Coinbase CEO Brian Armstrong believes that “flatcoins” are the next generation of stablecoins.
“There is something new on the horizon,” Armstrong said in a recent interview discussing the future direction of the exchange. “There are a few teams working on it. We are not building anything in this area yet, but we are interested,” he added.
Flatcoins, a term first mentioned on Twitter in 2021 by former Coinbase CTO Balaji Srinivasan, are intended to move in line with inflation rather than being tied to a currency or asset.
This is not the first time that Coinbase’s CEO has spoken about the technology. In a Twitter thread at the end of August, Armstrong placed Flatcoins at the top of the list of 10 crypto ideas he was most excited about.
What are Flatcoins?
Flatcoins are a type of Stablecoin Designed to track inflation, unlike stablecoins which are pegged to the face value of a currency or asset.
By tracking inflation, it is argued, flatcoins offer better value retention than stablecoins and provide a better return on their investment.
Image: World Bank
According to the World Bank, global inflation has risen sharply over the past two years, meaning a currency’s purchasing power has fallen.
Instead of a fiat currency, projects typically seek to track a basket of assets to collateralize the coin.
In examples Decrypt has seen, developers use a public cost of living index such as the Consumer Price Index (CPI) or a proprietary cost of living index such as Truflation to calculate the value of the flatcoin on a daily basis and adjust the supply of the coin accordingly.
Examples of Flatcoins
There are currently a number of projects building flatcoins. Nuon, said to be the first true flatcoin, is an inflation-proof coin built upon ether.
Spot, on the other hand, is tied to the cost of living in the United States SolanaThe International Stable Currency (ISC)-based currency is pegged to a number of different assets, including bonds, treasuries and gold. Others, like Collypto, pursue real estate and commodities as collateral.
“Existing stablecoins pegged to the US dollar are not only inflationary, but are also borderline predatory,” Richard, the pseudonymous co-founder of ISC, told Decrypt.
He added that current stablecoins Accept customer deposits and invest them at your own discretion. “When market conditions are good, they make billions of dollars in profits. When market conditions are poor, users hold stablecoins without pegging. This means that users take all the risk, while the big players take all the returns from that risk,” he explained. The “best case scenario” is that “nothing explodes, but their purchasing power is eroded by inflation.”
What makes flatcoins attractive, Richard said, is that “not only do they protect purchasing power, but they also reward users for the risk they take.”
He added that he expects a “long tail” of flatcoins with no collateralized debt position (non-CDP) to enter the market after ISC. A CDP stablecoin is one that uses Smart contracts to mint stablecoins and liquidate positions if the underlying collateral declines; Non-CDP stablecoins do not use smart contracts for minting and collateralization.
Flatcoin challenges
As with any cryptocurrency, there are challenges to overcome. In order to track an inflation rate or a basket of assets, the Flatcoin creator must have enough assets to offset the losses that occur when investors withdraw funds or assets lose value.
Use some projects Yield farming to achieve this, but decentralized finance (DeFi) Platforms can and have been the target of hacks, making them potentially risky.
Although Armstrong is excited about the prospect of flatcoins, they face an uncertain regulatory environment. In February this year, the Canadian securities regulator announced plans to ban non-fiat-backed stablecoins, meaning flatcoins could face further hurdles.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.