Inflation has been a real menace for financial markets this year. Every time stock or crypto prices gain an iota of momentum, the US Federal Reserve releases new consumer price index data showing ever-increase inflation. Then, the Fed is forced to prop up interest rates to combat rising prices. And every time that happens, cryptos generally take a sharp downward turn. However, there’s a new type of stablecoin in town. It is called the flatcoin and could be the answer to raging inflation.
But what is a flatcoin, and how does it work? Tag along to find out.
What are flatcoins?
In essence, flatcoins are stablecoins. However, instead of tracking the price of an asset, like gold or the US dollar, flatcoins are pegged to the cost of living. Therefore, when the cost-of-living increases, so does the valuation of the coin. As such, the purchasing power of such coins remains constant or “flat”.
Therefore, if you are able to purchase a cup of coffee for 1 flatcoin today, you should be able to purchase the same cup of coffee for 1 flatcoin 10 years later as well. This is because a flatcoin is meant to increase in value along with the rate of inflation. As such, the depreciating effect of inflation is lost on flatcoins.
Say hello to Nuon, the first-ever flatcoin
On October 24, blockchain development company Laguna Labs launched the testnet for the first-ever flatcoin, Nuon. It is an overcollateralised flatcoin pegged to the value of $1 as of July 1, 2022. Nuon’s algorithm monitors inflation and continuously adjusts the coin’s valuation based on data from an oracle network known as Truflation.
Truflation is a decentralised oracle network that uses millions of real market prices to calculate the current rate of inflation. Therefore, if the project were live today, Nuon would be worth much more than its $1 valuation from July 1. If the value of Nuon increases or decreases below its target, the algorithm creates arbitrage opportunities for traders, who then keep the token at its peg.
Will Nuon replace other stablecoins?
While Nuon is a type of stablecoin, its creators do not intend for it to compete with the likes of Tether (USDT) or USD Coin (USDC). Instead, the coin is meant to be a hedge against inflation, like Bitcoin, but minus the volatility issues.
“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,” said CEO of Laguna Labs, Stefan Rust.
When will we see Nuon in the market?
According to its whitepaper, the Nuon mainnet is scheduled to go live in Q4 of 2022. However, as of now, Nuon only has its testnet (Ju) live, where users can connect their wallet and try out the mint facility. Perhaps, if all goes well, Laguna Labs will launch the flatcoin in the first half of 2023, according to an article by Blockworks.
Conclusion
The concept of flatcoins has been discussed positively by several crypto experts, including the ex-CTO of Coinbase, Balaji S Srinivasan, co-founder of Ethereum, Vitalik Buterin and founder of Coinbase, Brian Armstrong. As such, flatcoins show real potential as a concept. However, whether they are able beat inflation or crash to $0 like their algorithmic counterpart, TerraUSD (UST), remains to be seen.
