Although there have been advances in blockchain technologies, this promise as applied to cryptocurrencies is yet to be realized: almost no cryptocurrency has emerged as a reliable store of value, and none has developed into a widespread medium of exchange. Hence, blockchain has been, at best, used mainly for risky speculation and, at worst, mostly hijacked by bad actors.
There is a definite need for a more secure store of value backed by stable assets that can also be a means of payment is legitimate in a world in which inflation is likely to be higher even in advanced economies, let alone in unstable emerging market economies where poorer households don’t have access to a stable currency. Even the most traditionally safe asset such as sovereign bonds are not safe (in terms of the real return) when inflation rises.
The real solution is secure currencies called “flatcoins”. These differ from most stablecoins that are ostensibly pegged to one asset. Instead flatcoins are backed by a basket of different assets that aim to produce returns in line with a goal such as matching inflation
The value of a flatcoin is designed to remain constant in terms of what it can buy, even when the cost of living goes up. Flatcoins are marketed as a way for crypto investors to protect their financial assets from rising costs and avoid the volatility of the wider cryptocurrency market. There are different ways developers have tried to implement flatcoins, such as using a public cost-of-living index like the Consumer Price Index (CPI).
It is important to note that this is a relatively new concept and there are still debates on the effectiveness of flatcoins as a hedge against inflation. Technically these are programmable securities backed by a portfolio of assets that protect against a variety of risks. These include inflation, currency debasement, and potential de-dollarisation, as well as political and geopolitical instability and even climate change.
Inflation-indexed bonds; gold; green metals that are key for the green transition which is highly relevant since the historic agreement at COP 28; and sustainable real estate can contribute to the portfolio. The latter includes existing real estate assets with lower risk of losses that climate change will cause; as well as new real estate that supports the adaptation that environmental shifts will require.
Therefore, Bitcoin is a decentralized digital currency that can be used to purchase goods and services, or traded for other currencies. Flatcoins, on the other hand, are designed to maintain a stable value and can be used as a hedge against inflation.
In summary, Flatcoins are not an alternative to Bitcoin, but rather a different type of cryptocurrency that serves a different purpose. Since these assets have negatively correlated returns, a portfolio of them gives good returns with low volatility in stable times, and much higher returns when tail risks materialize.
A Flatcoin is a secure currency that is backed by hard assets and financial instruments with low volatility: it becomes a good store of value but also a global means of payment with a positive return rather than the zero per cent of fiat. Furthermore, the underlying Blockchain technology also allows transactions at unprecedented speed.
We need to reform the current monetary and currency system to protect existing national currencies while hedging against risks and providing financial inclusion. Flatcoins are an exciting way forward.
