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Flatcoiners should take a cue from TerraUSD’s fate
Flatcoins need to provide a more stable and decentralized alternative to traditional currencies — otherwise, they’re nothing but investment vehicles.
…
Flatcoins need to provide a more stable and decentralized alternative to traditional currencies — otherwise, they’re nothing but investment vehicles.
The post-COVID-19 era has brought the issue of inflation to the forefront, leading to increasing interest within the Web3 space for creating flatcoins, a close “cousin” of stablecoins designed to mitigate inflation risk.
Many existing flatcoins, like Terra’s TerraUSD (UST) stablecoin, are algorithmically backed and therefore serve as a stark reminder of the risks associated with algorithmic backing, as demonstrated by the collapse of LUNA and UST. So, while the idea behind flatcoins may seem appealing, they raise significant reservations conceptually and in terms of design. Ultimately, the success of flatcoins will depend on whether developers can deliver on their promise.
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.
Problems at the conceptual level
Examining the potential use cases of flatcoins is indeed crucial. While often presented as an asset that can help users preserve their purchasing power amid inflation and economic uncertainty, this idea could be misleading.
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).
Related: CBDCs will lead to absolute government control
As a result, the unit value of flatcoins will diverge from the fiat currency they track over time as long as inflation is not zero. Therefore, the existence of flatcoins depends on the assumption that fiat currencies or their digitized forms are the mediums of exchange and units of account.
In other words, there will not be a situation where flatcoins are better than stablecoins or fiat currencies as mediums of exchange and units of account because the existence of flatcoins hinges on the superiority of fiat currencies and stablecoins at these roles.
Inflation-pegged assets already exist
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 and gain exposure to inflation through exchange-traded funds (ETFs) in their brokerage accounts.
The availability of these established inflation-linked asset classes through ETFs means that institutional and retail investors can easily manage their exposure to inflation. The potential value proposition of flatcoins as an investment vehicle for inflation hedging may be limited.
Despite some criticisms of flatcoins, they do have the potential to bring value to the economy. The true innovation of flatcoins lies in their integration of traditional financial instruments onto the blockchain. Flatcoins are a digitalization of an existing asset class, similar to how stablecoins digitize fiat currencies. This innovation may allow for more efficient financial transactions and creates competition with traditional financial intermediaries such as TIPS ETFs, potentially leading to greater efficiency and lower costs in financial markets. However, it is essential to recognize that the existence of flatcoins is not the salvation of the macroeconomic challenges we face today.
Design-level problems
Previous discussions revolved around the potential uses and innovations of flatcoins. However, it is essential to note that the current development of an inflation-pegged stablecoin is still in its infancy and faces significant challenges.
A few projects are currently in progress that are developing CPI-indexed flatcoins, but these projects rely on mechanisms similar to stablecoins. Some existing flatcoin designs, such as Frax Price Index Share (FPIS) and Reflexer’s Rai Reflex Index (RAI), algorithmically adjust the supply of the flatcoin to maintain the peg to a specific purchasing-power-related index, similar to how algorithmic stablecoins keep their pegs to fiat currencies.
However, algorithmic stablecoins have proven to be a risky design class, as extreme market conditions can cause a downward spiral similar to a bank run, as seen in the case of Terra’s collapse.
For example, Frax Finance’s white paper on the pegging mechanism of its Frax Price Index (FPI) states:
“During times that AMO yield is under the CPI rate, a TWAMM AMO will sell FPIS tokens for FRAX stablecoins to keep the CR at 100% at all times.”
To simplify, it states that the protocol will sell index tokens for Frax Finance’s stablecoin if the CPI index’s return falls below its actual value. However, this design poses a vulnerability common in algorithmic stablecoins. If the protocol runs out of reserve Frax Price Index Share (FPIS) tokens, a run similar to Terra’s will likely happen.
Additionally, as inflation rarely goes negative, constant sales of FPIS tokens will be necessary to maintain the 100% collateral ratio, making this design even more susceptible to runs than other algorithmic stablecoin designs.
The tradeoff of relying on something other than algorithmic adjustment is the reliance on centralized authorities. Stablecoin projects that use fiat money as collateral rely on trust in the project to maintain U.S. dollar escrow. In contrast, those depending on overcollateralized crypto assets are subject to market risks. Unfortunately, flatcoin projects still need to provide a solution to this problem.
Another critical barrier to developing an effective purchasing power index with flatcoins lies in the accuracy of the data provided by oracle protocols. Relying on publicly available CPI data published by the Bureau of Labor Statistics alone would limit the true potential of flatcoins. Projects such as Chainlink and (my own) IoTeX’s W3bstream have the potential to provide real-time data that could make accurate and timely CPI data possible.
Related: The world could be facing a dark future thanks to CBDCs
The success of flatcoins will depend on the continued innovation of oracle teams. A decentralized flatcoin index could significantly improve existing investment instruments for hedging inflation risk if creators can achieve real-time CPI data.
Risks and uncertainties
The widespread adoption of flatcoins and similar cryptocurrencies depends on their ability to overcome the inherent challenges and risks of stablecoin designs.
As flatcoins and other inflation-indexed cryptocurrencies emerge, evaluating their impact on the broader financial ecosystem is crucial. Do they provide a more stable and decentralized alternative to traditional currencies, or are they just another investment vehicle?
Investors, users and regulators must carefully examine new developments in the digital asset space. Understanding these cryptocurrencies’ true nature and potential is vital to determining whether they will become dominant in the financial landscape or remain an intriguing but niche investment option.
Flatcoins’ emergence highlights the ongoing pursuit of stability and decentralization in the digital asset arena. Although this new financial instrument introduces an innovative approach, it carries additional risks and uncertainties. Investors, users and regulators can better navigate the future of inflation-indexed cryptocurrencies by maintaining a critical eye on these developments.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
bonds covid-19 blockchain crypto currencies cryptoUncategorized
One city held a mass passport-getting event
A New Orleans congressman organized a way for people to apply for their passports en masse.
While the number of Americans who do not have a passport has dropped steadily from more than 80% in 1990 to just over 50% now, a lack of knowledge around passport requirements still keeps a significant portion of the population away from international travel.
Over the four years that passed since the start of covid-19, passport offices have also been dealing with significant backlog due to the high numbers of people who were looking to get a passport post-pandemic.
Related: Here is why it is (still) taking forever to get a passport
To deal with these concurrent issues, the U.S. State Department recently held a mass passport-getting event in the city of New Orleans. Called the "Passport Acceptance Event," the gathering was held at a local auditorium and invited residents of Louisiana’s 2nd Congressional District to complete a passport application on-site with the help of staff and government workers.
'Come apply for your passport, no appointment is required'
"Hey #LA02," Rep. Troy A. Carter Sr. (D-LA), whose office co-hosted the event alongside the city of New Orleans, wrote to his followers on Instagram (META) . "My office is providing passport services at our #PassportAcceptance event. Come apply for your passport, no appointment is required."
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The event was held on March 14 from 10 a.m. to 1 p.m. While it was designed for those who are already eligible for U.S. citizenship rather than as a way to help non-citizens with immigration questions, it helped those completing the application for the first time fill out forms and make sure they have the photographs and identity documents they need. The passport offices in New Orleans where one would normally have to bring already-completed forms have also been dealing with lines and would require one to book spots weeks in advance.
These are the countries with the highest-ranking passports in 2024
According to Carter Sr.'s communications team, those who submitted their passport application at the event also received expedited processing of two to three weeks (according to the State Department's website, times for regular processing are currently six to eight weeks).
While Carter Sr.'s office has not released the numbers of people who applied for a passport on March 14, photos from the event show that many took advantage of the opportunity to apply for a passport in a group setting and get expedited processing.
Every couple of months, a new ranking agency puts together a list of the most and least powerful passports in the world based on factors such as visa-free travel and opportunities for cross-border business.
In January, global citizenship and financial advisory firm Arton Capital identified United Arab Emirates as having the most powerful passport in 2024. While the United States topped the list of one such ranking in 2014, worsening relations with a number of countries as well as stricter immigration rules even as other countries have taken strides to create opportunities for investors and digital nomads caused the American passport to slip in recent years.
A UAE passport grants holders visa-free or visa-on-arrival access to 180 of the world’s 198 countries (this calculation includes disputed territories such as Kosovo and Western Sahara) while Americans currently have the same access to 151 countries.
stocks pandemic covid-19 grantsUncategorized
Fast-food chain closes restaurants after Chapter 11 bankruptcy
Several major fast-food chains recently have struggled to keep restaurants open.
Competition in the fast-food space has been brutal as operators deal with inflation, consumers who are worried about the economy and their jobs and, in recent months, the falling cost of eating at home.
Add in that many fast-food chains took on more debt during the covid pandemic and that labor costs are rising, and you have a perfect storm of problems.
It's a situation where Restaurant Brands International (QSR) has suffered as much as any company.
Related: Wendy's menu drops a fan favorite item, adds something new
Three major Burger King franchise operators filed for bankruptcy in 2023, and the chain saw hundreds of stores close. It also saw multiple Popeyes franchisees move into bankruptcy, with dozens of locations closing.
RBI also stepped in and purchased one of its key franchisees.
"Carrols is the largest Burger King franchisee in the United States today, operating 1,022 Burger King restaurants in 23 states that generated approximately $1.8 billion of system sales during the 12 months ended Sept. 30, 2023," RBI said in a news release. Carrols also owns and operates 60 Popeyes restaurants in six states."
The multichain company made the move after two of its large franchisees, Premier Kings and Meridian, saw multiple locations not purchased when they reached auction after Chapter 11 bankruptcy filings. In that case, RBI bought select locations but allowed others to close.
Another fast-food chain faces bankruptcy problems
Bojangles may not be as big a name as Burger King or Popeye's, but it's a popular chain with more than 800 restaurants in eight states.
"Bojangles is a Carolina-born restaurant chain specializing in craveable Southern chicken, biscuits and tea made fresh daily from real recipes, and with a friendly smile," the chain says on its website. "Founded in 1977 as a single location in Charlotte, our beloved brand continues to grow nationwide."
Like RBI, Bojangles uses a franchise model, which makes it dependent on the financial health of its operators. The company ultimately saw all its Maryland locations close due to the financial situation of one of its franchisees.
Unlike. RBI, Bojangles is not public — it was taken private by Durational Capital Management LP and Jordan Co. in 2018 — which means the company does not disclose its financial information to the public.
That makes it hard to know whether overall softness for the brand contributed to the chain seeing its five Maryland locations after a Chapter 11 bankruptcy filing.
Bojangles has a messy bankruptcy situation
Even though the locations still appear on the Bojangles website, they have been shuttered since late 2023. The locations were operated by Salim Kakakhail and Yavir Akbar Durranni. The partners operated under a variety of LLCs, including ABS Network, according to local news channel WUSA9.
The station reported that the owners face a state investigation over complaints of wage theft and fraudulent W2s. In November Durranni and ABS Network filed for bankruptcy in New Jersey, WUSA9 reported.
"Not only do former employees say these men owe them money, WUSA9 learned the former owners owe the state, too, and have over $69,000 in back property taxes."
Former employees also say that the restaurant would regularly purchase fried chicken from Popeyes and Safeway when it ran out in their stores, the station reported.
Bojangles sent the station a comment on the situation.
"The franchisee is no longer in the Bojangles system," the company said. "However, it is important to note in your coverage that franchisees are independent business owners who are licensed to operate a brand but have autonomy over many aspects of their business, including hiring employees and payroll responsibilities."
Kakakhail and Durranni did not respond to multiple requests for comment from WUSA9.
bankruptcy pandemicUncategorized
Industrial Production Increased 0.1% in February
From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 p…
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 percent. Both gains partly reflected recoveries from weather-related declines in January. The index for utilities fell 7.5 percent in February because of warmer-than-typical temperatures. At 102.3 percent of its 2017 average, total industrial production in February was 0.2 percent below its year-earlier level. Capacity utilization for the industrial sector remained at 78.3 percent in February, a rate that is 1.3 percentage points below its long-run (1972–2023) average.Click on graph for larger image.
emphasis added
This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).
Capacity utilization at 78.3% is 1.3% below the average from 1972 to 2022. This was below consensus expectations.
Note: y-axis doesn't start at zero to better show the change.
The second graph shows industrial production since 1967.
Industrial production increased to 102.3. This is above the pre-pandemic level.
Industrial production was above consensus expectations.
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