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Here comes Flatcoins 🔵
As inflation rates persistently rise, the crypto world introduces "flatcoins". But what are they, and can they truly protect your wealth against inflation? Let's delve into it.
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Ever felt like your crypto just isn't keeping up with your real-world expenses?
Enter Flatcoin - the cryptocurrency that's pegging itself not to traditional assets but to the real cost of living.
A crypto that could keep your pizza costs consistent.
Today's pizza price = Pizza price five years later?
The term "flatcoin" was first introduced by ex-Coinbase CTO Balaji Srinivasan on Twitter in 2021.
Its A sub-category of stablecoins -flatcoins are pegged to the cost of living instead of traditional assets like fiat currencies.
Purpose: To combat the depreciating value of money due to inflation.
Leading the Charge
Laguna Labs is unveiling the first such coin, (Nuon) attempting to harness the consistent nature of stablecoins with bitcoin's inflation protection.
"We're trying to blend the best of both worlds where we take the user experience from the stablecoin market and the inflation hedge from bitcoin," says Stefan Rust, CEO of Nuon developer Laguna Labs.
Nuon is the first-ever flatcoin still in its test phase, expected to go live in Q1 2023.
Uses a blockchain oracle (eg - Chainlink) to gather data on inflation rates and purchasing power.
Requires users to deposit collateral to ensure over-collateralisation.
Employs a decentralised protocol, giving control to its community via governance.
Introduced the 'Truflation' algorithm, adjusting its price according to current inflation rates.
Value: NUON is designed to mirror the value of $1 as of July 1, 2022. With daily recalibrations, a nuon that was worth $1 four months ago would be theoretically valued at about $1.04 now.
Truflation Algorithm: Nuon employs the Truflation algorithm, which analyses price changes across a whopping ten million items. The derived daily inflation estimate aligns closely with Federal Reserve estimates.
How Nuon Maintains Its Peg
Overcollateralisation: To maintain its peg, nuon is intentionally overcollateralised.
Collateralisation Ratio: Nuon adjusts its collateralisation ratio, a method used to ensure the coin's value remains consistent.
Need for Flatcoins?
US inflation has been consistent since 1954, challenging the maintenance of an ever-rising peg. The increased global inflation in recent years has eroded the purchasing power of currencies.
Traditional stablecoins are pegged to assets like USD or precious metals but are vulnerable to inflation.
Inflation causes fiat currencies to lose purchasing power over time, and cryptocurrencies often follow suit since they're still somewhat tied to traditional currencies.
Unlike traditional cryptos, flatcoins, like Nuon, are designed to stay consistent in value regardless of inflation. An apple that costs 1 Nuon today would theoretically still cost 1 Nuon in five years.
Bitcoin vs. Flatcoins
Bitcoin is widely recognised as an effective inflation hedge. However, its inherent volatility may deter some investors. Flatcoins aim to combine the stability of traditional stablecoins with Bitcoin's inflationary protection.
Comparison to TradFi
Traditional finance offers inflation-linked bonds as a counter to inflation. These bonds adjust interest rates grounded on inflation trends and gained traction post the Great Recession. However, when inflation abates, flatcoins, similar to these bonds, might become less attractive.
Other examples of flatcoins
Spot: This flatcoin's value is linked to the cost of living in the U.S.
International Stable Currency (ISC): This Solana-based flatcoin is pegged to a mix of assets including bonds, treasuries, and gold.
Collypto: This coin traces real estate and commodities for its collateral.
LendrUSD — A unique stablecoin that has its price target indexed to inflation.
To match an inflation rate or a basket of assets, flatcoin creators need to hold adequate assets to counteract losses when investors withdraw funds or assets lose value.
While decentralised finance (DeFi) platforms can be used to achieve this through yield farming, they are vulnerable to security breaches.
Regulatory challenges also loom for flatcoins. For instance, Canada has expressed intentions to ban non-fiat-backed stablecoins, which could impact flatcoins.
Blockchain Pundits Weigh In
Balaji S. Srinivasan, the former tech leader at Coinbase, is pretty intrigued. He's been discussing flatcoins as a way to sidestep the dollar's pitfalls.
Read the thread.
Vitalik Buterin, the mastermind behind Ethereum, suggests that crypto might need a break from being overly reliant on any single asset. An unbiased Consumer Price Index as a peg? Could be worth exploring.
Brian Armstrong of Coinbase says:
“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.”
What would it look like to make a better form of money enabled by crypto? It would probably be totally decentralised and track consumer prices to preserve purchasing power, or something close to it. It may need to be backed by a basket of assets to track CPI, or use an algorithmic approach. Services like Truflation even offer a way to potentially track inflation on-chain today, to further decentralise it. The company or protocol that helps build a better form of money in crypto would have a huge impact.”
"It's a new thing on the horizon," Armstrong said in another recent interview discussing the future direction of the exchange. "There's a couple teams working on it. We're not building something in that realm yet, but we're interested in it," he added.
While flatcoins could potentially be a hedge against inflation and the ever-increasing cost of living, it's too early to predict their success or failure. As of now, the industry is watching and speculating.
TTD Week That Was 📆
The week of Binance, SBF and the underlying volatility.
Friday: Volatility's knocking 🌪️
Thursday: GPT takes water?🚰♒
Wednesday: Sup Binance? 🤔💭
Tuesday: FTX big sale 🛒
Monday: Vitalik Hacked 😲🔔
TTD Week in Funding 💰
Flashwire $10 million. A crypto digital bank, crypto VISA debit card named Stella Pay and a crypto lending platform called Anxin Finance.
Layer N $5 million. Layer 2 network on Ethereum specifically designed for and to scale DeFi.
Only Dust $3 million. Permissionless innovation on open platforms to build 'trustless' p2p networks and token-driven incentive and governance systems.
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The Token Dispatch is a daily newsletter that takes you on a 4-5 minute drive through the wild west of the Crypto World. Daily in your email inbox @13:00 GMT. Almost always.