ReFi for the People: How Crypto Can Help Local Communities Help Their Ecosystems

A hyper-localized breed of regenerative finance hopes to use crypto not only to improve the world’s carbon footprint but improve lives’ of local communities.

AccessTimeIconFeb 24, 2023 at 3:12 p.m. UTC
Updated Sep 28, 2023 at 2:28 p.m. UTC
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Suriname, a country in the northern part of South America, has a truly remarkable credential: It is one of three carbon-negative countries in the world, along with Bhutan and Panama. More than 97% of the country of 600,000 is covered by dense tropical forest that has escaped the deforestation trap of its neighbors, meaning it absorbs more carbon dioxide equivalent emissions that it puts out.

Not even this tiny, out-of-sight and out-of-mind nation can escape the pressures of globalization. Its residents are increasingly turning to logging and deforestation, often illegal, to better their livelihoods. Its entrepreneurs are looking for a solution in crypto.

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A couple of projects in Suriname look to connect its indigenous communities, currently operating on the fringes of the financial and trade systems, with global markets through crypto. BioTara, founded and led by John Goedschalk, aims to “unlock the potential of Amazonia’s bio-economy by empowering local communities to engage in the global marketplace” through a franchising program. Locals set up manufacturing facilities that produce Amazonian goods, such as cosmetics, in a small-scale and sustainable way.

Blockchain is key in two ways, Goedschalk says. It provides “radical traceability and transparency by logging every step on-chain” while crypto directs the proceeds from the franchises ”to the communities who are often ‘unbankable’ or financially excluded and marginalized.”

ReFi renaissance

In the past year or so, crypto-hippies, climate scientists and everyone in between have been building what they’ve dubbed regenerative finance (ReFi). This breed of crypto project aims to build economic systems that revive nature instead of “degenerating” it and harming the people that live in it.

A lot of the efforts in this space have focused around carbon offsets or credits: financial instruments representing allowed carbon emissions or reductions in emissions (e.g., reforestation) traded in voluntary markets such as Gold Standard or Verra. These have often been found to be of low quality and offer no additional carbon reductions. The idea is that putting these assets on a blockchain brings transparency and traceability to an otherwise opaque market, boosting market participation along the way.

There is another idea: a hyper-localized brand of ReFi. Using technology, local communities can be organized to pool their resources in a governable 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 trustworthy systems of monitoring and reporting. Blockchains such as Cosmos, Hedera Hashgraph, Celo, Regen Network and Topl are key to this equation.

Exactly where the technology figures into some of these projects is somewhat TBD or to be built. Many of them, such as ReFi Barichara in Colombia, have started out focused on building regenerative ecosystems working with local communities, which is a huge undertaking. “The secret sauce is in the synergy between weaving projects and local communities,” said Antonio Paglino, who leads ReFi Barichara, another region of Colombia that is currently in the early stages of being “regenerated” through a collaboration between the local community and crypto.

Many of these ReFi projects are now at the stages where they are working out exactly how and where to add crypto to the mix.

But the model has just started to promulgate around the world, with seed-stage projects popping up anywhere from Suriname’s BioTara and KOKODao in Colombia to Shamba Network in Africa.

Investment obstacles

Putting this to work is not an easy process – and it is not immune to pitfalls common to traditional investment vehicles.

First, it is hard to convince investors to fund the projects. “Folks are looking for silver bullets as opposed to the step-by-step work of reconfiguring value and supply chains,” said BioTara’s Goedschalk.

The market for these tokens either doesn’t exist or is quite small, making investment into the projects a hard sell. The space needs “capital which is strategic, thoughtful, experimental and long-term oriented,” Lucia Gallardo, CEO of Emerge, a group building tech for sustainable impact, said.

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 utility and short-term returns that other Web3 [non-fungible token] projects offer,” said Ana Maria Mahecha, founder of KOKODao, which aims to protect small scale forests in Colombia.

Lessons from Toucan/KlimaDAO

For example, KlimaDAO and Toucan Protocol tried to turbo-charge carbon neutrality using blockchain – but dumping their carbon credits on crypto markets turned out to be a wilder ride than they had anticipated.

KlimaDAO is a major project in the broader ReFi space, which launched in 2021 with much fanfare and $17 million in funding. The idea was to create a digital reserve currency backed by natural assets, 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 would bring “transparency and market activity within what is currently an opaque, heavily intermediated market, while empowering everyday people to participate in climate action and scale this key market,” said KlimaDAO’s Natacha Rousseau.

Toucan did a “mass rebalancing” within a couple of months of its launch due to the risk of arbitrage between the different tokens it issued.

A few months later, millions in carbon credits had flowed into the system. Many of these were found to be related to long-dormant green projects of low quality. Because they could be traded for KlimaDAO’s token, which was valued more highly than the original Verra credits, traders could make a quick buck with little climate-positive effects. Verra eventually halted the tokenization of its retired offsets on Toucan in May 2022.

The storm passed, and KlimaDAO said in October it has locked in more than 18 million tons of carbon dioxide equivalents, or about 2% of Verra’s voluntary carbon market. Verra has also softened its stance, and it closed a public consultation on carbon tokenization in January.

Reality check

Protecting these community-driven ReFi projects from “degenerative” systems is a challenge in itself. “We need deeper discussions on underlying incentives and value dynamics to ensure we aren’t just digitizing and distributing the same processes that got us to where we are today,” Gallardo said.

This means that the space needs “deeper innovation” than simply digitizing or tokenizing natural assets and hoping the markets will work it out. Gallardo added 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 on-the-ground needs, such as the fact that many people don’t have smartphones so most crypto wallets are of no use to them, Mahecha said.

On top of that, each “indigenous community has its own idiosyncrasy, so the amount of individual work that needs to be done for a specific community to accept any of these ReFi tools is huge and very labor intensive,” Mahecha said.

Often, being accepted by these groups is not an easy process. Mahecha described the hesitancy of locals to participate. The particular region of Colombia she is working on has been ravaged by war for the past few decades, which only intensifies people’s guardedness towards strangers. Once they get to know the team and start seeing that the model works, they open their arms, she said.

Still, proponents of ReFi think they can truly make a difference in the world – and perhaps rehabilitate crypto’s ever-worsening image.

“We need to be collectively talking 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 to existing ecological initiatives does not automatically mean it is applied regenerative finance. [...] We must be intentional and thoughtful about how we are re-imagining value.”

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CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Eliza Gkritsi

Eliza Gkritsi is a CoinDesk contributor focused on the intersection of crypto and AI.


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