Blockchain and regenerative finance: charting a path toward regeneration

Abstract

The Regenerative Finance (ReFi) movement aims to fundamentally transform the governance of global common pool resources (CPRs), such as the atmosphere, which are being degraded despite international efforts. The ReFi movement seeks to achieve this by utilizing digital monitoring, reporting, and verification (D-MRV); tokenization of assets; and decentralized governance approaches. However, there is currently a lack of a clear path forward to create and implement models that actually drive the “Re-” in ReFi beyond perpetuating the existing extractive economics and toward actual regeneration. In addition, ReFi suffers from growing pains, lacking a common interoperability framework and definition for determining what a ReFi project is and how the individual components align toward the grand ambition. This paper provides a definition of the ReFi stack of interconnected components and examines how it can address limitations in climate change accounting, finance and markets, and governance. The authors also examine the theory of regenerative economics and CPRs to encourage further discussions and advancements in the ReFi space. The crucial question remains if and how ReFi can drive a change in paradigm toward the effective regeneration of global CPRs.

Full text

Blockchain and regenerative
finance: charting a path toward
regeneration
Marco Schletz
1
,
2
*, Axel Constant
2
,
3
, Angel Hsu
1
,
Simon Schillebeeckx
4
, Roman Beck
5
and Martin Wainstein
2
1
Department of Public Policy, University of North Carolina at Chapel Hill, Chapel Hill, NC, United States,
2
Open Earth Foundation, Marina del Rey, CA, United States,
3
Department of Engineering and Design, The
University of Sussex, Brighton, United Kingdom,
4
Lee Kong Chian School of Business, Singapore
Management University, Singapore, Singapore,
5
European Blockchain Center, IT University of
Copenhagen, Copenhagen, Denmark
The Regenerative Finance (ReFi) movement aims to fundamentally transform the
governance of global common pool resources (CPRs), such as the atmosphere,
which are being degraded despite international efforts. The ReFi movement seeks
to achieve this by utilizing digital monitoring, reporting, and verification (D-MRV);
tokenization of assets; and decentralized governance approaches. However, there
is currently a lack of a clear path forward to create and implement models that
actually drive the “Re-”in ReFi beyond perpetuating the existing extractive
economics and toward actual regeneration. In addition, ReFi suffers from
growing pains, lacking a common interoperability framework and definition for
determining what a ReFi project is and how the individual components align
toward the grand ambition. This paper provides a definition of the ReFi stack of
interconnected components and examines how it can address limitations in
climate change accounting, finance and markets, and governance. The authors
also examine the theory of regenerative economics and CPRs to encourage
further discussions and advancements in the ReFi space. The crucial question
remains if and how ReFi can drive a change in paradigm toward the effective
regeneration of global CPRs.
KEYWORDS
blockchain technology, climate change, decentralized governance, distributed ledger
technology, common pool resources, polycentricity, climate accounting
1 Introduction
1.1 Global common pool resources governance
Polycentric governance is often considered a solution to the exploitation of the “commons
problems,”meaning that non-excludable, open-access, and unregulated common pool resources
(CPRs) are often overexploited (Ostrom, 1999). Polycentricity describes a scenario in which
multiple elements mutually adjust and establish relationships with each other without the
presence of a central authority (Kim, 2020). Although polycentricity and other works on global
commons governance have defined the challenges and proposed related design principles in
response (Dietz et al., 2003;Ostrom, 2010;Stern, 2011), this work falls short of counteracting the
increasing degradation of CPRs. According to Pahl-Wostl and Knieper (2014),
“[p]olycentric governance systems must fulfill at least two criteria to function as systems: i)
presence of multiple centers of decision-making and coordination by ii) an overarching system of
OPEN ACCESS
EDITED BY
Leanne Ussher,
Wolfram Blockchain Labs, United States
REVIEWED BY
Mayssam Daaboul,
American University of Beirut, Lebanon
Raul Zambrano,
Independent Researcher, New York,
United States
Larry C. Bates,
AltMarket, United States
*CORRESPONDENCE
Marco Schletz,
marco@openearth.org
RECEIVED 13 February 2023
ACCEPTED 19 June 2023
PUBLISHED 05 July 2023
CITATION
Schletz M, Constant A, Hsu A,
Schillebeeckx S, Beck R and Wainstein M
(2023), Blockchain and regenerative
finance: charting a path
toward regeneration.
Front. Blockchain 6:1165133.
doi: 10.3389/fbloc.2023.1165133
COPYRIGHT
© 2023 Schletz, Constant, Hsu,
Schillebeeckx, Beck and Wainstein. This is
an open-access article distributed under
the terms of the Creative Commons
Attribution License (CC BY). The use,
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which does not comply with these terms.
Frontiers in Blockchain frontiersin.org01
TYPE Original Research
PUBLISHED 05 July 2023
DOI 10.3389/fbloc.2023.1165133

rules.”In this context, “coordination”can refer to anything from
informal information sharing and learning to more formal
coordination that may include monitoring systems or conflict
resolution (Galaz et al., 2012;Dorsch and Flachsland, 2017).
However, despite the attempt of the Paris Agreement to use
polycentric governance at a global scale to coordinate climate action
through both international, national, and sub-national decision-
making, as well as developing an overarching system of rules, there
is a risk and concern regarding increasing fragmentation (Schröder,
2018). Scholarly literature notes such increasing fragmentation and
complexities in global environmental governance (Elsässer et al., 2022),
particularly among the Paris Agreement actors (Biermann et al., 2009;
Pattberg and Widerberg, 2016;Atkinson et al., 2017). For example, all
national parties to the Paris Agreement are required to submit biennial
transparency reports under the new enhanced transparency framework,
with a global assessment process (the “Global Stocktake”) every 5 years
to understand global progress. Despite the widely acknowledged
importance of monitoring and evaluation, many developing
countries continue to lack the necessary institutional capacity (Aldy,
2018). Similarly, in the context of locally generated forms of self-
organization, Atkinson et al. (2017) observed that the “vast majority
of locally based self-organized climate change groups”are “fragmented
and embryonic”and “lack the capacities/resources to engage”with
larger networks, preventing “mutual learning,”and “concerted action.”
The fragmentation of global carbon pricing systems can be
interpreted as a market failure because it leads to a socially
suboptimal distribution of goods and services. In essence, market
failure happens due to information asymmetry and the inability to
properly price the social cost of carbon in a free market. Article 6 of the
Paris Agreement recognizes the importance of carbon markets.
However, in the light of climate change and the ongoing
biodiversity collapse, markets seem to fail to deal with problems,
which is why there is a need for polycentric governance solutions at
a global scale. The current lack of an overarching set of rules at the non-
jurisdictional level and the lack of efficacy of international accords (e.g.,
of the Paris Agreement and other international treaties) exacerbates the
fragmentation of global carbon pricing schemes, which are often stated
to be a critical climate policy tool (van den Bergh et al., 2020;Baranzini
et al., 2017). Currently, 68 different carbon pricing schemes exist
globally, with prices ranging from less than $1 to more than
$130 for a metric ton of CO
2
equivalent (tCO
2
e) (World Bank,
2022), emphasizing the difficulty in developing aligned incentives for
global coordination as outlined in Article 6 of the Paris Agreement
(UNFCCC, 2015;Franke et al., 2020).
Similarly, the British newspaper “The Guardian
1
”and the
German publication “Die Zeit
2
”published articles stating that
“90% of rainforest offsets certified by the biggest carbon
standard—Verra—are worthless”due to incorrect methodologies
applied by Verra to measure avoided deforestation. Although the
aforementioned articles are controversial, the recognition that
incumbent certification methodologies like the ones used by
Verra are not keeping pace with the pace of technological change
is critical, especially because the analog approaches raise serious
questions about the accuracy of carbon avoidance and removal
claims.
1.2 Regenerative finance
In this section, we provide an overview of how the Regenerative
Finance (ReFi) movement defines itself and provide an overview of
historic and recent projects and developments. In Section 2,we
clarify the value proposition of ReFi for the climate change area and
define the critical components and overall structure to contrast what
is needed with the sometimes lofty ambitions or even hype in the
space. For this assessment, we primarily focus on ReFi as it evolves in
the climate change area to reduce the level of abstraction, as the vast
majority of applications focus on this area. Following this definition,
we outline a ReFi-technology stack of components in the next
section and discuss how these components provide value by
addressing present climate change challenges and limitations. In
Sections 3,4,5, we highlight current issues and challenges and then
discuss if and how ReFi delivers on its goals.
ReFi is an emerging movement that uses digital technologies,
such as Internet of Things (IoT) sensors, machine learning (ML),
and blockchain, to improve information sharing and implement an
overarching system of rules. It seeks to leverage such technologies to
develop the financial means to implement economic concepts such
as those of “economies of permanence”and “regenerative economy”
for the governance of global CPRs. The concept of economy of
permanence refers to the maintenance of “reliable inputs and healthy
outputs by not exhausting critical inputs or harming other parts of the
broader societal and environmental systems upon which it depends.”
It was first articulated in 1945 to promote and sustain human
prosperity and well-being (Kumarappa, 1945). The ReFi
movement then specifically focuses on the concept of a
regenerative economy, as defined by Fullerton (2015), which
“maintains reliable inputs and healthy outputs by not exhausting
critical inputs or harming other parts of the broader societal and
environmental systems upon which it depends”(p. 22).
Currently, there is no widely accepted or formal definition of ReFi.
However, most experts agree that ReFi includes a collection of
applications that enable digital monitoring, reporting, and
verification (D-MRV) of a CPR
3
. The resulting D-MRV data allow
for the tokenization of the CPR as a real-world asset to attribute value to
the underlying material reality of the resource in the form of
community currencies or ground regenerative NFT collections,
social tokens, and other innovative financial and market applications
1 Available at: https://www.theguardian.com/environment/2023/jan/18/
revealed-forest-carbon-offsets-biggest-provider-worthless-verra-aoe
(accessed 1/21/2023).
2 Available at: https://www.zeit.de/wirtschaft/2023-01/co2-certificates-
fraud-emissions-trading-climate-protection-english (accessed 1/
21/2023).
3 Cite the joint publication by Kolektivo Network and Curve Labs that is
currently under review but will be published before we finalize this paper
(link to current review version: https://docs.google.com/document/d/
1gTVzuIWSKFtPCxgNGDyqMkDkXMmk_PpA50NvcQlR4SI/edit?pli=
1#heading=h.r7rwmv37462). Other examples: https://blog.refidao.com/
refi-roundup-52/;https://blog.toucan.earth/decarbonized-27-
tokenization-consultation-opens-refi-for-regenerative-carbon-
markets-future-of-digital-mrv/; Even from Gold Standard: https://www.
goldstandard.org/our-story/digitising-mrv.
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(e.g., Curve Labs
4
; Climate Collective
5
). Here, tokenization underpins a
valuable claim to a positive impact created on a commons, thereby
enabling businesses to capture a quantifiable value from the creation of
public goods (George, Merrill, and Schillebeeckx, 2021). In addition,
other ReFi definitions state the ambition of implementing regenerative
economics at a global scale to create more equitable and sustainable
financial, social, and environmental systems for human well-being; for
instance, by addressing issues of sustainability such as climate change,
biodiversity loss, and resource scarcity,aswellastheunderlying
socioeconomic and institutional structures that exacerbate these
crises (e.g., Regen Living
6
). Other definitions of ReFi center around
theroleofReFiinmarket-basedconservation and other types of
ecosystem preservation financing
7
. In general, ReFi aims to create
economic systems that enable harmonious interactions between
humans and natural ecosystems.
Early ReFi applications started evolving at the beginning of 2017
(ReFi DAO, 2023), with applications and efforts including Giveth,
8
Commons Stack,
9
Open Forest Protocol,
10
and Regen Network.
11
More recently, ReFi projects started attracting significant attention
from investors and users. For example, the project Flowcarbon, a
climate technology company focused on building market
infrastructure for the voluntary carbon market space, recently
raised $70M in venture capital funding led by a16z crypto
12
.
Similarly, Celo raised $20M in October 2021 to become “the
home”of ReFi
13
. The KlimaDAO bootstrapped a community of
over 37,000 members
14
with its $KLIMA token peaking at a price of
3,777$ in October 2021 and with a current price of around 1.5$ at
the beginning of 2023
15
. At the same time, incumbents are currently
conducting assessments of the ReFi space with the expectation that
new policies resulted early 2023 to clarify the extent to which
incumbent registries will support tokenization [e.g., the
announcements by the American Carbon Registry (ACR)
16
, the
Gold Standard proposal to allow the creation of digital tokens for
carbon credits
17
, and Verra’s public consultation on “Third-Party
Crypto Instruments and Tokens”
18
].
In this research, we define ReFi as a decentralized movement
leveraging blockchain technology and web3 applications for the
coordinated financing, governance,and regeneration of CPRs. This
definition describes the tools employed by ReFi (e.g., digital and
web3 approaches), as well as what ought to be the main motivation
for ReFi (i.e., the regeneration of CPRs), and the purpose of ReFi,
which is to finance and improve the governance of CPRs.
2 The ReFi stack and its value
proposition
A ReFi ecosystem consists of a combination of technological and
traditional processes that interact and shape each other. We
summarized these processes into an overview of a “ReFi Stack”
(Figure 1), which includes systems of i) accounting using D-MRV
approaches, ii) finance and market creation through tokenization
and the pooling of assets, and iii) decentralized governance
approaches for coordination and incentive design. Decentralized
governance serves as the overarching system that intersects both
information transparency and accountability. The academic
literature underscores the crucial role of information
transparency in enabling effective governance by granting
stakeholders access to accurate and timely information, thus
facilitating informed decision-making and reducing information
asymmetry. Moreover, transparent information serves as the
foundation for holding individuals and organizations accountable
for their actions and outcomes, thereby cultivating trust and
legitimacy within governance processes. Conversely, financial
mechanisms play a pivotal role in shaping governance incentives
through concepts such as incentive structures, risk management,
and performance-based compensation. These mechanisms
incentivize individuals and organizations to make responsible
decisions and pursue long-term value creation.
The ReFi stack further encompasses both primarily digital and
analog processes across the three systems of accounting, markets,
finance, and governance. In addition, the ReFi stack will include
digital processes that take place “on-chain”(i.e., on a blockchain
protocol) or “off-chain”(i.e., in a regular data management system).
The integration of on- and off-chain processes can often be
automated through “application logic contracts,”more popularly
referred to as “smart contracts,”which are usually deployed to
ensure interoperability among computer networks running on
diverse platforms. These contracts can trigger the automatic
execution of transactions triggered when the obligations of the
parties involved in the contract are met according to predefined
governance rules and verification guidelines (Franke et al., 2020).
Smart contracts can be classified into three distinct types based on
their functions: financial or transactional contracts primarily serve
4 Available at: https://blog.curvelabs.eu/the-promises-and-pitfalls-of-
regenerative-finance-4910f0f6f690 (accessed 12/21/2022).
5 Available at: https://kumu.io/climate-collective/web3-climate-map
(accessed 1/21/2023).
6 Available at: https://medium.com/regenliving/what-is-regenerative-
financing-refi-8bebaf2e0a4d (accessed 12/21/2022).
7 Available at: https://blog.curvelabs.eu/the-promises-and-pitfalls-of-
regenerative-finance-4910f0f6f690 (accessed 3/22/2023).
8 Available at: https://giveth.io/ (accessed 2/11/2023).
9 Available at: https://commonsstack.org/ (accessed 12/21/2022).
10 Available at: https://www.openforestprotocol.org/ (accessed 2/11/2023).
11 Available at: https://www.regen.network/ (accessed 12/21/2022).
12 Available at: https://www.flowcarbon.com/knowcarbon/flowcarbon-
raises-70m-to-tokenize-carbon-credits-and-build-an-on-chain-
market (accessed 12/21/2022).
13 Available at: https://blog.celo.org/the-celo-foundation-climate-
collective-and-toucan-collaboration-deepens-to-bring-refi-to-the-
e714700b96d0 (accessed 12/21/2022).
14 Available at: https://www.klimadao.finance/community (accessed 12/
21/2022).
15 Available at: https://www.coingecko.com/en/coins/klima-dao (accessed
12/21/2022).
16 Available at: https://americancarbonregistry.org/news-events/program-
announcements/acr-updates-program-rules-for-tokenization-of-
carbon-credits (accessed 12/21/2022).
17 Available at: https://www.goldstandard.org/blog-item/gold-standard-
announces-proposals-allow-creation-digital-tokens-carbon-credits
(accessed 12/21/2022).
18 Available at: https://verra.org/public-consultation-verras-approach-to-
third-party-crypto-instruments-and-tokens/ (accessed 12/21/2022).
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as digital agreements that execute financial transactions based on
predefined conditions, as most prominently applied in
Decentralized Finance (DeFi). Governance contracts codify rules
of organization and decentralized decision-making processes, such
as voting and consensus mechanisms. Lastly, application logic
contracts refer to smart contracts that contain the essential
business rules and logic that govern the behavior and operations
of decentralized applications (dApps). These contracts automate
various processes within the dApp ecosystem, ensuring the trustless
execution of transactions and interactions. They often leverage
external data and information resources called Oracles, which act
as intermediaries between smart contracts and the external world. In
the case of ReFi, these oracles may include earth observation data,
source data, and big data sources, enabling the integration of real-
world information into the dApp ecosystem. Oracles are software,
hardware, or human sources and processes that access, validate, and
transmit data on-chain to make the data available for blockchain-
based applications (Al-Breiki et al., 2020;Mammadzada et al., 2020).
In this section, we explore the three most integrative levels of the
ReFi stack (Figure 1, far left): i) the accounting process using
D-MRV (Section 2.1), ii) the creation of a financial market
through tokenization (Section 2.2), and iii) the decentralization
of governance (Section 2.3).
2.1 Accounting using D-MRV
The first key component of ReFi is accounting using D-MRV
approaches, comprising data collection, aggregation, and analysis.
Such D-MRV approaches use digitally native data collection
approaches like earth observation, source data like local sensors,
and big data approaches and can increase information availability
and interoperability while improving quality and transparency (CLI,
2019;Belenky et al., 2022;SAF and UNEP, 2022). Currently,
however, most climate data are still collected through analog and
manual processes such as sampling or self-reporting. Such legacy
FIGURE 1
Components of the ReFi stack.
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MRV costs are frequently prohibitively high, particularly in larger or
geographically dispersed systems, posing a significant barrier to
more effective coordination (Huitema et al., 2009;Wyborn, 2015).
Using digital technologies to improve MRV and thus coordination
allows different institutions and actors to adopt mutually beneficial
standards, lowering transaction costs, gaps, and overlaps and
improving alignment (Abbott, 2014).
As a result of these different data collection approaches and
general differences in the way data formats are developed and
selected by the different actors leading to very heterogeneous
data formats, standardization is critical to making different data
sets comparable so that they can be aggregated. Collecting spatial
data to track the origination of emissions or mitigation projects by
using GPS tracking devices and spatial protocols is important to
assign them to a jurisdiction to accurately account for emissions and
emission reductions by an entity and reduce the risk of double-
counting (Fritz et al., 2019;Rolnick et al., 2019;Schletz et al., 2022a).
Verification is the process of checking and testing the accuracy,
consistency, and completeness of data to ensure accuracy and reliability.
Most current verification is carried out manually as an expert review
process, but ML presents a promising area for the automation and
scaling of these processes. ML can be used to automate the verification
of collected data (Rolnick et al., 2022) by triangulating between large
data sets from different sources as a reference for consistency checks and
tamper-attempt indication (Marjani et al., 2017;Howson et al., 2019).
Furthermore, ML can model complex, non-linear, and non-parametric
data relationships to produce potentially more complete and new
greenhouse gas (GHG) emission data (NASEM, 2022). These ML
algorithms and models can use a series of data inputs to train a
model to uncover statistical patterns, making predictions on new,
“unseen”data (Huntingford et al., 2019;Milojevic-Dupont and
Creutzig, 2021). In the legacy context, most data verification is
carried out in a manual expert review process. For example, in the
forest biomass context, forest carbon stock inventory methods measure
single trees by hand, being time-, labor-, and cost-intensive. Moreover,
these manual measurements are oftenusedasthebasisforalinear
extrapolation of carbon stock under the assumption that the rest of the
forest will be similar to the measured area. This approach is scientifically
questionable and leads to distrust in forest financing (Reiersen et al.,
2022). Here, a combination of deep learning and remote sensing can
greatly increase scalability and accuracy (Ganz et al., 2019;Schiefer et al.,
2020;Weinstein et al., 2021;Reiersen et al., 2022). One example of such
an approach is the new KacSat methodology, approved by OxCarbon,
in which ground-truthing is based on a randomized but stratified
sample of the entire forest area based on high-resolution satellite image
recognition. The number of measurements taken per stratum is
correlated to the prevalence of each stratum in the entire project
area. A total of 49 ML models are then used to continuously
improve the estimation until the margin of error of forecast in the
test data is below 5% (Merrill et al., 2022). Trust in the methodology is
builtbymakingdataopenlyaccessible and conducting a scientific peer
review process before applying the methodology.
Climate data management is the collection, storage, organization,
and use of climate-related data. It is critical because it facilitates a wide
range of activities related to understanding and responding to climate
change, including research, market pricing, policy development, and
decision-making. Decentralized storage refers to the use of blockchains
to store data in a decentralized manner rather than relying on a single
centralized entity or consortium. Decentralized storage, decentralized
identifiers (DIDs), and verifiable credentials are needed due to the
increasing volume, complexity, and sensitivity of climate data and the
need to ensure that these data are managed in a secure, transparent, and
trustworthy manner. DIDs are unique, persistent, and verifiable
identifiers that can be used to identify and authenticate individuals,
organizations, or other entities (Davie et al., 2019;Li et al., 2019;Sporny
et al., 2021). Verifiable credentials are digital documents that contain
information about an individual or entity and that are cryptographically
signed by a trusted issuer to ensure their authenticity (Sporny et al.,
2019;Wang et al., 2019;Lux et al., 2020). Verifiable credentials can be
used to provide proof of identity, qualifications, or other attributes and
can be stored and shared in a secure and verifiable manner using DIDs
and decentralized storage. Accounting applications constitute a core
component of the ReFi value proposition, and as outlined in this
section, several promising digital processes have the potential to
improve data availability and reliability. Such improved accounting
applications can then provide a foundation for improved trust and, in
this way, contribute to the other core ReFi components, namely, finance
and market creation and decentralized governance.
2.2 Finance and market creation through
tokenization
In the finance area, tokenization has the potential to increase
pricing transparency in the carbon offset market by creating a digital
representation of carbon credits, which can be recorded and traded
on a secure, decentralized blockchain ledger. Tokenization refers to
the process of converting a real-world asset into a digital token that
contains all relevant information as meta-data such as the metric,
issuing country, project name, and year generated (i.e., vintage)
(García-Barriocanal et al., 2017;Franke et al., 2020). Tokenization
allows for digitally based ownership representations and provides a
way for carbon offset projects to be financed and for the ownership
of carbon credits to be transferred in a transparent and verifiable
way. The minted tokens are either “fungible tokens”or “non-
fungible tokens (NFTs).”Fungible tokens are divisible and
interchangeable, whereas NFTs are a unique digital
representation of a physical or digital item (Idelberger and Mezei,
2022). By tokenizing D-MRV or legacy registry information, the
tokens can be tracked and traded in a transparent and verifiable
manner, helping to ensure the integrity and reliability of the carbon
offset market. By creating more data transparency and providing
more trust in the carbon market space, it becomes harder for actors
to engage in opportunistic behavior (e.g., by marking up the price of
a carbon credit manyfold based on the higher bidder). The Climate
Warehouse
19
is a more centralized approach to improve
transparency using tokenization and D-MRV with the explicit
goal of reducing the risk of double selling and double claiming
and improving common resource management among countries,
thus leading to better governance.
19 Available at: https://www.theclimatewarehouse.org/ (accessed 03/
21/2023).
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Currently, marketplaces for voluntary carbon offset markets are
still in their infancy, with most transactions still taking place over the
counter (OTC) (Nowak, 2022). OTC carbon markets refer to the
trading of carbon credits outside of a regulated exchange but have
been criticized frequently due to lack of pricing transparency, as the
prices of carbon credits are often not publicly disclosed and can vary
significantly depending on the buyer and seller (Betz et al., 2022;
Hodgson, 2022). Another factor contributing to the lack of pricing
transparency in OTC carbon markets is the lack of consistent
reporting and verification standards. The variety of standards, as
well as the information asymmetry that permeates the market, leads
to uncertainty and potentially inflated prices. As a result, these OTC
markets suffer from a lack of scale (Chen et al., 2021) due to a lack of
price visibility and discovery that compromise carbon offset quality
(Betz et al., 2022;Nowak, 2022). This makes it challenging for end
users to determine whether they are paying a reasonable price and
what portion of the money goes to the original project developer.
ReFi can improve market liquidity and the availability of assets in
several ways, including the use of exchanges, pool structures, and OTC
swaps. It can support the development of exchanges that facilitate the
trading of carbon offsets and other financial instruments. These
exchanges can be centralized (CEX) or decentralized (DEX),
depending on the specific design and operating model. By providing
a platform for the trade of carbon offsets and other financial
instruments, exchanges can help increase market liquidity, making it
easier for buyers and sellers to find counterparties and trade these
instruments. Pool structures in the carbon offset market involve
aggregating carbon offsets into thematic indexes, which are
collections of carbon offset projects that share certain characteristics
or themes. This process provides a highly scalable and transparent
pathway for creating “tokenized carbon pools,”which are collections of
multiple project-specific tokenized carbon tonnes bundled into carbon
index tokens. These index tokens can be traded and sold as
differentiated products based on the unique characteristics of the
carbon offset projects included in the respective index. These carbon
pools can, similar to mutual funds or exchange-traded funds (ETFs),
offer investors a way to invest more broadly under a specifictheme,such
as energy or forest tokens. This is particularly beneficial for investors
who may have a limited capacity to conduct specifictokenselection.At
the same time, indexes may introduce additional layers of complexity in
determining the individual token composition. OTC swaps are private,
bilateral agreements between two parties to exchange financial
instruments, such as carbon offsets, at a later date. ReFi initiatives
support OTCs for carbon offsets by providing a platform for matching
buyers and sellers, providing transparent information on the assets, and
settling to trade in a flexible and customized manner.
KlimaDAO, for example, tokenizes “real-world carbon assets”to
create a transparent and efficient blockchain-based market
exchange. Tokenization provides a “highly scalable and
transparent pathway”to create “tokenized carbon pools,”which
bundle multiple project-specific tokenized carbon tonnes (TCO
2
tokens) into carbon index tokens.
20
This allows for greater liquidity
and transparency in the carbon offset market, as the tokenized
credits can be easily bought and sold with a clear record of
ownership and transaction history on the blockchain. These
index tokens enable price discovery for various classes of carbon
assets because they are traded and sold as differentiated products
(e.g., wine) based on the unique characteristics of each carbon
project token included in the respective index.
21
Such index
tokens are available for trading as green NFTs on decentralized
exchanges and as carbon-backed currencies
22
.
The demand side is determined by the ambition of climate goals of
non-state, subnational, and national actors and the resulting need to
offset climate emissions. Nationally determined contributions (NDCs)
are submitted by parties under the Paris Agreement to outline national
climate goals. The parties can purchase mitigation outcomes from other
countries under Article 6 to offset their emissions to achieve the NDC
goals. Regulation plays a crucial role in driving demand through the
compliance carbon offset market. In the compliance market,
organizations purchase carbon offsets to comply with regulatory
requirements. The most prominent example of a compliance market
would be the EU Emissions Trading System (EU ETS).
23
The EU ETS is
an interesting application for the transparent sharing of information
and credibility of the market. The immutable nature and publicly visible
record of blockchains enable robust accounting practices that avoid
ambiguity over ownership and double counting of emissions
reductions, which is a central issue of the Article 6 mechanisms
under the Paris Agreement (Schletz et al., 2020). Certificate
traceability and transparent data exchange could create resilient
proofs of authenticity, protecting against transnational sales and
frauds. Net-zero pledges are made by many organizations and
governments, committing to reduce their GHG emissions to zero or
to offset any remaining emissions through the purchase of carbon
offsets. In order to achieve pledges not subject to regulatory
requirements, organizations or individuals can use the voluntary
carbon offset markets to purchase offsets.
2.3 Decentralized governance approaches
CPRs, as defined by Ostrom (2015), are often associated with
local systems, such as inshore fisheries, small grazing areas,
groundwater basins, irrigation systems, and communal forests,
which can be governed at the community level. However, ReFi
aims to tackle larger-scale problems, such as the global atmosphere,
that require coordinated actions from the local to the global level. In
this context, Stern (2011) focused on rival and global commons that
are bounded only at the global scale and do not all share similar
cultural and institutional contexts and where millions or billions of
actors are involved and affected (Rozas et al., 2021). Accordingly,
involving such large numbers of actors requires expanding the
20 Available at: https://forum.klimadao.finance/d/117-rfc-carbon-project-
development-initiative (accessed 12/21/2022).
21 Available at: https://forum.klimadao.finance/d/117-rfc-carbon-project-
development-initiative https://docs.toucan.earth/toucan/pool/pools
(accessed 12/21/2022).
22 Available at: https://earthstate.ixo.world/klima-dao/ (accessed 12/
21/2022).
23 Available at: https://climate.ec.europa.eu/eu-action/eu-emissions-
trading-system-eu-ets_en#:~:text=The%20EU%20ETS%20is%20a,and
%20remains%20the%20biggest%20one (accessed 12/21/2022).
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complexity of “broader social contexts”within which people make
decisions and share power (Dietz et al., 2003). Furthermore, Dietz
et al. (2003) identified five “adaptive governance requirements for
complex systems”that are specific to global commons. These
governance requirements outline ReFi’s need to facilitate the
interactions of users and information flows, dealing with conflicts
that arise among actors with different interests, inducing compliance
with rules through appropriate combinations of formal and informal
mechanisms, providing physical and technological, as well as
institutional infrastructure, and designing institutions that allow
for adaptation.
ReFi aspires to tackle such issues and support polycentric
governance solutions that function on a supra-national level and
facilitate global coordination by unifying local communities and
the global community in their efforts. In this context, Mindel
et al. (2018) explored the concept of polycentric governance and
its application to digital data as an information commons. An
information common is defined as a “highly accessible, self-rising
information system in which stakeholders share an overarching
goal”(Mindel et al., 2018,p.609).Suchacommonsneedstofocus
on the needs of data originators and ensure that users and funders
contribute properly (de Lima et al., 2022), using a fair valuation
for the data provided (Jia et al., 2019). Information commons are
implemented through decentralized systems such as
decentralized autonomous organizations (DAO)s to provide
high-quality data available to all actors. DAO principles and
rules are initially established and implemented by the community
and subsequently encoded in smart contracts, enabling automatic
enforcement and on-chain governance of these processes. The
governance procedures are typically documented in a white paper
and evolve through iterative feedback from the community,
highlighting the intricate interplay between off-chain and on-
chain governance mechanisms. As the community strives for
increasing decentralization, exemplified by platforms such as
Ethereum,DAOsoffervaluableinsights into decision-making
and coordination structures within technology-enabled,
decentralized, and polycentric governance models.
Furthermore, it is important to note that even after the initial
codification of governance principles on the blockchain,
significant off-chain governanceisstillrequired.Many
blockchain organizations face challenges in clearly defining
rules for continuous adjudication and conflict resolution. Poor
management of these aspects may result in forking, a specific
governance mechanism in which a community splits into
different groups with diverging principles.
Schlager and Ostrom (1992) argued that efficient resource use is
dependent on institutional settings, ranging from hierarchical to
decentralized organizations, and is moderated by the respective
environment. Governance systems in the form of information
commons are built upon freedom of access and, thus, are
nonexclusive in nature. However, this also makes such systems
susceptible to existential threats as users are free to leave the system
at any point in time (Mindel et al., 2018). Thus, governance solutions
between sovereign states to enforce ReFi solutions must consider
and accommodate on-chain mechanisms to support mutual
adjustments among the involved autonomous actors while
continuing to enforce the set common goal (Mindel et al., 2018,
p. 609).
Blockchains enable new decentralized ownership and governance
approaches, and thus the creation of an information commons, by
distributing data ownership over anetworkofnodesthateachholda
copy of the whole data ledger (Franke et al., 2020). Additionally,
privacy-preserving methods of data governance are made possible by
decentralized storage systems and techniques such as verified
credentials, DIDs, and zero-knowledge proofs (ZKPs) (Ben-Sasson
et al., 2015;Sporny et al., 2019;Hyperledger, 2021;Schletz et al.,
2022b). Blockchain uses cryptography and time-stamping to store
the data, making the history immutable and the system data
resistant to tampering (Kewell et al., 2017;Franke et al., 2020). The
tracking and aggregation of data on climate emissions can also be
facilitated by integrating blockchain with smart contracts and oracles
(Schletz et al., 2022b;NASEM, 2022). As a result, blockchain technology
can enable individual actors to contribute and agree on climate data in a
way that is private and transparent, as well as trusted.
At the same time, the intersection of on- and off-chain activities
poses the most complex interoperability and governance challenges
due to the diverse range of stakeholders, including governments,
businesses, investors, local communities, and consumers, as well as
the web3 and technology developers. Centralized and manual legacy
registries are currently the primary source of all ReFi assets,
challenging the decentralized ReFi ethos. Similarly, blockchain
technology is frequently hailed as a tool to automate governance
while neglecting that the “governance of blockchain”(Ølnes et al.,
2017) also raises a number of new governance challenges.
Scholars have warned that polycentric governance systems with
“cross-scale linkages”or interactions between actors at different levels
of political or social organization (Heikkila et al., 2011)arevulnerableto
dominance or capture by powerful interests (Adger et al., 2005;Bixler
et al., 2016). These cross-scale linkages are often characterized by power
asymmetries, with more powerful actors dominating the linkages and
further skewing knowledge and information in their favor (Adger et al.,
2005). In the case of climate data, the risk of corporate-owned platforms
creating a data monopoly for big tech has been noted by Schletz et al.
(2022). Instead, climate data should be treated as a “digital data
commons”with the potential to make high-quality data available to
all actors, particularly those in the Global South, while safeguarding data
outside corporate control (Schletz et al., 2022a). Blockchain technology
has the potential to address these existing power imbalances and establish
the necessary decentralized digital infrastructure to create a digital data
commons. However, technology can simultaneously entrench or even
aggravate the status quo of centralized control and extractive economics.
Accordingly, the co-creation of such a technology system with local
communities, policymakers, and lawmakers is essential to ensure that the
system is designed to provide real incentives to drive positive impacts for
most of humanity rather than the centralized tech elite.
3 The lack of “Re”in ReFi
3.1 Extractive and regenerative theory of
economic relations
At its core, the ReFi movement aspires to initiate a paradigm
shift away from present extractive economics and toward
regenerative economics. Assets in an extractive economy derive
their value from being exchanged because they can be displaced at
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the right time, either physically (e.g., extracting coal when the
demand is high) or legally (e.g., acquisition of a property right
when supply is high). Such displacements yield arbitrage
opportunities for natural resources and human labor whose
exploitation for maximum short-term profit is the core principle
of value creation of extractive economies, with a disregard for the
negative externalities and social costs associated. Extractive
economics are often contrasted with regenerative economics,
which seeks to create a more sustainable and equitable economy
by prioritizing the regeneration of natural resources, community
well-being, and long-term value creation. Although extractive
economics is based on the assumption of unlimited growth,
ecological and regenerative economics recognize that economic
growth is constrained to the ecological limits of the planet and is
balanced by the regeneration of natural capital (Daly, 2014). The
resulting difference between the extractive and regenerative models
is that they are grounded in vitality, viability, and evolutionary
capacity (Benne and Mang, 2015;Mang and Reed, 2012;du Plessis,
2012). Vitality refers to the ability of a system to create and maintain
abundance, diversity, and health. Viability refers to the ability of a
system to survive and adapt to changing conditions while
maintaining its fundamental purpose and values. Evolutionary
capacity refers to the ability of a system to learn, innovate, and
evolve to continuously improve its performance and adapt to
changing circumstances. Together, these principles create positive
feedback loops, resilience, flexibility, and a continuous cycle of
improvement in service to life.
The present ReFi literature does not engage with these regenerative
principles and models, so it remains uncertain and undefined how ReFi
can support such a paradigm shift toward a regenerative global model.
Currently, ReFi is mostly limited to tokenizing carbon credits and
increasingly other forms of nature credits to create a form of commodity
money or asset, which can be traded on markets to incentivize
companies and individuals to reduce their carbon footprint. The
promise of tokenization is that it can enable companies to capture
private value from the support of public goods without expropriating or
displacing the co-benefits created through this approach. If such tokens
would manage to avoid the negative aspects of speculation and, for
instance, be automatically retired upon purchase, companies could
increase their support for nature and reap benefits of increased
reputation, loyalty, and customer acquisition, for instance, by
embedding such tokens in their interactions with their key
stakeholders, thereby altering the very nature of those interactions
(e.g., Schillebeeckx and Merrill, 2022).
However, the counterargument is that ReFi only perpetuates the
current extractive logic and does not result in a true regeneration of the
atmosphere by driving the increasing commodification of nature. This
commodification of carbon assets primarily leads to short-term
thinking,withafocusonbuyingandsellingcarboncreditsrather
than making long-term investments in sustainable practices and
infrastructure. Accordingly, this approach merely maintains the
status quo of speculation, perpetuates the current extractive logic,
and does not result in a true regeneration of the atmosphere.
More research and engagement with the ecological and
regenerative economics theory are needed to define how ReFi can
create a more sustainable and equitable economy by prioritizing the
regeneration of natural resources, community well-being, and long-
term value creation.
3.2 Regeneration of common pool
resources
CPRs are resources shared by individuals or groups of
appropriators; the appropriators are the persons that will subtract
units of the resources or benefit from the yield of the resources. The
concept of CPR is designed to highlight a specific scarcity situation
in which appropriators must find strategies to maintain or
regenerate the resources that they benefit from, despite the
“dilemma”they find themselves in—aka the commons’dilemma.
For CPR and its associated dilemma to apply, specific conditions
must be met. These conditions have to do with the nature of the
resources of the CPRs and with the situation in which the
appropriators find themselves (Gardner et al., 1990).
The first condition is “Resource Unit Subtractability.”A resource
is subtractable if harvesting by one appropriator of a unit of the
resource makes a unit of that resource unavailable to another
appropriator (e.g., subtracting a ton of fish from a fishing
ground). This further assumes that multiple appropriators must
exist (aka. the “multiple appropriators”condition). A CPR will
include resources whose appropriation will be carried out by
changing the “flow”of the resource (e.g., fishing more at one
spot) or changing the stock extraction (e.g., killing fishing spots).
Accordingly, one challenge of the common dilemma is to manage
flow and stock to allow the regeneration of the CPR. Regeneration is
achieved by ensuring the natural replacement rate is consistently
higher than the withdrawal rate. This is possible to achieve within
human life when considering local commons but much harder to
achieve when considering global commons, which are likely to
require multiple generations of continuous efforts before true
regeneration and revitalization (e.g., a reduction of carbon in the
atmosphere) can happen. A third condition is the “suboptimal
outcomes”condition. This condition is at the core of the
dilemma characteristic of CPRs. Suboptimal outcomes ensue in
CPRs because the economically rational strategies of individual
appropriators lead to suboptimal outcomes from the point of
view of the group of appropriators. Beneficiaries of CPR tend to
maximize their individual benefit to the detriment of the ability of
the CPR to regenerate (Clark, 1974;Dasgupta and Heal, 1979;Clark,
1980). At a global CPR scale, arriving at a common understanding
becomes even more challenging due to diverging collective interests
as appropriators come from all cultures, all countries, all political-
economic systems, and all political ideologies (Stern, 2011).
Although many externalities of appropriation are borne mainly
outside the community of major users, often by people on other
continents or in future generations, major appropriators, such as
global corporations, can often avoid many of the costs of resource
degradation to them by moving to other jurisdictions, different
resource bases, or different lines of business (Stern, 2011).
To avoid outpacing the natural replacement rate and leading to
suboptimal outcomes, appropriators must adopt a coordinated
strategy that determines the “rules of the game,”as it were, in
the exploitation of the common pool resource (Gardner et al., 1990).
There are three dominant views on how regeneration can be
achieved: i) top-down centralization, ii) privatization, and iii)
bottom-up institutions. The CPR dilemma created a mismatch
between the scale of individual appropriators’interests and the
scale of the CPR’s interest. Each governance strategy is about
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correcting the mismatch by acting on the appropriators of the CPR’s
scale. The privatization strategy is about reducing the scale of the
CPR to make its replacement rate visible to the appropriator (i.e., the
appropriator can see its impact on the smaller lots to which the
appropriator has proprietary access). This indeed brings the scale of
the CPR back to that of the appropriator and solves the dilemma.
This strategy, of course, is difficult to apply to commons to which
physical boundaries do not apply (e.g., climate and oceans). Local
and regional carbon pricing schemes are the first attempt at such
privatization but have only shown limited success so far due to the
high heterogeneity of methodologies and ambition levels. More
recently, carbon border taxes, or more formally carbon
adjustment mechanisms (CBAMs), were proposed by the
European Union as a tool to unify the cost of GHG emissions
24
.
In its current form, the European CBAM applies to European
companies that import emission-intensive products to add the
same carbon price as a domestically produced item to level the
playing field.
In turn, the centralization strategy scales up the appropriators
by forcing them to act in harmony to avoid the outpacing of the
natural replacement rate by the withdrawal rate. In this case,
general and impersonal rules, which can enforce actions aligned
with the CPR dynamics, are followed by the appropriators
without them having to know what the rules really seek to
achieve. The centralized governance strategy solves this
dilemma by scaling up the actions of the appropriators to
match the scale of the CPR dynamics. An earlier application
of this centralized approach in the climate space was the clean
development mechanism (CDM) under the Kyoto Protocol. The
problem with centralization at the global level is that it runs
against national sovereignty, thereby making this option
impossible for the governance of global commons. This is a
common thread in challenges of, for instance, maritime,
economic, and public international law where nations conform
to international agreements on the protection of natural
resources and of other common goods, such as human rights
and international trade, only insofar as these agreements benefit
internal markets and geopolitical agendas. For instance, the
protection of common goods such as fish stocks in the high
sea is difficult to achieve despite the existence of international
regulation applying to many jurisdictions (e.g., Sections 86 and
87 of the United Nations Convention on the Law of the Sea,
1982). However, the effective governance of such common
resources is left to a few powerful nations that have little
incentive to collaborate other than for strategic or extractive
economic purposes. Instead, local initiatives that acknowledge
this dilemma and work to ensure they do not overexploit a
resource without replenishingitinanaccordantratiocould
provide inspiration. For example, the Indiana University
Bloomington Campus Tree Care Plan
25
provides a simple but
efficient rule that if one tree gets cut down for development
purposes, they must plant three trees.
In terms of bottom-up institutions, the Paris Agreement represents
asignificant shift in contrast to the centralized governance of the Kyoto
Protocol. The Agreement combines bottom-up and decentralized
governance mechanisms to achieve collective action by all national
parties. At the same time, the Agreement seeks to allow Parties greater
flexibility and ownership in the development and implementation of
climate policies to address their unique circumstances and challenges.
Although this approach has led to an unprecedented number of parties
committing, the approach faces challenges and limitations, including
the need for improved coordination and financing mechanisms and the
potential for power imbalances, especially in regard to marginalized
communities.
Traditional alternatives for improving coordination in response to
such global governance challenges exist, but they do not have the
binding force of agreements that operate at the scale of sovereign states
such as international treaties [e.g., alternatives, such as memorandums
of understanding that can operate between ministries of different
countries and or various organizations in a less legally binding and
more flexible way than treaties (McNeill, 1994)]. Thus, the problem is
not that the infrastructure for large-scale global coordination on the
protection of commons is impossible or does not exist [e.g., the laws of
commons or the set of international treaties that directly or indirectly
protect global commons such as the Convention of the Law of Sea 1982
(Garcia, 2021)]. Simply, global actors are compelled to act in a way that
serves their own national interest to the detriment of the protected
commons, or these global actors will act at smaller scales without being
able to benefit from the full strength of legal instruments such as treaties.
4 ReFi’s growing pains
Most importantly, ReFi needs to define a clear path forward of
how it distinguishes itself from the status quo of extractive
economics and create and implement models that actually drive
the “Re-”in ReFi. Disrupting the extractive dynamics is far more
complex than “just”improving information flows and coordination
but requires breaking the foundational logic and approach of the
system. ReFi cannot accomplish this paradigm change and create
actual value by only commoditizing carbon offsets into a form of
money or assets. For this paradigm change, ReFi needs to focus on
the creation of information commons that leverages the potential of
D-MRV approaches, resulting in open, decentralized, and
transparent data where data originators, users, and funders are
all aligned (de Lima et al., 2022). One of the author’s experiences
in co-developing reforestation projects and setting up a new carbon
crediting agency that relies on D-MRV and improved sampling of
ground-truth data is a testament to the problems of analog
methodologies. In interviews conducted with a reforestation
organization in Indonesia that worked with Livelihoods Fund
and Verra in the past, it became, for instance, clear that the
ground-truthing approach proposed by OxCarbon, which uses
high-resolution satellite data to classify the focal forest area
according to different densities and then requires the collection
of tree data for each sample based on randomized stratified
sampling, was never used by this organization in the past. The
only samples they had ever taken were convenience samples in easy-
24 Available at: https://www.europarl.europa.eu/news/en/press-room/
20221212IPR64509/deal-reached-on-new-carbon-leakage-
instrument-to-raise-global-climate-ambition (accessed 04/20/2023).
25 Available at: https://www.arborday.org/programs/treecampusUSA/
applications/file-open.cfm?fileName=uploads/Tree%20Care%20Plan%
202016_final.pdf (accessed 6/1/2023).
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to-access locations, after which those measurements were simply
extrapolated to the entire area for the issuance of carbon credits.
Better data can then be used to develop novel and alternative
financing models that are not solely dependent on donations and
carbon credits for driving nature conservation and regeneration.
In this paper, we define the structure of the ReFi stack and explain
how different approaches can address present limitations in climate
change accounting, markets, and governance. Here, the present
regenerative economics theory can inspire ReFi developments.
Fullerton’s (2015) eight principles for regenerative economics
emphasized the importance of balancing the human economy with
the natural world and prioritizing the creation of long-term value for
people and the planet. They also emphasized the importance of being in
the right relationship; viewing wealth holistically; being innovative,
adaptive, and responsive; empowering participation; honoring
community and place; creating edge effect abundance; enabling robust
circulatory flow; and seeking balance. This approach prioritizes the
integration of social and environmental aspects into economic
decision-making processes. The principles emphasize the need for
democratic decision-making processes, community-based solutions,
diversity, interconnectivity, and a balance between short- and long-
term goals.
However, how these principles can be applied and inform the
developments in the ReFi space requires investigation and discussion
across different communities, such as academia and decentralized
science (DeSci), climate change experts, and web3 developers. Much
research and work are needed to guide the ReFi community path toward
its ambitions, with a focus on engaging and educating policymakers and
other decision-makers to drive systemic change. Communities such as
the Climate Collective
26
, the Blockchain Infrastructure Carbon Offset
Working Group (BICOWG)
27
, and the Sustainable Blockchain
Summits
28
are already playing a crucial role in this area of
coordination and advancing awareness inside and around ReFi.
In addition to this fundamental question, there exist several
growing pains associated with blockchain and related web3 tools,
as well as challenges related to coordination and governance of
on- and off-chain activities. We defined ReFi as a decentralized
movement leveraging blockchain technology and
web3 applications for the coordinated financing,governance,
and regeneration of common pool resources. This definition
highlights the key objectives for ReFi movements, which
includeusingweb3applicationsasameanstoachieve
coordination among parties involved in the regenerative
economy. The ultimate aim is to finance the regeneration of
CPRs in a way that aligns with the basic principles of polycentric
governance. This involves ensuring that ReFi actions are aligned
with relevant principles (Fullerton, 2015) and driving the
fundamental change toward the scales required for changing
global systems.
The ReFi ecosystem comprises complex on- and off-chain
activities, and the achievement of on-chain interoperability that
reflects the governance and rule-setting among the off-chain
communities presents several challenges (Schletz, 2022). On-
chain interoperability requires addressing the standardization
and technological interoperability issues, such as creating carbon
standards, token standards, and web3-native decentralized
storage solutions, as well as developing new governance
mechanisms such as DAO infrastructure. Standardization of
carbon assets and tokens, as well as decentralized storage
solutions, is also essential to enable and maximize synergies
across components of the ReFi stack. Conversely, off-chain
community governance and rule-setting depend on
community engagement, education, and project development.
This requires establishing a shared narrative and best practices, as
well as engaging local communities in the development of
mitigation projects. ReFi aspires to become a voice heard at
the national and international levels of climate policy.
Integration with academic research and the climate
community can aid in closing knowledge gaps in the ReFi and
web3 spaces. Similarly, outward awareness is essential for
developing the digital literacy and capacity needed to
collaborate with climate decision-makers and policymakers.
This will aid in the adoption of a common language with
legacy climate actors. Accordingly, ReFi needs to overcome its
own interoperability limitations before delivering on the promise
of improving interoperability in the larger climate ecosystem.
The complexities of connecting on- and off-chain community
activities within a project and then across interconnected projects
are the source of such limitations (Beck and Jain, 2023). Although
blockchain is frequently portrayed as a governance mechanism, its use
raises new governance complexities that have yet to be addressed. For
example, De Filippi and Loveluck (2016) stated that an “excessive
reliance on technological tools to solve issues of social coordination and
economic exchange”(p.2) is inherently limited. Technology alone
cannot govern socio-technological systems (De Filippi and Loveluck,
2016). How do these technological constraints play out in the ReFi
space? Complex power dynamics exist beneath the technological
infrastructure and risk accentuating historical power dynamics in
which global interests take precedence over local priorities. The
absence of a formal framework for the governance of now digitized
global commons in the ReFi space ensures that, as of this moment, there
is no clarity as to whether ReFi communities will govern the commons
more successfully than countries or incumbent transnational
governance processes. In global systems, such as the ones governing
CPRs, power tends to aggregate centrally, often just within a small
group of actors (i.e., countries and corporations).
5 Conclusion
In this paper, we conducted a critical assessment of the
current state of ReFi and raised critical questions and central
points of critique that, in our opinion, will determine the impact
of the ReFi movement going forward. These questions and
critiques include the challenges associated with blockchain
and related web3 tools and challenges related to the
coordination and governance of on- and off-chain activities.
Interoperability and community governance and rule-setting
implementation are critical challenges for ReFi evolution, and
the absence of a formal framework for the governance of now
26 Available at: https://climatecollective.org/ (accessed 1/19/2023).
27 Available at: https://bicowg.org/ (accessed 1/19/2023).
28 Available at: https://sbs.tech/ (accessed 1/19/2023).
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digitized global commons in the ReFi space raises questions
about whether ReFi communities will govern the commons more
successfully than countries or incumbent transnational
governance processes. The governance and rule-setting of the
off-chain community through the design of community rules for
technology evolution, adjudication, and conflict resolution is a
colossal governance challenge such as the UNFCCC Conferences
of Parties processes (e.g., the Kyoto Protocol and the Paris
Agreement). This raises doubts about the effectiveness of
ReFi in fully embracing Fullerton’s (2015) eight principles or
Ostrom’s design principles for common-pool resource (CPR)
management. Therefore, it is worth exploring alternative
blockchain deployments that can contribute to CPR
governance and regeneration without relying on private for-
profitfinancial instruments for managing public goods. Such
research avenues could shed light on innovative approaches to
address the governance complexities associated with CPRs and
foster the regeneration of natural resources and community
well-being.
We applied this critical approach not to call everything into question
or even state that ReFi does not have meaning but rather to issue a wake-
up call and ask the fundamental question to inspire discussion and future
developments. We think that ReFi has potential to drive large-scale
change, which is currently not sufficiently developed:
1. D-MRV and the creation of an information commons that
leverages the potential of decentralized and transparent data
can increase trust and transparency and support the
development of novel and alternative financing and
governance models.
2. Tokenization and the pooling of index tokens can democratize
financing by making it accessible to a wider range of buyers
and investors. It can also improve liquidity and reduce barriers
to exit for investors by enabling fractional ownership and
transferability of assets. In addition, it is necessary to focus on
providing economic incentives for the long-term development
of projects and ecosystems rather than focusing on and driving
the commodification of single carbon and environmental
assets.
3. ReFi can enable decentralized decision-making processes and
more transparent and auditable governance structures through
the information commons to improve climate action
coordination. ReFi can also enable more inclusive and
participatory governance, allowing stakeholders such as
farmers, landowners, and local communities to have a greater
say in decision-making processes.
Accordingly, Stern (2011) provided a set of seven design principles
for evolving the governance of global commons, which can serve as a
guiding framework for the ReFi ecosystem. First, investing in scientific
research is essential to comprehend the resources and their interactions
with users and stakeholders. Second, establishing independent
monitoring of the resource and its use is crucial to ensure
accountability to a range of interested and affected parties. The
information commons proposed in this study provide such a
function. Third, the meaningful participation of participants in
framing questions, defining the scientific results, and developing
rules is necessary. Fourth, integrating scientific analysis with
broaderdeliberationiscrucial.Fifth,higher-levelactors
should facilitate the participation of lower-level actors. Sixth,
it is important to engage and connect a variety of institutional
forms, from local to global, in developing rules, monitoring, and
sanctioning. Lastly, planning for institutional adaptation and
change is crucial to ensure the regeneration of global commons.
In expanding the ReFi community’s current naive self-
perception, it is essential to integrate scientific analysis with
broader deliberation, thereby driving systemic change. The
question of how we use digital technologies to drive regeneration
needs further exploration and discussion across different
communities. This requires engaging and educating academia, as
well as policymakers and other decision-makers. By implementing
the outlined design principles, the ReFi community can plan for
institutional adaptation and change to drive regenerative practices of
global commons in the long term.
Data availability statement
The original contributions presented in the study are included in
the article/supplementary material. Further inquiries can be directed
to the corresponding author.
Author contributions
MS: research design, conceptual framework, research on ReFi,
and writing. AC: research design, conceptual framework, and
writing. AH: conceptual framework, writing, and review. SS:
conceptual framework, writing, and review. RB: conceptual
framework, writing, and review. MW: conceptual framework,
writing, review, and figure design. All authors contributed to the
article and approved the submitted version.
Funding
This research was supported by the US National Science
Foundation Award (no. 1932220) and the Carnegie Corporation
of New York (no. G-21-58463).
Acknowledgments
The authors would like to thank John Clippinger for his
invaluable insights into the ReFi space and his constructive
feedback on the paper. Additionally, the authors express their
gratitude to the Climate Collective team, especially Anna Lerner,
Alison Filler, and Nirvaan, for generously sharing data and insights
into the current ReFi community.
Conflict of interest
The authors declare that the research was conducted in the
absence of any commercial or financial relationships that could be
construed as a potential conflict of interest.
Frontiers in Blockchain frontiersin.org11
Schletz et al. 10.3389/fbloc.2023.1165133

Publisher’s note
All claims expressed in this article are solely those of the authors
and do not necessarily represent those of their affiliated
organizations, or those of the publisher, the editors and the
reviewers. Any product that may be evaluated in this article, or
claim that may be made by its manufacturer, is not guaranteed or
endorsed by the publisher.
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