ReFi is the New DeFi: Credit Backed by Goods, Skills, and Services

Refi is the new DeFi. If there was ever a time for the crypto skeptics to ask regulators to tighten their screws, it is now, says Ashley Taylor Buck, the co-founder of ReSource. ReFi could be the answer.

The crypto industry is battling turmoil. Market prices are dropping. There are meltdowns of crypto lending firms that were once held up as the embodiment of the industry’s best. All of this amounts to a collapse in public trust in this movement’s future. 

In order to find a way forward, we must first address the root cause of this ailment. This is opposed to slapping on a Band-Aid over the symptoms. There needs to be a strong foundation for real innovations to come. We need honest conversations about the systemic issues within DeFi that have led us to where we are. 

By now, it should be clear that what started with the Terra Lab crisis is not just a nasty blip. Amidst a flurry of lawsuits and investigations, the legitimacy and longevity of crypto has been called into question. 

It begs the question, ‘Were our fundamentals strong to begin with? Or is this the exodus we needed to rethink the dominant industry approach?’ 

The crypto credit crisis contagion 

There has been much analysis and debate over the Terra Luna and Three Arrows Capital collapse. To what extent did the implosion trigger the contagion spread across the broader market? 

The fallout and repercussions of this has been felt across the industry and by ordinary investors, prompting comparisons to the 2008 global financial crisis. We have always known that there are strong links between crypto and the broader financial market. But the fall of some of the ‘safest’ projects in crypto tell us something. It is crucial to revisit the fundamentals of some of these protocols and the industry’s relationship with credit as a whole. 

The Terra debacle called into question the stability and speculative nature of stablecoins. These are not based on underlying “real” assets but on an arbitrage mechanism of which the value of the Terra USD (UST) depended on. 

Through this mechanism, traders are incentivised, through high yield offerings, to swap UST for Luna tokens and vice versa, to maintain its peg to $1. A coordinated attack that set off a series of unstaking and selling of UST caused severe price volatility. The arbitrage mechanism could not rebalance it, resulting in a “death spiral” for both Luna and UST. Many crypto projects and funds relied on UST as a stablecoin. The UST collapse created a domino effect in losses throughout the entire crypto ecosystem.


The fall of Terra Luna is reminiscent of shockwaves felt across the global economy after the collapse of the 2008 U.S subprime mortgage market. Except there was no central entity stepping in to save the day. The edifice of “too big to fail” didn’t apply in the crypto world.

After the Terra fallout, there was a flurry of heavy selling and renewed calls for self-regulation. The foundation of a full blown crypto lending crisis was laid bare. 

One by one, top crypto lending firms began to move their funds in the face of liquidity pressure and overleveraged positions. There was an insolvency crisis quickly brewing. There was withdrawal freezes by centralized crypto lending platforms like Celsius.

It became clear that unsustainable yields and under-collateralized loans was exactly that – unsustainable. It created the perfect risk profile for high volatility and platform failures in times of market volatility.

What is evident from this crypto lending crisis is the need for more transparency and accountability in the space. It was an echo of the 2008 financial crisis. Lenders got by with high-risk assets that were under-collateralized and overvalued. This grew from poor risk management and decision making. And, retail investors paid the price.

This is a systemic failure that requires an urgent refocus on greater transparency and accountability in the space. And a relook at the lending model on which these firms were based is needed.

Other market conditions

This crypto bear market coincided with a set of macroeconomic factors that combined to set off the seemingly perfect storm. Bitcoin prices slumped by a nearly 70% drop in value from its all-time high in November 2021. The US inflation rate rose by 9.1%, a four-decade high. This was not limited to the US, with Central Banks all over the world scrambling to tighten monetary policy. This was in an effort to dampen inflation.

It’s clear that crypto markets are closely and increasingly intertwined with traditional stock markets and macroeconomic shocks. The world has also been dealt with ongoing uncertainty over the Covid-19 pandemic. The recovery phase, geopolitical uncertainty from the Ukraine crisis, and regulatory actions by the state all have an impact on crypto’s volatility. 

ReFi: A possible solution

One of the key innovations in crypto is decentralized finance (DeFi). It is a system of finance poised as an alternative to traditional finance designed with the goal to “bank the unbanked.”

The idea is that anyone anywhere with an internet connection can access and benefit from this alternative system. With the onset of widespread adoption of crypto, the DeFi space has also accelerated, both in supply and demand. 

Blockchain technology has reimagined the way centralized financial institutions operate. By removing intermediaries, DeFi is designed to disrupt the way money is managed and accessed globally. In the struggle to achieve ‘mass adoption’, however, we must recognize that barriers to entry to DeFi and crypto still exist. 

This crypto winter should serve as a reminder of this. We must guard against future storms. We must witness greater adoption. And we must remain focused on building protocols that are digestible, and accessible in a broad definition. And, we must have a real-world use case, meaning designed for people outside of the industry. 

ReFi: The future of finance is here

Regenerative finance (ReFi) is a decentralized movement to create economic systems that create more balanced relationships between each other and our natural ecosystems. The ReFi movement aims to create a new and improved financial system. That is, people and the planet are the priority for the economy. Not conglomerate, profit-seeking organizations. 

At the core of the ReFi movement is the goal to positively impact the lives of people, communities, small businesses, and others. It was created to put money into the hands of those working toward a better future. It does this by funding projects focused on respecting the environment. And it empowers communities who have been disenfranchised from the global financial system. 

In a nutshell, ReFi aims to provide financial support to projects that are making a lasting, positive impact on the world. 

ReFi can help people who historically have not been able to access, or who have been excluded from, traditional financial institutions. It does this using the concept of 

a mutual credit system.

Blockchain-based mutual credit is the idea where people can borrow from each other. This bypasses traditional financial institutions that are increasingly serving the few and not the many.

ReFi aims to make credit accessible to more people by developing new, regenerative economic models. 

The regenerative economy and a mutual credit system

The regenerative economy can be defined as a circular economic system. The aim is to enhance life and wellbeing without depleting capital resources. 

Mutual credit is a multilateral exchange network in which endogenously created currency serves as a medium of exchange. It is reliant on our resources and our contributions to society as a basis for rethinking their financial value. Each network consists of members who mutually agree on what the credit system can be backed by. 

Members can create their internal monetary system that is backed by commodities such as products, services, and more. It is not dependent on pre-existing monetary/ capital investment. 

Members can access near interest-free loans granted in the internal currency of the mutual credit system. This loan can be used to purchase what is needed from other members of the network. A member will settle their debt by selling their products or service to other members in the network. 

Why blockchain mutual credit systems offset risk

When it comes to cryptocurrency, those who invest are at risk of volatility. This can be fluctuations in the stock markets, political factors, and inflation rates. This puts even the ‘safest’ investments, like stablecoins, at risk too. Volatility is another external variable that removes independence and autonomy from holders. Again, a person’s financial well-being is dependent on external factors that are usually outside of their direct control. 

Mutual credit on the blockchain is built to provide decentralized credit approval with smart contracts that offset accumulated risk. Unlike traditional mutual credit systems, there are no central authorities and no risk of the system turning into a dynamic reminiscent of a traditional bank. 

Instead, mutual credit on the blockchain provides stability mechanisms while resolving problematic and irresponsible risk management we are witnessing today. Mutual credit systems are accessible and community focused. Naturally, these are flexible and anti-cyclical. This means they are resistant to external financial factors that otherwise would lead to a downturn in the market. 

ReFi can better equip and protect the 99%

Using goods, skills, services, and human potential, people can move away from traditional finance or crypto liquidity. ReFi has the potential to revolutionize the financial security of individuals and business owners. At scale, borrowing from each other should be more affordable and designed to support growth of the many, rather than just the few. It should lead to better and more accessible rates over time, as we remove the inefficiencies and extractive tendencies from today’s centralized models. 

ReFi can redesign what currency means. By using credit that is backed by goods, skills, services, and human potential, people can move away from being dependent on volatile digital and inflationary assets. 

Preventing another crypto credit crisis 

Despite macroeconomic factors that have impacted the crypto and traditional finance sectors, there is hope. The bear market has forced investors to be more conscious of their financial decisions.

ReFi and blockchain-based mutual credit systems are starting to shape the way businesses are run. And, how credit lines are accessed and what credit means as a whole. It addresses the exclusionary culture of traditional financial systems by allowing more people access to credit. 

It also shows that people do not need to depend on traditional finance for loans. Therefore ReFi removes the risk of falling into unmanageable debt. A blockchain-based mutual credit system aims to shift the narrative of profit over people and planet in the crypto space. And it helps to foster a movement around how we build a more equitable, regenerative society. 

About the author

Ashley Taylor Buck is a blockchain entrepreneur who joined the early Ethereum community in 2014 with a vision to further social mobility with this new economic paradigm. She co-founded ReSource to empower local communities and small businesses to grow cooperatively by offering credit to each other. Previously she was the first employee of ConsenSys, a Community Microgrid Specialist for LO3 Energy/Brooklyn Microgrid, pioneered the Cyberthreats and UN Sanctions program for Compliance and Capacity Skills International, and founded a community and events space ReGenCy in Brooklyn.

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