This is a direct follow-up to Regenerative Finance (Part 2): A New Financial Paradigm.
In the final part of our Regenerative Finance coverage, Innovation Analyst Nathan Lenga covers how ReFi can potentially boost social incentives with NFTs as “impact certificates,” current applications developments and the endgame of this disruptive financial framework.
Social Incentives in ReFi
Financial incentives, including exit liquidity for early contributors, increasing the value of project tokens and receiving grants from decentralised organisations, can lay the groundwork for a regenerative world, social incentives also play a role in achieving this goal. Including a social element that provides those funding public goods with an NFT that transparently and publicly records one’s impact. Charles Munger encapsulated the concept of these social motives when stating; “show me the incentive and I will show you the outcome”. Evidently, when combining the prestige of these social incentives with the efficacy of retroactive public goods funding, philanthropists are capable of more accurately tracking, assessing and displaying their impact.
In stark contrast to the existing societal perspective on paying taxes, ancient Athenians felt great pride in helping pay for the funding and development of their society. Classics Professor, Thomas Martin, elucidated that there was a sense of “we need each other… to survive and flourish — both as communities and as individuals”. Though our stance on paying taxes has shifted, the veracity of that statement remains. This sentiment permeated all aspects of Athenian society. How? Through the social incentive of public respect from other citizens in their democracy.
This type of incentive exists through the popular blockchain application of non-fungible tokens, NFTs. By issuing digital certificates as transparently verifiable tokens to those who have created projects which benefit public goods, individuals have the ability to publicly show off their impact. These NFTs are known as impact certificates. The transparent proof of impact model is a novel idea to spark a regenerative impact on the world through leveraging individuals’ drive to enhance their social standing.
If someone has an impact certificate in their wallet, we can be reasonably sure that their impact was sufficiently meaningful provided the attestation came from a reputable authority. Gitcoin founder, Kevin Owocki, gives the example of a “40k tons carbon removed from atmosphere” impact certificate, which would be signed by Gitcoin governance. Despite being significantly different to the current model, a future where every positive impact on the world is digitally represented as publicly displayed impact certificates is not impossible. These NFTs have the potential to become a Schelling point for those considering funding public goods and mitigate the impact of the tragedy of the commons.
The adoption and usage of impact certificates have already begun, with Gitcoin looking to support projects aiming to develop and issue impact certificates as part of Gitcoin’s Grants 2.0. Accordingly, through sufficient funding, it is likely we will see many more well-known community members exhibiting their positive global impact through NFTs. Beyond this, Gitcoin is additionally looking into bringing these certificates into their fundamental funding mechanisms so donors have verifiable proof of a project founder’s past impacts on the world. Further, Protocol Labs, an open-source R&D lab aimed at developing the public good of Ethereum, issued impact certificates for its conference, Funding the Commons. Future blockchain conferences could be full of individuals justifying why they should be talking with their impact certificates. This adds significant importance to the social incentive behind these NFTs, catalysing more of the community to facilitate the funding of public benefits.
And these are not all the projects building social impacts to facilitate a regenerative world. Dream DAO offers 3-month programs for young people to integrate them into the world of ReFi and Web3. These programs place significant weight on creating positive social impacts through building a community around development, decentralisation and sustainability in finance. Moreover, Proof Of Humanity provides socially verifiable certifications through community mechanisms. With this, individuals’ positive impacts on the world can be authenticated and assigned to their identity.
The endgame for ReFi might look like a world where all our digital assets, metaverse engagement and economic activity on the blockchain contribute to funding public goods and developing a better, more sustainable world. Individuals may therefore no longer focus on short-term profits, but rather on financing public benefits, which in the long term will equate to receiving value. At the same time, community members stop considering private income and rather shift their worldview to account for how they can benefit their society. This will lead individuals and entities to cease abiding by Milton Friedman’s identification that the sole responsibility of every business is to increase its profits.
If we desire to get to this point, we must, as a society, determine what our values are and where they lie. This is arguably the most challenging, yet important part. Nonetheless, the improvements and developments of on-chain governance mechanisms have begun ameliorating this difficulty. Once accurately ascertained, our values should be integrated into our economic models and the world around us through a variety of strategies. These might include financial or social incentives. Upon the execution of these blueprints, the asymmetry between public value created and personal value captured can be closed.
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