Fiat currency derives its value from the laws of supply and demand, assigning economic value to goods and services. (Most) cryptocurrencies largely follow the same logic. What these models are not particularly good at doing is encompassing other types of value; social, environmental and ethical. Perhaps that’s why the unintended consequences of transactions are known as “externalities,” as if the effects on air and water quality, for instance, of a company’s work has zero impact on the company’s costs down the line or the people running the operation.
“Everything that you buy has a certain financial price, but none of the planetary, none of the ecological impact is calculated into that,” said Christian Shearer, co-founder and chief investment officer of Regen Network.
On top of that, the complexity of modern economies makes it very difficult to assess the impact of any transaction. How can any individual track the environmental or social implications of a good with components from 43 countries in six continents, made out of materials sourced from several other places? (That’s your iPhone, by the way.)
For natural assets this complexity is often solved by centralized entities. Carbon credits, which try to create market incentives for positive steps in the capture or avoidance of greenhouse gasses depend on intermediaries, are traded on what is known as voluntary carbon marketplaces, which in turn become referees for evaluation and verification. This often means a lack of transparency, which has led to serious criticism of their efficacy, and rebuttals from the marketplaces.
Underlying the pursuit of this transparency is the belief a measurable impact can eventually be mitigated. So the question is, how do we measure the true cost of our economic activity?
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The idea: Regen Network
Back in 2017, Gregory Landua, Christian Shearer and Brecht Deriemaeker were sustainability consultants who saw crypto as a possible solution to the lack of transparency in transactions that hampered environmental accountability.
The three men worked together at Terra Genesis International, which Landua founded and then led. The consultancy continues today to work with companies looking to improve the sustainability of their supply chains or products but also works in broader regenerative agriculture projects. Previous work includes sourcing rubber for Timberland, Vans, and the North Face.
In this consulting work, the three men felt “that there was a real lack of digital infrastructure to be able to account for ecological health,” Landua said. A lot of the time, the regenerative projects they were working on would be composed of stakeholders “who all broadly agreed that they wanted something to happen,” such as carbon neutrality, soil health or biodiversity, he said.
The process used to generate trust about such ecological impacts was “archaic,” “opaque” and “rife with perverse incentives,” he said. This meant that “even when you have all of these stakeholders who have really good intentions, our observation was the majority of the time projects and outcomes failed to be met,” Landua said.
Amid the initial coin offering craze of 2017, new ideas around money and its role in societal systems were becoming mainstream, said Landua. The blockchain ledger, with its key attributes of transparency and immutability, seemed like the right technology to try to tackle some of the foundational issues around ecological assets. It could dissolve some of the opacity of carbon markets and be used to build consensus around ecological outcomes. Landua, Shearer and Deriemaeker decided to start Regen Network to bring the power of the blockchain to environmental accountability.
How it works
The technology the three founders and their team have built is essentially a tailor-made blockchain to mint ecological assets. What is more, the methodologies of capturing data and distributing value related to these assets are also stored on the blockchain for everyone to see. Once digitized and on the blockchain, buyers of ecological assets will be able to choose the ones that fit their needs, as well as audit the methodology behind their claims and therefore their efficacy.
Regen Network is a layer 1 blockchain, meaning it is the underlying technology that makes up the network. It defines the consensus mechanism used to record transactions on the ledger, who can participate in it as well as other fundamental components.
The blockchain is developed on the Tendermint consensus architecture, which also underlies the Cosmos blockchain. This architecture describes a public blockchain, meaning that it is open to participation, using proof-of-stake consensus. It is agnostic to the programming language used.
One of Cosmos’ key advantages is that it can be used to build application-specific blockchains, just like Regen Network. By contrast, on the Ethereum network, specific applications are built as layer 2 applications, while the processing of transactions and consensus happens in layer 1.
Regen’s digital ledger is built to house three types of protocols crucial to ecological accounting, according to its white paper.
- Ecological State Protocols, which “define the algorithms and conditions necessary to verify a certain state or change of state on a piece of land”
- Ecological Contracts, which “fund and reward desired change in ecological state”
- Supply Protocols, “which tie ecological state into supply chains in trusted ways”
Initially, Regen will “steward” the creation of these protocols, bringing together developers and scientists.” First, they are working on carbon sequestration. The Regen Marketplace, where ecological assets are traded, launched in October, and so far has only included carbon credit projects. More types of protocols are proposed in the white paper, involving grassland health, regenerative agriculture and blue carbon, such that more climate-positive behavior is incentivized.
The different types of protocols will also take into account methodologies for measuring environmental attributes and outcomes, such that buyers of the assets can discern exactly what they are getting themselves into.
The governance of a blockchain ecosystem is vital to its mission. Without proper governance it is likely to fall into the same pitfalls of the intermediaries it is working against – centralization, opacity and ineffectiveness.
Regen Network is, like other projects, initially governed by a centralized entity, chosen by the founders. A for-profit entity manages the token issuance and sale of its native crypto, REGEN. The founders have set up a nonprofit organization, the Regen Foundation, to be an independent guardian of the network. The Regen Consortium manages the foundation, which is open even to non-token holders.
The Regen Foundation is based in the U.S. The point of the foundation is not to raise money, but to “give power to network participants, like indigenous people, rights-of-nature organizations, scientists and activist groups, who actually need to be part of generating the trust system,” said Landua.
The foundation’s members were initially appointed and now rotate, with the consortium’s vote.
Currently, the consortium members, who are mostly in regenerative agriculture, are looking for more crypto-native organizations to join, said Szal. The consortium governs 5 million of Regen’s token, which “enables us to maintain at least 35% voting power in locked governance DAOs [decentralized autonomous organizations]” to “optimize for community engagement in the governance of the blockchain,” according to the white paper.
Having non-token holders participate in the governance process is an unusual call for crypto. It “is clear that the distinct communities of users who may be unable to purchase tokens” should also have a seat at the table, said the white paper.
The governance system may not be perfect, but the team did its best to “create appropriate decentralization and checks and balances among a set of actors, and not just have it be like, ‘Oh, these VCs [venture capitalists] own all of this’,” said Landua.
The crypto conundrum
Realizing this vision is something of a Catch-22. The whole idea is to build a novel system of value, beyond economic incentives. In order to do that, Regen Network needs to work within the current system – which, by definition, doesn't align with its goals.
VCs usually look upon the size of the market, the speed of the return on their investment and the possible risks. A project that is literally trying to redefine economic value away from money likely doesn’t score well in most of these categories.
“We're not selling an easy hype story, we're selling a story around creating public open infrastructure, that should by its nature, not [be] extracting as much value from participants as possible,” said Landua.
For investors whose “primary goal is just to extract as much money out of a system as possible, Regen Network is decidedly not the right thing [...], because the whole premise is that that is not the way to build these public goods markets,” he said.
Shearer explained why it’s “frustrating” to bring investors on board: Especially in the blockchain space, often people are asking, “Why are you building this green thing? It just seems like some sort of charity effort. That doesn't sound like it's gonna make me much money. [...] Maybe I'll give it a donation sometime.”
But to him, “ecological assets have to become an incredibly important asset class in this century. Because if they don't, we're all doomed,” he says. “Carbon is already stepping up and showing that it's becoming an important asset class. Biodiversity is gonna be right on its heels – water quality, these types of things.”
If Regen’s bet pays off, which will likely require a good amount of government policy, natural capital and ecological assets will be “a multi-trillion dollar industry that's being born before our eyes,” says Landua. So even “a small responsible percentage of that is “a crazy amount of capital.”
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