What Is A Flatcoin? A New Stablecoin Is Here

Today, stablecoins are the crucial link between the real world and the crypto-sphere. They help users park their funds in high volatility and are the most cost-efficient way to conduct cross-border transactions without intermediaries or delays securely.

Why? Because of their 1:1 peg to assets or other government-issued currencies (often the US Dollar).

However, beneath this perceived stability lies a fundamental flaw—stablecoins are only as stable as the currencies they are pegged to. What if the US Dollar itself goes down a slippery slope (Dedollarization)?

The Problem With Fiat-Pegged Stablecoins

The very fiat systems that many fiat-pegged stablecoins depend on are subject to depreciation. Inflation-prone economies, in particular, experience gradual erosion of purchasing power.

From a global perspective, this issue is more pronounced in emerging markets and unstable economies, where citizens turn to stablecoins as a hedge against failing national currencies. In countries like Argentina, Turkey, and Venezuela, where annual inflation rates often exceed double or even triple digits, holding USD-backed stablecoins may be better than holding local currency – but it is not a true solution. The purchasing power of these digital dollars still declines year after year.

The image below shows the impact of hyperinflation on a country’s (in this case, Zimbabwe) growth.

Simply put, there is an evident lack of a one-size-fits-all approach to stability. While pegging to the U.S. dollar may work for some, it does not reflect the economic realities in countries with different cost-of-living dynamics, wage growth patterns, and spending behaviors.

A new class of stable assets is emerging to address these pain points. Enter flatcoins.

What Are Flatcoins? A New Approach To Stability

Flatcoins are a class of stablecoins. They are built to track inflation and real-world economic indicators, ensuring their value remains consistent relative to the cost of living.

Simply put, flatcoins maintain a stable value for the cost of living and other assets.

Flatcoins offer a more adaptive and resilient alternative to traditional stablecoins. Rather than mirroring fiat currency values, flatcoins preserve purchasing power over time, shielding users from the silent tax of inflation and economic instability.

At their core, flatcoins aim to solve a fundamental problem: the depreciation of fiat currency over time. While a traditional stablecoin like USDT or USDC may hold a fixed value in dollars, it does not protect against inflation. On the other hand, flatcoins use mechanisms to adjust their value based on economic data such as the Consumer Price Index (CPI), purchasing power parity (PPP), or other inflation benchmarks. This allows users to hold a digital asset that remains stable in nominal and real economic terms.

Think of it like this. If a cup of coffee costs $1 today, will it still be priced at $1 10 years later? No, it would cost more. But in an economy of flatcoins, the price would have remained unchanged over a decade or even a century.

How Flatcoins Work

Flatcoins operate on a fundamentally different principle than traditional stablecoins. Instead of being pegged to a static fiat currency, they are designed to adjust their value dynamically based on inflation, cost-of-living indices, or other economic metrics. This ensures that users retain purchasing power over time rather than holding a depreciating digital dollar.

The key innovation behind flatcoins lies in their mechanisms for tracking inflation and adjusting value accordingly. There are multiple approaches to achieving this, each with its technical nuances.

Typically, flatcoins rely on a dual approach: an algorithmic system to manage supply and demand and a reference index to track economic reality.

Projects like Nuon, one of the earliest flatcoins on Ethereum, use an inflation index – often sourced from trusted data providers via oracles – to gauge changes in purchasing power. Suppose the index rises (indicating inflation). In that case, the flatcoin’s protocol might increase the number of tokens in circulation or adjust their redeemable value to ensure holders can still buy the same basket of goods. Conversely, in deflationary scenarios, the supply might contract. This elasticity is managed through smart contracts, self-executing code on blockchains like Ethereum or Solana, which automate minting (creating) or burning (destroying) tokens based on predefined rules.

Other flatcoins, like Ampleforth’s SPOT, take a different tack, backing their value with a mix of assets – think bonds or commodities – designed to mirror a stable, inflation-resistant portfolio rather than relying solely on algorithms.

The Oracle Problem

Flatcoins depend on external data feeds (e.g., CPI updates or commodity prices) delivered by oracles. These are blockchain middleware that connects off-chain data to on-chain contracts.

If an oracle fails or is compromised, the flatcoin’s peg could drift, leading to instability. To mitigate this, projects often use decentralized oracle networks like Chainlink, which aggregate data from multiple sources for reliability. However, this adds latency and cost.

Adjustment Mechanism

The adjustment mechanism itself is a balancing act. Algorithmic flatcoins employ "rebasing," a process where the total supply adjusts periodically (say, daily), altering the number of tokens in each wallet proportionally.

For example, if inflation rises by 2%, your 100 flatcoins might become 102, maintaining their actual value. This differs from asset-backed flatcoins, which might adjust redemption rates, requiring robust liquidity pools to handle conversions without price slippage.

Collateral

Projects like the International Stable Currency (ISC) on Solana blend treasuries, gold, and real estate to create a diversified basket. This diversification aims to hedge against inflation but demands constant rebalancing by smart contracts or external managers to ensure the value aligns with the target index.

Over-collateralization is often used to absorb shocks, meaning the assets exceed the flatcoin’s circulating value, but this can tie up capital and reduce efficiency.

Meanwhile, purely algorithmic designs avoid physical backing altogether, leaning on market incentives, like arbitrageurs buying or selling when the price deviates, to enforce the peg. But we’ve all seen how this could turn out, cue the case of Terra-LUNA.

Nuon: The First Flatcoin

Nuon holds the distinction of being the world’s first self-proclaimed "flatcoin." Launched by Laguna Labs, Nuon emerged from a vision to create a digital asset that maintains purchasing power by linking its value to the cost of living rather than a depreciating fiat currency like the US dollar.

Introduced via a testnet in October 2022 and fully deployed on Arbitrum’s mainnet in February 2023, Nuon represents an ambitious step toward redefining stability in the crypto space, backed by a decentralized and over-collateralized framework.

The brainchild of CEO Stefan Rust, Nuon was born out of a recognition that fiat-pegged stablecoins, despite their dominance in DeFi, fail to shield users from inflation’s erosive effects.

Rust’s team at Laguna Labs sought to address this by pegging Nuon to an independent inflation index called Truflation. This index provides daily, blockchain-verified data on the cost of living drawn from millions of real-world price points. Unlike traditional stablecoins such as Tether (USDT) or USD Coin (USDC), which aim for a static 1:1 peg to the dollar, Nuon’s value adjusts dynamically to reflect inflation, theoretically ensuring that what it buys today remains consistent years down the line.

Built on Arbitrum, a fast and cost-efficient Ethereum Layer 2 solution, Nuon is over-collateralized. Users must lock up more cryptocurrency (like ETH) than the Nuon minted.

Practical Use Cases of Flatcoins: Real-World Applications

From everyday transactions to long-term financial strategies, here are some key use cases where flatcoins could shine.

1. Everyday Spending In Inflation-Prone Regions

In countries like Argentina, Venezuela, or Zimbabwe, where local currencies can lose value overnight due to hyperinflation, flatcoins offer a reliable medium of exchange.

For example, a small business owner in Buenos Aires could accept flatcoins for goods and services, confident that the payment received today will still cover tomorrow’s restocking costs.

For the 1.4 billion unbanked individuals worldwide, many in emerging markets, flatcoins could provide a smartphone-accessible currency that doesn’t tie them to a distant foreign economy.

2. Savings and Wealth Preservation

For individuals in both developed and developing nations, flatcoins present a compelling option for safeguarding savings against inflation’s slow burn.

A retiree in the United States, watching the dollar’s purchasing power erode, could park funds in flatcoins to ensure their nest egg keeps pace with rising healthcare costs or groceries.

Similarly, a family in India, wary of rupee depreciation, might use flatcoins as a digital store of value, offering a hedge without the volatility of Bitcoin or the complexity of traditional investments like gold.

3. Cross-Border Remittances

Remittances (money sent by migrant workers to their families) totaled over $900 billion globally in 2024, but exchange rate fluctuations and high fees often erode them. Flatcoins could streamline this process by providing a stable, inflation-adjusted currency that retains its value from sender to recipient.

For instance, a Filipino worker in Dubai could send flatcoins to relatives in Manila, bypassing costly intermediaries and ensuring the funds stretch as far as intended, even if local prices climb between paydays.

Conclusion

Flatcoins, with their promise of inflation-adjusted stability, open the door to many practical applications that could transform how individuals, businesses, and communities interact with digital currency.

Unlike traditional stablecoins, which lock users into the purchasing power of a fiat currency like the US dollar, flatcoins aim to maintain real-world value over time, uniquely suited to address economic challenges across diverse demographics.