What is Regenerative Finance and How Does It Work?
What do you get when you mix finance, Web3, blockchain, cryptocurrencies and ESG into one overall vertical? Perhaps, Regenerative finance.
Also known as ReFi, regenerative finance is both a movement, trend and solution to potential modern problems in regard to how people, globally, can access financial solutions – and how they give back to the world in the process.
It is not only a case of providing an additional banking solution to a fast-adapting global economy but also potentially bringing a more sustainable and charitable approach to the finance world.
Naturally, there are equally many challenges and disadvantages to the evolving concept of ReFi.
In this article we will give more details on regenerative finance, or ReFi, review advantages and disadvantages, how ReFi essentially works and how you can potentially take part.
Sounds interesting? Let's get started.
Table of Contents
What Is Regenerative Finance?
Some may self-proclaim that regenerative finance, or ReFi, is a transformative approach to finance – In theory, this could be true, however, it is equally important to follow how it’s working in practice.
A very new concept, ReFi aims to shape a world of finance which goes beyond the goal of just profits but actively contributes to causes which affect the globe and those of us within it.
As globalisation becomes a potential reality, it perhaps becomes more important to consider how our financial economy can contribute naturally to the regeneration of ecosystems and communities, overall.
Much like ESG (Environmental Governance Social) standards, also a new structure being introduced into global economy and finance, ReFi aims to go beyond traditional financial strategies and instead, align financial practices with sustainable principles.
Sounds ideal, right?
Yes – however, any such grand movement always comes with, equally, its challenges and disadvantages, which we will go through later on.
To further introduce the concept and answer the question, what is regenerative finance, let’s take a closer look at the technology behind ReFi.
Potentially to no surprise, the ReFi concept revolves both directly and indirectly around blockchain technology. After all, modern problems require modern solutions.
While we’ve touched on the ‘why’ of regenerative finance, sustainability goals, let’s connect this to the ‘how’.
The use of blockchain in ReFi will potentially contribute to the goal of sustainability given the core of blockchain technology – Transparency.
Using blockchain for overall ReFi solutions in finance could allow value flows and democratic decision-making to be both secure and transparent to the involved community.
Blockchain technology can be seen as ‘borderless’, giving the potential for more accessibility to financial solutions, to anyone with an internet connection.
Let’s take a deeper look at how regenerative finance works.
If you'd like to learn more about the financial markets, blockchain topics and investing, feel free to register for one of the upcoming Admiral Markets' webinars - Click the banner below:
How Does Regenerative Finance Work?
With a general understanding of what regenerative finance is, how does ReFi work?
With the concept of regenerative finance (ReFi), as outlined above, connected to the blockchain, this technology essentially supports the concept by providing a backbone to a transparent and accountable ecosystem.
Blockchain technology is based on a decentralized digital public ledger, typically allowing access to all members, or participants, of the given blockchain community.
There are multiple existing concepts of how blockchain supports transparency, security and efficiency, all of which are applicable to meeting the potential goals of ReFi.
Below we will list the existing concepts which can potentially be utilised in the new world of regenerative finance:
Smart Contracts
Smart contracts, also known as self-executing contracts, describes the concept of contracts based on code in the blockchain which are both mutual and transparent between the involved parties.
Such contracts from a financial perspective can act in both automating and ensuring compliancy of any given investment which serves the regenerative or sustainable bottom line of the given investment or fund.
The ideal result of such is that via blockchain, individuals can invest securely and transparently into businesses or initiatives which align with overall ESG goals.
DAOs
DAOs, or Decentralized Autonomous Organizations, are considered self-governing entities amongst various verticals and causes, with their functional organization being based on the blockchain.
Smart contracts and DAOs work together in the sense that the existing DAOs utilize smart contracts in order to facilitate any financial decisions.
The given DAO, in principle, should have the overall goal of transparency and security.
In theory, decentralized finance, or DeFi, is a collaborative concept which follows the same theoretical principles.
Tokenized Assets
Another concept some may be familiar with in regard to blockchain technology is tokens, or tokenized assets.
Blockchain facilitates the creation of tokens, tokenized assets and cryptocurrencies – From a broad spectrum, you could consider them all one-in-the-same. That statement would be both correct and incorrect.
In practice, all of the aforementioned are digital assets, however their basis on the blockchain may differentiate – Ethereum blockchain, and the Polkadot blockchain, among others.
To further elaborate on how tokenization assists in the goal of ReFi, we will give the example of fractional ownership.
Much like the concept of fractional shares or fractional investing, fractional ownership allows the democracy of shared value within a given fund or initiative.
As promising as ReFi sounds, there is also the opposing side – Let's review both the advantages and disadvantages of regenerative finance.
If you'd like to start trading or investing with a reliable and reputable online broker, you can register for a free demo account with Admiral Markets - Click the banner below to get started:
Advantages and Disadvantages of Regenerative Finance
Advantages of Regenerative Finance (ReFi):
Sustainability: Typically speaking, the goal of regenerative finance is to support projects and initiatives with sustainable practices.
Global Positive Impact: The concept of ReFi focuses on investments that actively contribute to the regeneration of ecosystems, communities, and the global economy, reflective again of ESG principles.
Social Responsibility: Given the theoretical nature of the ReFi concept, investors or participants would prioritize societal economic development.
Transparency: As the technical basis of ReFi projects or initiatives is based on blockchain, the transactions are typically transparent.
Disadvantages of Regenerative Finance (ReFi):
Early to Invest: Given the ReFi vertical is very new, there are limited direct opportunities to invest via traditional markets.
Risk and Volatility: As with any new vertical or industrial movement, market volatility and regulatory changes make this area highly risky.
Greenwashing: Where one can work for positive change, another can manipulate it. Greenwashing (false representation of green principles) is an ongoing issue in the process of ESG global adaptation, providing a higher potential risk for direct ReFi investments.
Lack of Metrics: It is too soon to tell the direction of regenerative finance, given there is too little data to understand how it will essentially establish itself in the world of finance. Lack of data always increases risk in any investment.
How to Invest in Regenerative Finance
As mentioned above, given the immature market potential of regenerative finance, there are limited ways to directly invest.
Indirectly, one can consider ESG stocks, DeFi stocks, cryptocurrency CFDs, amongst other financial instruments.
In any trading activity, it’s always crucial to first establish your risk tolerance, which in turn will influence your trading strategy.
It is always recommended, if an inexperienced trader, to first register a demo account with Admiral Markets – You can practice with virtual funds, without risking capital.
You also have the option to register a free live account and start trading today with real capital - Click the banner below to start trading today:
What is ReFi?
ReFi in finance stands for 'regenerative finance', which is the overall relatively new concept of an alternative financial system which highly values contributing to the environment, social issues and overall financial wellness of the community within this ecosystem. The processes of ReFi are heavily reliant on blockchain technology.
What is an example of regenerative finance?
An example of regenerative finance could be a given fund or project which actively invests capital directly into clean energy projects, or more specifically, blockchain-based carbon-offset projects.
Other Articles of Interest:
INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets' investment firms operating under the Admiral Markets trademark (hereinafter “Admiral Markets”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on Brandie E Blackler, Financial Analyst, personal estimations.
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.
