What is a Flatcoin?

A flatcoin is a stablecoin that is pegged to the cost of living in order to keep pace with the rate of inflation. The value of a flatcoin is designed to remain constant in terms of what it can buy, even when the cost of living goes up.


Flatcoins are marketed as a way for crypto investors to protect their financial assets from rising costs and avoid the volatility of the wider cryptocurrency market.

Techopedia Explains

Stablecoins can hedge against inflation by limiting supply, but as long as a coin is pegged to real-world assets, it will be vulnerable to rising prices that impact return on investment (ROI). The need for an inflation-protected stablecoin pegged to the cost of living, as well as the name flatcoin to describe the concept, is often credited to former Coinbase CTO Balaji Srinivasan.

How Flatcoins Work

There are a number of different ways developers have tried to implement flatcoins. One well-known approach has been to use what investors call a “basket of assets” to collateralize an inflation-proof coin. Seigniorage systems and smart contracts are two other popular approaches.

Basket of Assets

In this approach, developers use a public cost-of-living index such as the Consumer Price Index (CPI) or a propriety cost-of-living index such as Truflation to calculate the value of the flatcoin on a daily basis and adjust the supply of the coin accordingly.

Using a basket of assets to collateralize a flatcoin is a relatively simple and straightforward approach that, in some ways, replicates the ways fiat currencies are valued. It is important, however, to be aware of the challenges involved in this approach before implementing it. They include:

  • Asset selection: The assets in the basket must reflect the cost of living accurately. If the wrong assets are chosen, the value of the flatcoin may not be stable.
  • Asset liquidity: The assets in the basket must be liquid enough to be easily bought and sold. If the assets are not liquid, it may be difficult to maintain a stable value for the flatcoin.
  • Asset risk: The assets in the basket have to be low-risk. The more risky the assets, the more likely the flatcoin will be volatile.
  • Transparency: The issuer of the flatcoin must be transparent about the basket’s assets and how they are managed. This is important for building trust with investors and ensuring that inflation-proof coins are not being used for fraudulent purposes.
  • Regulation: The issuer of the flatcoin may need to comply with regulations governing the use of stablecoins that are not tied to a fiat currency. In many cases, regulatory compliance can be confusing. This can add both complexity and cost to the implementation of the flatcoin.

Smart Contracts

Perhaps one of the most popular ways to implement a flatcoin is to use a smart contract. In this approach, the smart contract is programmed to adjust the supply of flatcoins in response to changes in a public or proprietary cost-of-living index.

  • When the cost-of-living index rises, the smart contract automatically mints more flatcoins.
  • When the cost-of-living index falls, the smart contract automatically burns flatcoins.

The smart contract approach is a promising way to implement flatcoins because it does not rely on a central authority to manage the supply in order to reduce volatility. There are a number of challenges to using a smart contract to implement flatcoins, however. These challenges include:

  • Security: Smart contracts are transparent by design. Because anyone can see the code that is used to implement the smart contract, smart contracts are often a target for hackers. If a flatcoin smart contract is hacked, it could be used to mint or burn coins without authorization and destabilize the value of the coin.
  • Complexity: Flatcoin smart contracts can be complex and have many dependencies. It can be expensive to hire developers who have the skills to write complex smart contracts that are both secure and efficient.
  • Data Source: Flatcoin smart contracts need a reliable, tamper-proof data source to get accurate and timely updates on the cost of living. This usually involves using oracles, which introduce another layer of complexity and potential points of failure. According to Forbes, crypto forensics firms found that oracle manipulation attacks cost investors $362 million last year.
  • Scalability: Smart contracts can be difficult to scale and handle large numbers of transactions in a timely manner. This could make it difficult to use flatcoins for mainstream payments.
  • Governance: There is no clear governance structure for smart contracts. This could make it difficult to make changes to the smart contract or to resolve disputes.
  • Regulation: Smart contracts are a fairly new technology, and there is no clear regulatory framework for them. Inflation-proof coins that use smart contracts carry the risk they may eventually be regulated.

Seigniorage Systems

Another way to implement a flatcoin is to use a seigniorage system. Seigniorage-style flatcoins are issued by a central authority, which then collects seigniorage revenue from the use of the coin. The seigniorage revenue is then used to buy back and destroy coins to keep its supply in check.

This approach can be implemented with or without smart contracts.

Flatcoin Examples

Notable flatcoins include:

  • Nuon is an inflation-proof coin that is implemented with an Ethereum smart contract. Nuon claims to be the first true flatcoin.
  • Spot is an Ampleforth Foundation project. The Spot flatcoin is designed to be pegged to the cost of living in the United States.
  • International Stable Currency (ISC) is a flatcoin pegged to the value of a basket of real-world assets that does not include the U.S. dollar.
  • Collypto is a blockchain-tradable flatcoin that uses a tokenized index of real estate and commodities for collateral. Collypto says it minimizes the speculative risk associated with traditional cryptocurrencies by basing its value on assets that represent and preserve real-world purchasing power.
  • LendrUSD (USDL) is an inflation-proof coin pegged to a proprietary on-chain oracle that uses over 18 million data points from 30+ verified data sources to calculate the inflation rate. According to the official website, LendrUSD allows any holder to redeem USDL at a 1:1 rate for its backing at any time.

The Challenge

To keep pace with inflation rates, flatcoins must have enough assets through the appreciation of holdings and new investments to compensate for losses incurred when investors pull out funds or assets depreciate.

One approach has been to invest collateral in yield farming lending protocols such as Aave and Convex to cover the cost of inflation. By lending out collateral, the developers of the flatcoin can earn interest, which can then be used to buy back and destroy coins. This can help keep the supply of flatcoins in check and maintain the coin’s value.

Another approach is for the flatcoin issuers to invest collateral in new assets that will help grow the value of the inflation-proof coin. This strategy can also help to offset the effects of inflation.

The Future of Flatcoins

The current development of inflation-pegged stablecoins is still in its infancy, and the concept’s execution has already seen some significant ups and downs.

In February 2023, for example, the Frax Finance community voted to fully collateralize their flatcoin after the Canadian Securities Administrator announced plans to prohibit non-fiat-backed stablecoins.

In August 2023, however, Coinbase co-founder and CEO Brian Armstrong brought up the idea of flatcoins again while promoting the first annual Coinbase Ventures Summit. He is credited with renewing interest in recession-proof coins, which suggests that the concept of flatcoins is still gaining traction, despite the challenges that have been encountered so far.


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Margaret Rouse

Margaret Rouse is an award-winning technical writer and teacher known for her ability to explain complex technical subjects to a non-technical, business audience. Over the past twenty years her explanations have appeared on TechTarget websites and she's been cited as an authority in articles by the New York Times, Time Magazine, USA Today, ZDNet, PC Magazine and Discovery Magazine.Margaret's idea of a fun day is helping IT and business professionals learn to speak each other’s highly specialized languages. If you have a suggestion for a new definition or how to improve a technical explanation, please email Margaret or contact her…