Flatcoiners should take a cue from TerraUSD's fate
To date, flatcoin white papers — including the one offered by Coinbase — do not appear to deliver on their envisioned promise, at least in their current state. In particular, the token economics designs of some projects are likely to pose an even higher risk than contemporary stablecoin designs.
True.
Stablecoins are digitized versions of fiat currencies, and their value as a medium of exchange and unit of account is the same as that of fiat currencies. In contrast, flatcoins are indexes of the buying power of a fiat currency obtained through oracles that collect data on economic indicators such as the Consumer Price Index (CPI).
And that's the first conceptual problem: inflation index is not the same as purchasing power index. So which one is it? Also, looking at just USD, the Dollar Index has a market, but the CPI doesn't, and is published monthly, and even then is just statistical estimate prone to future backward adjustments.
I just wouldn't do it that way.
Flatcoins are financial instruments that expose investors to inflation rates, making them a derivative of inflation. Asset classes that expose investors to inflation risk have been around for a long time.
For instance, Treasury Inflation-Protected Securities (TIPS) have been used since 1997 to manage inflation risks tied to fixed-rate bonds. Retail investors can easily access [TIPS](Understanding Treasury Inflation-Protected Securities (TIPS)) and gain exposure to inflation through exchange-traded funds (ETFs) in their brokerage accounts.
The article then goes on to explore some deep problems with current experimental flatcoin designs. IMO they are all trying to do the same thing as stablecoins, which is to use changes in token capital to manipulate prices. We have seen how disastrous this can be for many stablecoins as there is always the risk of disruption by very large orders tripping, and tricking, the market into making sudden token adjustments that then magnify the problem while draining any treasury holdings.
I would do it a different way!