What are Flatcoins?

After understanding what stablecoins are, also learn about flatcoins. This innovation that offers purchasing power stability will be discussed in full in this article. Listen until the end!

Getting to know Flatcoins

The world of crypto is filled with various innovations, one of which is flatcoins, a concept that challenges the status quo of traditional stablecoins. Unlike stablecoins that are pegged to fiat like the US dollar, flatcoins tether their value to something much more fundamental: the cost of living.

 By tying themselves to the consumer price index (CPI), flatcoins aspire to offer purchasing power stability, despite rampant inflation in the fiat world.

Nuon: Flatcoin Pioneer

Nuon, the first flatcoin to launch in 2022, pioneered this innovative approach. Nuon's underlying protocol relies on an oracle network called Trufflation. Trufflation tracks the prices of millions of items from various geographic regions to determine the rate of change in the cost of living in real-time.

Armed with this data, Nuon's algorithm automatically adjusts the supply of coins in circulation, ensuring the value of Nuon remains stable at the initial value of $1 on the launch date.

Keeping the Ties: The Economics Behind Flatcoins

Maintaining stable price ties requires reliable economic mechanisms. Flatcoins, in this case, leverage two main pillars:

1. Collateralization: Users who want to interact with Nuon are required to provide collateral in the form of crypto assets such as BTC or ETH. This collateralization serves as a cushion to absorb price volatility and protect the system from failure.

2. Adjustable Supply: Based on inflation data collected by Trufflation, Nuon's algorithm dynamically adjusts the supply of coins in circulation. If inflation causes the purchasing power of Nuon to fall, more coins are minted and sold to lower the price.

Conversely, if inflation decreases and purchasing power rises too high, Nuon coins are bought back and burned to reduce supply and restore bonds.

Advantages and Challenges of Flatcoins

Compared to traditional stablecoins, flatcoins offer several advantages:

• Inflation Resistant: Tieness to the cost of living makes flatcoins resistant to the inflationary shocks that often hit fiat currencies.
• Transparency: The algorithms that govern supply adjustments and inflation data from Trufflation are transparent and publicly accessible.
• Global Adoption Potential: Not tied to a specific currency, flatcoins have the potential to be adopted globally without geographic restrictions.

Despite their promise, flatcoins also face challenges:

• Reliance on Oracle: The accuracy of inflation data from Trufflation is crucial. Data manipulation by malicious parties can have a fatal impact on flatcoin price ties.
• Mechanism Complexity: Compared to stablecoins that rely on simple asset reserves, flatcoins' supply adjustment mechanisms are more complex and prone to errors.
• User Adoption: Reliance on active user participation to provide collateralization can hinder initial adoption, creating a “chicken-and-egg” problem.

Flatcoins vs. Other Stablecoins: A Critical Comparison

Let's compare flatcoins with two other popular types of stablecoins:

• Fiat Stablecoins: Stablecoins such as Tether and USD Coin are pegged to fiat currencies such as the US dollar. This provides relative price stability, but remains vulnerable to inflation eating away at their purchasing power.
• Crypto Stablecoins: Stablecoins like DAI are collateralized by other crypto assets like ETH. While they avoid the risk of fiat inflation, their value is still affected by crypto market volatility.

Flatcoins offer a unique approach by tying themselves to the cost of living, potentially providing long-term stability that is difficult to find in other stablecoins.

Expert View: Mixed Skepticism and Excitement

The crypto community welcomed the presence of flatcoins with enthusiasm tinged with caution. Figures such as Coinbase CEO Brian Armstrong and Ethereum founder Vitalik Buterin took interest in the concept, but also highlighted the algorithm's complexity and potential stability risks.

On the other hand, traditional economists have mixed views. Some praise the innovation of flatcoins and their potential to provide an inflation-resistant alternative to fiat money. However, others worry that attachment to a particular basket of goods could disrupt price dynamics in the long term.

Radical Vision: Flatcoins as Legal Means of Payment

This idea may sound revolutionary, but some envision flatcoins as legal tender in the future. By replacing fiat currencies controlled by central banks

Also read:

What are Stablecoins and How Are They Different from Fiat?

What are Algorithmic Stablecoins?

Apa Itu Collateralized Debt Position (CDP)?

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.