The TradFi mentality is holding back cryptocurrencies
The ever-evolving ecosystem of decentralized finance (DeFi) has emerged as an innovative and experimental alternative to traditional finance (TradFi), demonstrating immense potential while facing a myriad of challenges.
Paradoxically, some of the same behaviors that have characterized TradFi for a long time โ the prioritization of short-term profits and extractive practices that benefit the few at the expense of the many โ have seeped into the world of DeFi, hampering the progress of this revolutionary technology. towards their initial goals.
The detrimental impacts of TradFi are most evident in its consequences on people, through wealth inequality, and on the planet by contributing to climate change. In our industry, we have experienced these consequences through catastrophic business failures, malpractice by centralized actors, and outright scams.
The crypto space must realign its values โโand redirect its focus towards democratizing access to financial tools and fostering financial inclusion, as it was conceived to do.
The key to unlocking this transformation and boosting the industry lies in embracing the regenerative economy.
What is Refi?
Regenerative finance (ReFi) leverages DeFi tools to forge a regenerative economic system.
The concept of a regenerative economy is largely attributed to economist John Fullerton, who inserted a comprehensive framework in his 2015 article, Regenerative Capitalism. Drawing inspiration from the inherently regenerative systems that we can observe in nature, Fullerton describes the regenerative economy as one that values โโthe replenishment of resources and the equitable distribution of benefits among all participants in the system.
ReFi embodies this notion of a self-sustaining economic system that focuses on the continuous renewal of resources. Just as important is the fact that ReFi seeks to democratize control and access to financial services.
Why is it the future?
Crypto has arguably presented the most promising avenue for implementing a regenerative economy yet.
ReFi stands apart from existing sustainability efforts by its pragmatic approach. By approaching the system holistically, ReFi recognizes the strengths of capitalist markets while rectifying their shortcomings, ensuring that human and ecological well-being remain at the center of decision-making.
ReFi and DeFi recognize the value of transparent, collaborative, and decentralized decision-making processes that can transform the economic landscape.
As DeFi continues to evolve and embrace the concept of a regenerative economy, it can become a powerful tool for driving systemic change, bridging the gap between economic growth and social equity.
Join the community where you can transform the future. Cointelegraph Innovation Circle brings together the leaders of blockchain technology to connect, collaborate and publish. apply today
How can builders get involved in ReFi?
Prioritize sustainable sources of capital
Companies looking to participate in the regenerative economy must look for sustainable income streams, while also diversifying the ways in which they generate capital. Doing this creates a more stable and resilient financial foundation.
What constitutes a sustainable source of income will vary depending on the nature of a business, but it can take many forms. It may look like platform or protocol fees, token yield farming rewards, grant programs, or industry associations.
Although securing funds through sustainable revenue channels may require more time and effort compared to conventional methods like fundraising, the long-term benefits are significant.
A diversified revenue stream can help companies better withstand market fluctuations, promote financial stability, and contribute to the development and maintenance of a regenerative financial ecosystem.
Deliver value and embrace collaboration
To qualitatively assess our commitment to a regenerative system, we can ask ourselves a simple question. Are we putting more value back into the system than we are taking away?
While the value added to the system may be obvious in the form of products and services we offer, there are countless other ways to add value. By collaborating with others in the space and building with transparency, we can substantially strengthen the industry as a whole.
Aim for real-world impact
Nothing benefits the long-term health and proliferation of cryptocurrencies more than solving real-world problems. This means that the value we create beyond the crypto ecosystem can have an even greater impact than the value we create within it.
If we can address issues across multiple industries, we can further expand the utility of cryptocurrencies, create strong sources of capital, and increase the resilience of our regenerative economy.
The real-world impact goes beyond paid work for companies in other industries. We cannot take for granted the impact that cryptocurrency companies can have on their communities, collaborators and partners. Although difficult to quantify, the value created for people participating in a system where they are given a true sense of ownership and decision-making power is an important incentive that keeps people participating in a regenerative system.
Be an advocate and educator
Embracing the ReFi mindset requires companies to carefully assess their short-term goals and ensure they align with a broader, long-term vision that focuses on systemic sustainability.
As a business transitions from the status quo to regenerative approaches, it is crucial to communicate effectively with community members, partners, customers, and investors. Sharing the organizational vision and how it aligns with ReFi helps set accurate expectations while fostering trust.
Ultimately, no single organization or individual can create a regenerative financial system. To be a true participant, it is important to create a network of people and organizations that are also exploring similar capabilities.
As we grapple with the social and environmental consequences of our legacy institutions, ReFi is a promising and pragmatic model that harnesses DeFi's more virtuous goals in pursuit of a fairer, more transparent, more equitable, and more sustainable economy.
As with all things crypto, the current state of regulatory uncertainty limits the experimentation that can occur. ReFi principles lead to a culture of healthy self-regulation, limiting outcomes that lead to the kind of regulation that stifles innovation.
As challenging as the task of mainstream ReFi adoption is, it holds an awe-inspiring level of possibility. As crypto participants recognize the long-term benefits of ReFi and commit to promoting it, a more sustainable and inclusive financial ecosystem is coming into focus.
Parker McCurley is pioneering a renewed digital age as Co-Founder and Senior Contributor at Dao decent.
This article was published via the Cointelegraph Innovation Circle, a vetted organization of top executives and industry experts in blockchain technology who are building the future through the power of connections, collaboration, and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.
Learn more about the Cointelegraph Innovation Circle and see if you qualify to join
