Stablecoins Face Evolution as Flatcoins Redefine Stability
The stablecoin industry is experiencing significant growth. Stablecoins, boasting a circulation exceeding $300 billion, have emerged as a significant cornerstone of the crypto ecosystem. They function as the foundational infrastructure for trading, payments, DeFi, and cross-border transfers. However, despite the label, “stable” is a misnomer. These tokens are linked to fiat currencies, with the U.S. dollar being the most prevalent. While this linkage may offer short-term price stability, it fails to safeguard against the gradual and persistent decline in value driven by inflation. Take a look at the purchasing power of the U.S. dollar. Reports says that between 2021 and 2022, the purchasing power of a dollar experienced a decline of approximately 7.4 percent. Over decades, this effect compounds: research indicates that the dollar has diminished in purchasing power by nearly 97 percent since 1913. While a stablecoin pegged at 1:1 to the dollar may sidestep volatility compared to other crypto-assets, it does not maintain real value over time. To put it another way: you’re not investing in “stability” — you’re acquiring a fiat standard that is gradually, yet inevitably, diminishing in value.
This marks the emergence of a new category of crypto asset: flatcoins. In contrast to traditional stablecoins, flatcoins focus on maintaining purchasing power rather than adhering to a fiat peg. Rather than monitoring a single dollar, the focus shifts to the cost of a collection of goods, modified for inflation or the global cost of living. In certain proposals, this value is expressed in hard-money assets such as Bitcoin. The key shift: you transition from “stable relative to fiat” to “stable relative to real-world value.” The concept of flatcoins has been circulating for a while, initially introduced by Balaji Srinivasan in a post. More recently, advocates like Brian Armstrong, the CEO of Coinbase, have emerged to support the idea. What is the significance of this? As inflation-adjusted value sets the standard, the monetary asset shifts its function: evolving from a payment facilitator to a unit of account and a store of value. In a landscape where currency maintains its purchasing power, the significance of pricing, savings, and contracts is amplified.
A flatcoin might still be redeemable for collateral or backers, but its value baseline is not tied to the dollar; instead, it is anchored to what you can actually purchase. Here’s a rough comparison: stablecoins might manage the ups and downs of crypto volatility, yet they remain susceptible to inflation. Flatcoins seek to address both issues. They safeguard the saver against not just the volatility of cryptocurrencies but also the depreciation of the reference currency. If you hold the view that monetary sovereignty is significant — or that Bitcoin, hard money, or global purchasing power should be prioritized — then flatcoins represent the next conceptual frontier. Undoubtedly, the creation of a genuine flatcoin comes with its own set of hurdles: dependable inflation indices, the design of a global basket, the mechanics of collateralization, governance structures, and the assurance of redemption integrity. However, the international stablecoin market — now systemically significant and surpassing many money-market funds in size — calls for innovation.
Stablecoins have addressed the volatility issue inherent in cryptocurrencies, yet they have not mitigated the erosion challenge faced by fiat currencies. Flatcoins aim to address the complete challenge of value preservation in this new monetary landscape. For the billions looking to evade inflation, the next-generation crypto model needs to provide more than just stability against fiat currencies — it must ensure genuine, long-term purchasing power in the real world. Several projects are actively addressing this challenge, aiming to develop the next generation of stablecoins. However, numerous iterations are still required to establish a new financial primitive — a genuine stablecoin, often referred to as a flatcoin.
