Examining the Concept of Flatcoins: Crypto Tools to Battle Inflation

Last year, as rising inflation became a real problem for the global economy, people were reminded once again of the need to find ways to preserve purchasing power. Stablecoins, stable currencies whose value changes based on inflation in a particular jurisdiction, have emerged as a cryptocurrency-based solution to this problem.

The issue of high inflation has come under the spotlight this year as the world's largest economy, which has traditionally kept prices in check, struggles with a decline in purchasing power. For example, the US inflation rate reached 9.1% in 2022, one of the highest levels since 1981.

The surge prompted the Federal Reserve to act quickly and begin raising interest rates to combat inflation. However, the problem of loss of purchasing power remains for the people and businesses that have to deal with these price distortions.

Flatcoin is designed to solve this problem by providing an inflation-adjusted stablecoin that allows users to maintain their purchasing power. This means that if one unit of this proposed token works to buy a particular item today, it will be available for purchase in five years. now..

The concept of a flatcoin was conceived during a private conversation between Balaji Srinivasan, former CTO of Coinbase, and Sam Kazemian, founder of the Frax Stablecoin protocol, where they discussed the idea of ​​a stablecoin that would support users' standard of living. It's something.

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As a result of these conversations, Kazemian created his Frax Price Index (FPI), one of the first inflation-adjusted stablecoins. This is always adjusted based on 12 months of unadjusted his CPI-U (Consumer Price Index for all urban consumers) inflation. rate. ). This was reported by the US federal government. This is achieved by adjusting the peg rate once a month using an oracle that publishes these numbers on-chain.

However, due to the criticism received due to recent changes to the calculation of the US Consumer Price Index, other protocols have decided to base their fixed currency proposals on the Personal Inflation Index. This is the case with Nuon, a flat coin protocol that uses Truflation, an independent inflation index oracle, to update and correlate its data daily.

Further attention

The concept and practicality of flatcoins has sparked interest in flatcoin development from many people in the industry. Coinbase CEO Brian Armstrong named Flatcoin as one of the startups he's building today to release "the best form of money possible with cryptocurrencies."

Armstrong said companies that can develop this solution will have a "huge impact" on the market.

Base, the Ethereum pool backed by Coinbase, includes flatcoins as one of the “key areas” it can handle through its ecosystem fund. "We welcome input from teams considering their own stablecoin/flatcoin systems or those focused on ways to expand adoption of existing systems," the foundation said in a statement.