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Crypto 101: What Are Flatcoins?
Flatcoins are blockchain tokens whose purchasing power keeps pace with inflation, but that does not fluctuate wildly.
In a recent blog post, Coinbase CEO Brian Armstrong detailed 10 crypto startups or use cases he wants to see. The first was a "Flatcoin": An evolution of the idea of a stablecoin, with extra blockchain-powered features.
A Better Form Of Money
In the post, titled "Request for Builders: Startups I Would Build Today", Armstrong states:
Bitcoin is the gold standard of the internet, and that's a great idea for a currency. But because it has so much upside, many are less willing to spend it as currency today. It still has some growing to do. Fiat-backed stablecoins are a great intermediary step, but they suffer from inflation and seizure – just like fiat money.
An ideal, crypto-powered version of a transactional currency—one that would be attractive to use as a form of everyday money—would need not to have that upside potential. But unlike most current stablecoins, it should be totally decentralized to ensure censorship resistance, and would ideally track consumer prices (such as CPI to preserve purchasing power.
There are different ways of achieving this. One is to back a token with a basket of assets that track CPI. There are already services (such as Truflation) that provide a way of tracking inflation on-chain.
Such a currency would solve at least two serious problems inherent with fiat money:
- The centralized nature of electronic transfers, which also introduces potential for intervention and censorship
- Constant debasement through inflation
Alternatively, an algorithmic approach might be pursued. However, pure algorithmic stablecoins have proven something like the Philosopher's Stone of crypto: A mythical possibility that has cost many hopeful believers their fortunes.
Inflation-Linked Spending Power
In short, a flatcoin is a crypto token whose purchasing power keeps pace with inflation, meaning it doesn't lose value over time. This makes it similar to an inflation-linked bond in the TradFi world. Decentralization means it is less vulnerable to interference, but also introduces engineering challenges.
In 2022, Laguna Labs released the Nuon flatcoin on testnet, designed to maintain purchasing parity with $1 in July 2022. Nuon launched earlier this year, and uses an overcollateralization method to keep a peg that is higher than $1, and rising all the time with inflation. Nuon has not, as yet, achieved widespread adoption, with a supply of less than 120,000 NUON. It is also trading below its peg of $1.021, at just below $1.
As Armstrong comments, "The company or protocol that helps build a better form of money in crypto would have a huge impact."
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