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Regenerative Finance (ReFi) is an upcoming and trending web3 project to reconsider how we approach finance, investment, and long-term economic growth. ReFi comes to finance and development holistically, considering the environmental, social, and economic consequences of financial actions, and aspires to establish a regenerative economic ecosystem rather than an extractive one. ReFi builds on previous achievements in Decentralized Finance (DeFi), a subject based on blockchain technology that attempts to establish a more fair financial system by eliminating middlemen, automating transactions using smart contracts, and allowing for completely open and transparent transactions. The expansion of ReFi is being driven by trends in recognizing the economic connection with nature, the instability of extractive economic systems and supply lines, and the application of blockchain technology to enable large-scale natural regeneration for climatic reasons. To comprehend a practical implementation of ReFi, we will investigate the use of tokenized carbon credits, and how carbon credits are converted to NFT with blockchain.
In terms of Cryptocurrency, ReFi stands for Regenerative Finance which seeks to utilize cryptocurrencies and blockchain to make a positive environmental change and resolve systematic issues like climate change. Moreover, people are also interested in ReFi, which wants to utilize the blockchain to enhance the usage of carbon credits. Also, ReFi uses the blockchain as an immutable and traceable system for carbon credits. It also allows retiring the used credits as an appropriate way to prevent misuse. ReFi is quite similar to DeFi (Decentralized Finance). DeFi is a non-traditional approach that involves developing a new internet-based financial system with the help of blockchain in order to create trust between different parties. This approach eliminates the intermediaries' functions and smart contracts are replaced to manage the agreement specifications. Moreover, this is the trending topic among people where the trading activity is increased on DeFi Exchanges. Here, a smart contract plays a major role where the rules and regulations of the business will be written in blockchain where it cannot be interfered with once the contract is developed. Smart contracts lead to another key pillar directly of ReFi: Tokenization.
ReFi expands the DeFi idea beyond typical financial markets and includes new techniques to tokenize various assets. Smart contracts enable digital and physical assets to be tokenized and represented on the blockchain. Each token is a sign for an underlying real-world or digital asset that is cryptographically protected against third-party influence and control. On the blockchain, tokens enable independent verification and real-time auditing of previously static and illiquid assets. ReFi uses web3 technology for public goods and regenerative initiatives, and it is critical to understand the principles and circumstances that underpin the attempts to construct using the technology.
The terms “Carbon Offsets” and “Carbon Credits” are frequently interchangeable, but they refer to two different products that serve two distinct purposes.
Carbon Offsets are established by independent organizations that pull CO2 emissions from the atmosphere. Then the generated offset is sold to the companies that emit CO2. In a sense, the companies that produce offset are directly funded by those organization that emits GHGs.
On the other hand, Carbon Credits are typically developed by the government. Government sets the limit of GHG emissions for the organizations by placing a cap on them i.e. a particular amount of tons of CO2 emission from the organization. The emission of those tonnes is called Carbon Credits.
A carbon credit is the monetary equivalent of one tonne of carbon that is no longer emitted into the atmosphere, It helps to reduce the greenhouse effect. It is possible to generate carbon credits in a variety of ways, including replacing nonrenewable biomass with renewable biomass in factories, which reduces greenhouse gas emissions and reduces deforestation by replacing nonrenewable biomass.
Thus, the difference between the two scenarios is used to compute how much carbon is no longer emitted by this substitution, resulting in credits.
Carbon credits are the money of the carbon market. Companies with a high level of emissions and limited options for reduction might buy carbon credits in this market to offset their emissions. As a result, they indirectly support the reduction effort while also balancing the amount of GHG emissions into the environment.
As of now, we can get an overview of carbon credits and these carbon credits can be used in different ways like selling the carbon credits to the other organization. Similarly, if the organization is planning to emit GHG gas in a certain period, it can be stored in the blockchain and if it reaches one tonne can get a carbon credit from the government or an independent organization. In addition to that it can be used as a subsidy by approaching the organization to swap the crypto token with the respective revenue.
In the carbon market, blockchain applications have witnessed a rise in use cases. Asset tokenization is one of the most prevalent approaches, with various trade-finance, blockchain-backed projects tackling the carbon credit market's inadequate liquidity, delayed speed-to-market, and transactional friction.
Tokenization is the process of converting actual "paper" certificates into entries in a public and digital ledger. It permits the creation of a virtual duplicate of assets on the blockchain.
Tokenization of carbon credits refers to the transfer of data and attributes of carbon credits to a blockchain, which reflects them as tokens.
Carbon credits may be created directly on a blockchain, with all related data visible to the public. A carbon token is equal to one carbon credit.
A token is commonly used to represent a claim on a carbon credit. Accessing and exchanging digital tokens—fungible, semi-fungible, or non-fungible—on the blockchain makes it simple to acquire and exchange carbon allowances.
Investors have been attracted to this trend due to concerns with the carbon market.
Blockchain-powered NFTs, in particular, are making ripples in the offsets market.
NFTs, which are blockchain-enabled receipts, are used for more than merely establishing ownership. An NFT owner can break them into smaller fractions or units for sale.
A buyer cannot acquire credits in amounts less than one metric tonne of carbon, or around the weight of a great white shark. It works well for firms who buy in huge amounts, but it makes routine transactions hard to counterbalance. By allowing average customers to claim ownership of the same carbon credit, fractionalized carbon credits improve market participation and democracy.
Let's take a closer look at Toucan to see how a ReFi use case works. Toucan intends to provide the "catalytic infrastructure that empowers a vibrant on-chain carbon market with the sole purpose of addressing climate change." Toucan provides the infrastructure for Base Carbon Tonne (BCT), a carbon reference token that other organizations and protocols may utilize to create applications. Toucan provides a mechanism for bridging confirmed carbon credits onto the blockchain. "Once tokenized, bridged carbon credits are assets that can be pooled, traded, and integrated" with other web3 initiatives. Since its inception in 2021, Toucan has generated over $4 billion in carbon trading value and tokenized over 50 climate initiatives. Importantly, Toucan offers the infrastructure that any web3 protocol or app may utilize to integrate carbon offsets into their project to make it carbon neutral, while also reducing the illiquid and unverifiable characteristics of current non-tokenized carbon markets.
Non-fungible carbon credits are steadily gaining popularity in the regenerative finance (ReFi) and decentralized finance (DeFi) marketplaces. A carbon credit representing a single tonne of CO2 was recently auctioned off as an NFT for $70,000. So, what exactly is a carbon credit NFT, and how does a Carbon Credits NFT Marketplace generate one?
A Carbon Credit NFT is minted in the same way as any other NFT minting platform, allowing carbon offset holders to mint their credits into NFTs. To put it simply, carbon credit records are digitally secured into an NFT. These systems often leverage low-emission blockchain networks such as Polygon to mint carbon NFTs, which may subsequently be traded on a Carbon Credits NFT Marketplace or generic NFT markets such as OpenSea or Rarible.
As blockchain technology spreads and changes how enterprises conduct business, interact with customers, and generate value, ReFi envisions a route ahead that recognizes the whole ecosystem engaged in economic transactions. ReFi is now being utilized to re-imagine and bring value to the carbon credits market by delivering verifiable, disintermediated, and liquid carbon credits that can be independently validated for accuracy and used as building blocks to enhance the climate impact of practically any organization. Now, Carbon Credits are one of the trending topics in order to address climate change.
As it is a specialized industry, both businesses and Web3 specialists must learn many mutual lessons before they can reach a viable agreement. Previously, carbon credit NFT Marketplace might help connect disparate industries while reaping substantial profits. Therefore, ReFi plays a significant role in helping to enhance and scale these markets going forward.