Governance of ReFi Ecosystem and the Integrity of Voluntary Carbon Markets as a Common Resource

Abstract

Addressing the shortcomings of the Voluntary Carbon Markets (VCMs), a nascent blockchain industry has disrupted this area with an ever-growing number of projects leveraging open-source, decentralised base-layer platforms (i.e. Ethereum, Cosmos) and business-oriented decentralized applications (Dapps). On top of this infrastructure, community-driven decentralized autonomous organizations (DAOs) are building new socio-technical systems for both decentralized finance (DeFi) and, more recently, regenerative finance (ReFi). Both areas are making their way into carbon markets with the promise of delivering better mechanisms for transparency, efficiency and greater accessibility. This paper investigates the goals, scope, and intended outcomes of blockchain-based ReFi projects in the VCM space. In particular, it explores the potential for commons-based outcomes emerging from peer-to-peer configurations in the VCM. The paper proposes a qualitative assessment drawing upon text-data from industry whitepapers to analyse the cases of Celo, Regen, Toucan, Klima and Moss. The findings show ReFi ecosystem as a low-transaction-cost environment that enables open-source prototypes of peer-production for carbon accounting and trading. Ultimately, this materializes in application interfaces sustained on base-layer blockchains running smart-contracts and tokens. The tokenization of physical assets or rights (i.e. renewable generation/storage units or forestry land) and the automation of operations (i.e. exchanges) via smart contracts provides participants with new affordances to enable secured coordination. The preliminary conclusion is that, while ReFi organizations seem to be Ostrom-compliant with regard to some principles (e.g. clearly defined boundaries, procedures for making own rules, monitoring, or minimal recognition of rights) others are still ad-hoc practices or work in progress (e.g. graduated sanctions or dispute resolution mechanisms).

Keywords: Blockchain, VCM, Voluntary, Carbon, Markets, Regenerative, Finance, ReFi, Commons, P2P

JEL Classification: Q55