How inflation-linked flatcoins can build wealth

Last month, US-listed crypto exchange Coinbase revealed plans to support the creation of flatcoins on its recently launched layer-2 network called Base. In a post on Twitter, the exchange published an open call for developers to work on the innovative tokens along with three key areas it considers “critical” to the future of Web3 . Flatcoins are inflation-pegged stablecoins that negate the negative effect of price rises on the purchasing power of the currency they track, thereby helping to preserve and grow an investor’s wealth regardless of prevailing market conditions. In the current inflationary environment, where the value of major global currencies is being eroded at an accelerated rate, flatcoins could hold the answer to the challenge of wealth preservation. In fact, such an inflation-pegged asset already exists — the Nuon flatcoin. Nuon is soft-pegged to the current value of a basket of goods via a dynamically adjusting algorithm. The flatcoin’s value in US dollar terms changes based on Truflation, an independent inflation index that estimates the real percentage rise in prices in the US on a daily basis. This ensures the purchasing power of one Nuon flatcoin remains constant, whatever the real rate of US inflation may be. While the recent economic backdrop has accelerated the need for a US dollar alternative, the writing has been on the wall for a long time. Since the 1970s, the greenback has lost a staggering 95 per cent of its purchasing power due to inflation. In the past two years, the economic fallout from the Covid-19 pandemic and the US Federal Reserve’s rampant money printing pushed inflation well past the central bank’s 2 per cent target. In February, US consumer price inflation came in at 6 per cent, having reached a high of 9.1 per cent in June. On top of this, the dollar is in danger of losing its dominance in the global monetary system. Having served as the primary global reserve currency since the end of the Second World War, the greenback has conceded some of its strong position to up-and-coming global rivals. In the past two decades, the US dollar has lost 12 per cent of its global market share, which now sits at 59 per cent. This is due largely to the rising power of the Chinese yuan . Recently, Russia announced its intention to raise the percentage of its reserves held in yuan, while also beginning to trade directly between the Chinese currency and the Russian rouble, rather than using the US dollar as an intermediary. As a result, the yuan has now replaced the dollar as the most traded currency in Russia, accounting for 23.6 per cent of Russia’s foreign exchange turnover in the first quarter. Similarly, other leading nations have been shifting away from their reliance on the dollar. Brazil — the largest economy in Latin America — recently agreed to start trading directly with China. The Reserve Bank of India also recently permitted 18 countries, including Oman, Singapore and the UK, to open Special Vostro Rupee Accounts to settle payments in the Indian rupee. In addition, China recently settled a liquefied natural gas deal with a French energy giant denominated in yuan for the first time. The move marks a significant milestone in China’s bid to challenge the so-called “petrodollar” — the US dollar’s status as the dominant currency for global oil and gas trade. This is a bold move by China that takes the power struggle between the world’s two largest economies to the next level. Whatever the outcome, it’s likely to lead to more uncertainty for the greenback and, consequently, volatility in the foreign exchange market. In such an environment, cryptocurrency can finally come into its own, providing an unbiased alternative for investors looking to preserve and grow their wealth. A flatcoin that’s pegged to the purchasing power of $1 today can protect an investor’s portfolio from the ravages of inflation and the effect of the China-US tug of war — something US-dollar pegged stablecoins cannot achieve. Equally, flatcoins offer an alternative to those looking for refuge from the volatility of the wider cryptocurrency market, while continuing to provide the benefits of decentralisation. As the foundations of the existing financial paradigm are shaken to their core, cryptocurrency is truly the only alternative for those hoping for a lucrative retirement, while a flatcoin could be the only way to remove risk from the equation. It’s time to embrace a new, better and fairer financial system free from the impact of politics, inflation and uncertainty. Stefan Rust is chief executive of independent inflation data aggregator Truflation and former chief executive of bitcoin.com

How inflation-linked flatcoins can build wealth

The tokens can be an alternative to those looking for refuge from the volatility of the wider cryptocurrency market