Written in CRYPTO he
The flatcoins are a type of stablecoin which are designed to fit the inflation. Unlike traditional stablecoins, whose price is tied to a fiat currency (such as the dollar or the euro) or to precious metals, these adjust their value based on the cost of living in a given region.
This means that as increases the cost of goods and services due to inflationit will also increase the flatcoin value. Such an advantage could provide a stable alternative to other cryptocurrencies that are often subject to market volatility.
The popularity of stablecoins
Let us remember that the stablecoins have gained popularity in recent years. They offer users an access bridge by connecting conventional finance with the ecosystem of cryptocurrencies. Both individuals and institutions buy stablecoins with their local currency and use them to purchase various digital assets.
According to American Institute for Economic Researchin addition to its function as an access bridge, the stablecoins They have an alternate use. The monetary policy actions of the central banks during 2020 to 2022 caused inflationary phenomena around the world, prompting many people living outside the West to try to protect their savings in stablecoins pegged to the US dollar.
For example, in Russia the use of stablecoins increased from 55 percent of the total volume of cryptocurrencies in February 2022 to 67 percent in March of the same year, as Russian citizens sought to protect their savings using stablecoins. Although dollars are less inflationary than bolivars or rubles, they are not immune to inflation.
As a result, stablecoins pegged to traditional currencies have become less reliable as a store of value. The fundamental concept behind flatcoins is simple: if they are linked to a basket of goods (similar to the National Consumer Price Index), over time the flatcoin price it will increase as the prices of that basket do, and, in theory, it will decrease if the prices of those goods fall.
However, according to the magazine block sciencethe designer of any cryptocurrency that claims to follow the rate of inflation In order to preserve your purchasing power, you will have to answer some tough questions, especially regarding the prices of which goods to track and the sources of information to use, such as: “inflation where?”, or “for which who?”, and “what goods and services?”.
As various economists have illustrated, the inflation It’s not just “one thing.” Blockscience goes on to point out that there are inflation indices, such as the GDP deflator or consumer and producer price indices, but those metrics vary considerably from one another, also depending on other criteria (such as geographic location, industry or sector). that have been questioned.
Design Challenges: Can a Cryptocurrency Adjust for Inflation?
In the opinion of Blockscience, the design of a flatcoin you should carefully consider its scope before being used. A cryptocurrency whose value is adjusted for inflation will need to be able to deal with high levels of price volatility, such as hyperinflation, in some geographic regions for extended periods of time, while at the same time needing to be able to adjust to low volatility and a lack of inflation. inflation in other areas of the world.
Furthermore, the selection of the inflation measure It is challenging to apply as it can vary significantly even at the national, regional or metropolitan level. And standardized measures of inflation, such as the National Consumer Price Index, do not account for variations in purchasing power among groups made up of different professions, investments, and socioeconomic or demographic compositions.
Finally, from an implementation point of view and adding to the complexity of the design, accurate and timely measurement of the inflation poses a particularly difficult problem given the susceptibility of flatcoins to possible manipulations: the different measurements of inflation in the same places and times, the use of indices to measure changes in prices that are not very transparent and the use of inappropriate goods as collateral for these cryptocurrenciesmake it easier to manipulate the prices of flatcoins.
Bitcoin price today
can see the Bitcoin price today here, as well as today’s price of Ethereum and the main cryptocurrencies. There are various flatcoins on the market; however, the first of them was Nuon, launched in October 2022 and in addition to adjusting for inflation, it uses decentralized finance (DeFi) methods for it – you can find more information about it on its website. Web page.
By: Emilio Carrillo, lawyer specializing in financing, technology and M&A. Twitter: @ecarrillop; Web page: www.bcarrillog.com. The opinions expressed are personal to the author and do not constitute investment recommendations; investments in novel technologies are very high risk and it is possible that all the resources dedicated to them could be lost.