Flatcoins are here, but are they here to stay in the crypto market? Let us find out.
Inflation is one of the economic challenges that have plagued world economies for decades.
This economic setback happens when there is a general hike in the prices of goods and services and is caused by several factors, including money devaluation or supply and demand shocks.
According to BLS data, the global annual inflation in August 2022 was at 8.5%, only declining from the 40-year peak of 9.1% it hit in July this year.
In the third quarter of the year, the US Federal Reserve also increased the interest rate five times, to a 14-year high.
These constant hikes in interest rates have contributed a lot to global inflation as several fiat currencies, stocks, and even cryptocurrencies are beginning to crash against the dollar.
These interest rates are also expected to rise again when the Federal Open Market Committee (FOMC) meets again in November this year.
With the rising effects of inflation and the devastation it has caused, a new project has emerged as a solution.
The blockchain development company, Laguna Labs has come forward with a new cryptocurrency they call Nuon. According to Laguna Labs, Nuon is the first of its kind, and is a special kind of stablecoin they call a “Flatcoin.”
What Exactly Are Flatcoins?
As global inflation rates continue to rise through the roof, a new kind of stablecoin has been gaining a lot of traction as a suitable hedge.
Regular stablecoins are special kinds of cryptocurrencies with relatively fixed prices compared to other kinds of cryptos. This means that their volatility is almost zero.
While other cryptocurrencies fluctuate in price, stablecoins remain relatively fixed, maintaining a single price value regardless of market conditions.
Most stablecoins keep their fixed values because they are tied, tethered, or “pegged” to the price of another real-world asset.
The stablecoins, USDT, USDC, and several others have their values pegged to the value of the US dollar and will maintain their $1 value no matter what. A stablecoin like DGX, on the other hand, has its value pegged to gold and moves in relation to the price of the precious metal.
Flatcoins are stablecoins as well and are relatively new kinds. The only difference is that the value of a flatcoin is pegged to the cost of living, instead of the value of real-world assets like the Dollar or Gold.
Nuon As Flatcoins
Developed by Laguna Labs, Nuon is the first stablecoin of its kind.
Being a Flatcoin, Nuon is tethered or pegged to the value of what $1 was in July 2022. And once every day, the stablecoin adjusts itself to account for the differences caused by US dollar inflation.
It is amazing how one Nuon, costing $1 in July 2022, is now worth $2.05 as of Monday, the 26th of October.
How Does Nuon Achieve Inflation-Resistant Stability?
Regular stablecoins maintain their peg in one of three ways:
These stablecoins are pegged directly to the value of an already existing government-issued currency like the dollar. This means that every token of a dollar-collateralized stablecoin represents an actual dollar.
When the dollar goes up in value, these stablecoins also go up in value. And when the dollar goes down, they go down as well.
These stablecoins are like the fiat collateralized stablecoins, only that their value is pegged to that of another cryptocurrency.
These stablecoins are backed by smart contracts or “algorithms” on the blockchain, that manipulates their circulating supply to make sure that they keep their “pegs” or stable values.
These algorithms add or remove coins from the total supply, to make up for the day-to-day differences in prices.
Conversely, flatcoins employ a special kind of algorithm called the Truflation Algorithm, which tracks the volatility between the prices of ten million market items in relation to the dollar. It then produces a daily inflation estimate that mostly corresponds to the US Federal Reserve’s estimates.
With global inflation at a 40-year high, stablecoins like USDT and USDC continue to track the US Dollar and depreciate in value, compared to the price of goods and services.
Nuon as a flatcoin, on the other hand, maintains its value regardless of inflation states.
Over the years, Ethereum founder, Vitalik Buterin and Coinbase CEO, Brian Armstrong have both advocated for a stablecoin that is pegged to the price of goods, rather than the value of fiat or cryptocurrencies.
Disclaimer: Voice of crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.