Flatcoins: New approach to beat inflation

Brian Armstrong, the CEO of Coinbase, thinks that “flatcoins” represent the next evolution of stablecoins. In a recent interview, Armstrong described the exchange’s potential future course as “a new thing on the horizon.” “Several teams are working on it. Although we haven’t started construction in that area yet, we are interested in doing so,” he continued.

In contrast to being tied to a currency or asset, flatcoins are intended to move in step with inflation. The word was originally used on Twitter by former Coinbase CTO Balaji Srinivasan in 2021.

The CEO of Coinbase has already spoken about technology. Armstrong ranked flatcoins first among the 10 cryptocurrency ideas he was most enthusiastic about in a post on Twitter in late August.

Flatcoins are what?

In contrast to stablecoins, which are anchored to the asset’s or currency’s nominal value, flatcoins are a sort of stablecoin intended to track inflation. It is believed that because flatcoins monitor inflation, they offer better value retention and a higher return on investment than stablecoins.

According to the World Bank, global inflation has increased significantly over the last two years, which means that a currency’s purchasing power has decreased. Projects often attempt to follow a basket of assets to collateralize the coin rather than fiat money.

According to examples viewed by Decrypt, developers determine the value of the flatcoin on a daily basis and modify the coin’s supply in accordance, using either a public cost-of-living index like the Consumer Price Index (CPI) or a private cost-of-living index like Truflation.

Flatcoin illustrations

Several projects are constructing flatcoins right now. Built on Ethereum, Nuon is an inflation-proof coin that calls itself the first real flatcoin.

While Solana-based International Stable Currency (ISC) is tied to a variety of assets like bonds, treasuries, and gold, Spot is pegged to the cost of living in the United States. Others, like Collypto, use commodities and real estate as collateral. Existing US Dollar-pegged stablecoins, according to Richard, the ISC co-founder who goes by the pseudonym Richard, “are not only inflationary, but they are also borderline predatory.”

Currently available stablecoins accept consumer deposits and invest them how they see fit, he continued. “They earn billions of dollars in profit when market conditions are favorable. Users keep depegged stablecoins when the market is unstable. The “best-case scenario,” he continued, “is that nothing blows up, but their purchasing power gets eaten away by inflation. This means users are taking all the risk while the big boys are taking all the returns on that risk.”

Flatcoins are appealing because, according to Richard, “Not only do they protect purchasing power, but they also reward users for the risk they take.”

He continued by stating that he anticipates a “long tail” of non-collateralized debt position (non-CDP) flatcoins to enter the market after ISC. When minting stablecoins and liquidating positions in the event that the underlying collateral falls, CDP stablecoins use smart contracts; non-CDP stablecoins do not.

Flatcoin difficulties

As with any cryptocurrency coin, there are obstacles to go through. The inventor of the flatcoin must retain sufficient assets to cover losses suffered when investors withdraw their money or when assets depreciate in order to track an inflationary rate or basket of assets.

Some initiatives use yield farming to accomplish this, however decentralized finance (DeFi) platforms are potentially dangerous because they can and have been the target of hackers.

Armstrong is thrilled about the potential of flatcoins, but the regulatory landscape is unknown. The Canadian Securities Administrator revealed plans to outlaw non-fiat-backed stablecoins in February of this year, which means flatcoins may face additional challenges.