the period of the industrial society. Large-scale stimulation of production has improved everyone’s living standards; but in the current period, the growth of the real economy has already reached a clear ceiling, and large-scale stimulation can only bring greater negative effects. External costs (a lot of natural resources are destroyed) and smaller economic benefits; and the result of a large number of defaults will not actually make the people who default directly pay, but will make the whole society pay, thereby further increasing the gap between the rich and the poor.

At this time of high inflation, low economic growth, and high unemployment, we do see various problems with the current monetary policy, so it will make people think further, how should credit-based monetary policy be improved?

In fact, the emergence of blockchain technology was originally designed to solve the credit problem in the current monetary system. During the subprime mortgage crisis in 2008, Satoshi Nakamoto hoped to design an electronic transaction system that does not depend on credit, so that each loan can be recorded in a single block. Due to distributed transparency and immutability, investors can See every loan record in the CMO. The blockchain provides a decentralized credit system for value transfer, which does not depend on human ethics, but on the calm calculation of computers. Everything is based on encrypted proof rather than credit.

Blockchain technology solves the credit problem, but introduces a new problem: when credit disappears and interest rates no longer work, how to regulate the economy in the encrypted world? What could the new monetary policy look like? When the goal of economic growth becomes unsustainable, what goals can be reintroduced?

Making money a tool: ReFi

Money is a purpose for most people. You go to work, do business, and track currency prices every day to make money; but from the perspective of monetary policy makers, money is a tool. It is to adjust interest rates) to control the amount of money in people’s hands, and then to motivate people to achieve the goals that policy makers want to achieve, such as economic growth, stable prices, stable employment.

After understanding this logic, let’s go back to the currency circle. In fact, every project party that can issue currency is a monetary policy maker. If he is smart enough, he can formulate his own monetary policy to motivate users to do what they want. Let users do things. For example: stepn, which is very popular recently, for you who run every day, you make money by running; it can also be said that the project party uses the incentive of making money to make you run every day (of course, the ultimate goal of the Stepn project party is not to make You go for a run, but running is at least an intermediate purpose).

Therefore, if a currency circle project party, it has a purpose for public good (such as protecting nature♻️, such as caring about your own health, such as helping others); the coins issued by yourself have multiple usage scenarios to maintain a certain Value; coupled with a beautiful and effective monetary policy, it can indeed motivate users to do good things through their own coins, which in turn will allow a group of people who do good deeds to make more money.

For the project party, its own currency can become a tool to motivate users to achieve certain goals. When the purpose of a project is to protect nature and biodiversity, it falls into the category of ReFi. ReFi (Regenerative Finance) is to use money to motivate people to do things that are helpful to the ecology and to regenerate natural resources. In fact, ReFi is not limited to the currency circle, but the carbon market is an rReFi market — using money to stimulate companies to reduce carbon emissions: by placing a price on a unit of carbon emissions, more companies can reduce carbon emissions; by placing a price on a unit of carbon emission reduction, it can encourage More projects doing more ecologically good things.

On-chain carbon market

carbon market

Since greenhouse gas emissions have negative externalities, reducing greenhouse gas emissions from the perspective of environmental economics needs to internalize the negative externalities brought about by emissions, so as to maximize the benefits of emission reductions for the whole society. The solution to the internalization of negative externalities needs to rely on government policies, comply with the principle of “who pollutes pays”, and determine that greenhouse gas emitters should pay a certain fee for the right to emit a certain amount of greenhouse gas. This process is called carbon pricing.

Carbon pricing mechanisms are generally divided into carbon taxes and carbon emission trading systems. There are essential differences between the two mechanisms in terms of emission reduction mechanisms: the former refers to the government specifying the carbon price, and the market determines the final emission level, so the size of the final emission is uncertain; the latter refers to the government determining the final emission level, which is determined by the market Carbon price, so the size of carbon price is uncertain. The carbon market we generally refer to specifically refers to the market that trades unit carbon emissions/emission reductions under the carbon emissions trading system.

According to whether the market is mandatory (performance), the carbon market can be divided into mandatory carbon market and voluntary carbon market; among them, the main participants in the mandatory carbon market are emission-control enterprises, and these enterprises are regulated by the government for their annual carbon emissions. It can only be controlled within the allocated carbon emission credit, and the excess will be fined. The trading products of the mandatory market are mainly carbon emission allowances: companies that have not used up their carbon emission allowances sell them to those that lack them (for compliance). Voluntary carbon market participants are mainly emission reduction projects/enterprises (sellers) and emission control companies (buyers), and the trading products are carbon emission reductions (carbon credits). For example, there is a project of planting trees and building a forest. After being certified by an international organization, it can sell its carbon credits in the voluntary carbon market, and the buyers are generally companies that must be controlled by the government. They can use carbon credits to Shift to increase your own carbon emission quota. There are also investors who specialize in investing in the carbon market.

article Understanding ReFi: How can it improve voluntary carbon markets?

Voluntary carbon markets currently have many problems:

  • It is an otc market, so it lacks transparency and liquidity. The price difference earned by middlemen accounts for about half of the income of emission reduction projects
  • Market mechanism without price discovery
  • Individuals other than institutions cannot participate
  • High barriers to entry due to high compliance costs and MRV costs

How does blockchain technology solve the voluntary carbon market problem?

Tokenization: Tokenize carbon credits. It should be noted here that the carbon credits of different projects are slightly different: for example, the carbon credits obtained through afforestation and the carbon credits generated by producing clean energy will be different; the quality of carbon credits is also different in different years, countries and regions. Therefore, the price of carbon credits after tokenization is also different.

carbon pool: put the carbon credits on the chain into tokens into different pools according to different standards (introducing DeFi tools)

tokenization+carbon pool– simulated exchange:

  • Facilitates increased carbon market liquidity and price discovery (via arbitrage)
  • By holding different kinds of carbon tokens, companies can also hedge against rising carbon prices
  • Can increase the use of carbon credits, such as as collateral for lending, combination with nft, transfer gifts, etc.
  • Can increase price transparency and two-factor authentication issues
  • The token itself has a lot of MRV (measurement, reporting and verification) data, which can help improve MRV efficiency and facilitate accurate initial pricing
  • Individual users can also access the carbon market


  • regen: registration bridge (responsible for the carbon credit on-chain process)
  • toucan: registration bridge (carbon credits on the chain) + carbon pool
  • Klima DAO: $KLIMA has a carbon credit token back, which itself is an ohm fork

For ReFi projects based on the carbon market, the value of the carbon token itself depends on the international standard of internalization of negative externalities, so the project party only needs to do the action of carbon on-chain to make its token come with its own price. However, how to stimulate the demand for Token to achieve the ultimate goal of allowing more people to do environmental protection is a common problem in current projects. At the same time, the process of carbon chaining is relatively slow because of the cooperation with international registration organizations (regiestries) and the offline dd process of projects. How to do decentralized MRV is also the current a difficulty.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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