Spillover dynamics between ReFi tokens, renewable energy tokens, energy markets, and the carbon market: determinants and implications for portfolio diversification

As global efforts accelerate to combat climate change, sustainable digital assets, such as ReFi tokens and renewable energy tokens, have emerged as innovative instruments supporting decarbonization and clean energy investment. This study assesses the static and dynamic spillovers of the connectedness of ReFi tokens, renewable energy tokens, energy and carbon credit markets using the Quantile VAR (QVAR) model and the data from October 20, 2021 to February 28, 2025. Connectedness is notably higher during periods of heightened market instability, such as wartime, than during stable conditions. In the median quantile, the ReFi tokens, clean energy like , Wind, dirty assets like Coal act as shock transmitters, renewable energy tokens like ENERGY, SNC, dirty energy like Oil, NG as well as clean energy assets like Biofuel and Carbon assets are net recipients. In extreme quantiles, the ReFi token like MOSS and TOUCAN, fossil fuels such as Coal, NG, and Carbon asset acts as receivers. Quantile-on-Quantile Regression (QQR) shows that the system is influenced differently by the macro-financial variables at different quantiles but with stronger effects at extreme market conditions. Adding ReFi and renewable energy tokens to an energy-carbon portfolio improves diversification prospects, per optimal portfolio analysis. In light of geopolitical concerns, our findings provide crucial insights for portfolio managers and policymakers, highlighting the significance of market stability, strategic portfolio modifications, and efficient hedging techniques.