Beyond the Hype: Dynamic Connectedness and Portfolio Implications of ReFi and AI Tokens with Energy Markets and Uncertainty Indices.

This paper investigates dynamic connectedness between emerging digital assets, Regenerative Finance (ReFi) and AI tokens, and energy markets from 2021 to 2025. Utilizing a DCC-GARCH model with R² decomposition, we analyze time-varying shock transmission among these assets, renewable energy, fossil fuels, and key fear indices (VIX, OVX, GVIZ). This framework captures evolving interdependencies and volatility spillovers across traditional and digital financial ecosystems, providing a comprehensive understanding of cross-market linkages during a period characterized by significant technological advancement and energy transition dynamics.

Our results reveal that ReFi and AI tokens consistently act as net transmitters of volatility shocks to energy markets, with transmission intensity increasing markedly during geopolitical crises and periods of macroeconomic uncertainty. This finding challenges conventional assumptions about digital assets as isolated speculative vehicles and underscores their growing systemic importance. Conversely, fossil fuels remain net receivers throughout the sample period, suggesting their susceptibility to external shocks originating from digital and renewable energy sectors. The total connectedness index surges significantly during market stress, substantially eroding traditional portfolio diversification benefits and highlighting the limitations of conventional risk management frameworks in contemporary financial markets.

Comparative portfolio analysis demonstrates that minimum variance strategies consistently outperform both naive and correlation-based approaches in turbulent market conditions, offering superior capital preservation and enhanced risk-adjusted returns for investors. These findings provide critical insights for institutional investors, portfolio managers, and policymakers navigating the complex intersection of digital finance, technological innovation, and the ongoing energy transition. Understanding these dynamic relationships enables more effective hedging strategies, improved asset allocation decisions, and better regulatory frameworks in an increasingly interconnected financial landscape where digital and traditional assets increasingly coexist and interact.