Can regenerative finance clean up crypto's dirty image?

An explainer by CNBC Television exploring the regenerative finance (ReFi) movement, the intersection of crypto and climate, how blockchain is being used to fund environmental projects, and whether ReFi can clean up crypto's reputation for being heavy on energy consumption.

This transcript is an accessible copy of the original video transcript (opens in a new tab) published by CNBC Television. It has been lightly edited for readability.

What is regenerative finance? (0:00)

What comes to mind when you hear the term "ReFi"? If you're a homeowner, you might think of refinancing your home. But for crypto, it has taken on a whole new meaning. Regenerative finance has been described as the intersection of crypto and climate. It's a financial model that incentivizes community actions to help solve systemic issues like global warming and waste management.

Nirvaan Ranganathan: ReFi is really combining the best of decentralized finance — DeFi — with the concepts of regenerative economics, and basically having a toolset that creates financial instruments, financial markets, and an economic system that has positive externalities — bringing benefits to people, to their communities, and ultimately to the planet.

Crypto's energy problem (0:48)

Crypto has gained a reputation as being harmful to the planet, as digital assets have been known to require a lot of electricity usage, which can result in greenhouse gas emissions — especially in communities near mining facilities. In August of last year, the White House estimated the total global electricity usage for crypto assets was between 120 and 240 billion kilowatt-hours per year — a range that exceeds the total annual electricity usage of countries like Argentina and Australia.

Since then, Ethereum shifted from proof of work to proof of stake, significantly slashing its energy use. But Bitcoin is still an energy hog — a more recent study found that Bitcoin mining used 95.58 terawatt-hours per year.

Carbon-negative blockchains (1:31)

Celo, a blockchain protocol that launched on Earth Day three years ago, is part of a growing movement hoping to change that narrative. Its founders call Celo "the home of ReFi."

Nirvaan Ranganathan: Celo is carbon negative, and that's because years ago the community passed a governance proposal that decided to offset the carbon that the network produces. Since then, it's been automatically buying carbon offset credits literally every day to offset actually more than the carbon that it contributes — which is why we say it's carbon negative. Celo was really the first network to do this, which paved the way to help change the narrative around blockchains and whether they can be an actual force for good in the environment.

ReFi projects in action (2:16)

One example of ReFi in action: a project called Silvi, which is helping to support forestation efforts in a rainforest in Kenya. They've created a system that cheaply incentivizes people to plant trees, and then for others to go and verify that those trees are there — simply by using their phones, taking pictures of the trees, and using the GPS on the phone as a way of providing evidence.

Nirvaan Ranganathan: What's really nice about this is what Silvi is doing in Kenya can be done anywhere in the world because it's built on crypto rails, which means that people are being incentivized and paid with tokens. That can operate across all borders. It can operate even if someone doesn't have a government-recognized ID and might not be able to receive money in a bank account — they can still receive money in a self-custodial crypto wallet, making that design work perfectly anywhere in the world where they choose to deploy it.

Another project is the Collectivo Guilder, a community currency in Curaçao in the Caribbean. They're incentivizing local spending through a community currency, but the currency itself is also backed by trees and other ReFi assets on the island. This incentivizes planting of trees in Curaçao in addition to incentivizing local spending — a compelling ReFi project that is both good for communities and good for the climate.

Growing momentum (3:50)

The ReFi movement has been gaining traction. In April, several hundred people attended a Blockchain Climate Summit held by Celo in what was called the "ReFi House" in Austin, Texas. It took place at the same time and in the same city as one of the world's largest crypto conferences, Consensus 2023. The main goal was to create a space for ReFi builders and "Regens" — as folks like to call themselves — to come together, share ideas, and talk about the work they're doing. A lot of collaborations were formed there.

Arlone visited the ReFi House in April. He's the CEO of UpRight, an acceleration platform for Web3 founders. Its flagship program, Celo Camp, is a virtual accelerator for the Celo ecosystem. The goal is to help founders from all over the world launch and scale their projects. Celo Camp receives 800 applications a year from startups across different verticals, including DeFi and NFTs. UpRight executives say last year an increasing number of ReFi applications came in, highlighting the growing interest from global builders moving into the space.

Pitchbook has been tracking capital invested in ReFi, with activity peaking in the third quarter of last year when the overall crypto market was still thriving. However, this year, amid the current downturn, investments and the number of deals has dropped.

The outlook for ReFi (5:15)

Analyst: I love the concept. Whether it's an industry in its own right — I'm always like, "Let's wait and see how this plays out." But I do think that the increased transparency blockchain can provide has always provided a mechanism for more accountability — whether that's accountability in supply chains, how we handle waste, creating sustainable patterns of behavior, or engaging in different kinds of grid activity, which we're already seeing.

Disrupting the energy industry is a pretty lofty goal, particularly when you're talking about a technological underpinning that will do that differently and a governance underpinning via ReFi that will do that differently. There's a lot of incumbents and a lot at stake. I'm really excited about it. I think it is very new, and I always hesitate to land a label on something because that puts too much pressure on something that is really new. A lot of these experiments are going to fail fast — that doesn't mean there's not something very valuable here and something that we should be giving credit and air to so that it can flourish, thrive, and hopefully create change that will benefit all of us.

Reporter: And of course, there are still those that believe crypto is intrinsically bad for the environment, even after events like the Ethereum Merge in September of last year. What would you tell those people?

Nirvaan Ranganathan: First of all, the consensus mechanism that is used in a blockchain can really affect its energy efficiency. Proof of stake networks have been proven to be very energetically effective. Right now, "refi" means refinancing your house for a lot of people in the world, and regenerative finance in the last year has become a household name within the crypto community. But it will take probably another year or so to really reach the broader demographic. The systems that people are creating in these ReFi communities are so big, so exciting, and so ambitious that a lot of people are now starting to take note.