Coinbase Global (Coins 7.63%) Arguably one of the most polarizing names in the crypto industry. After a much-hyped initial public offering (IPO) in 2021 that valued the company at $85 billion on its first day of trading, Coinbase is now valued at a paltry $16 billion. Even Coinbase critics, however, have to admit that the world’s second-largest cryptocurrency exchange has been remarkably innovative in bringing new products to market.
And now Coinbase is working on an innovation it thinks could be the holy grail for crypto investors: a new currency that keeps pace with the rate of inflation. If Coinbase can pull this off, it could be a game-changer.
Crypto and Inflation
Traditionally, Bitcoin (BTC 1.47%) Crypto investors have turned to it as a hedge against inflation. The total lifetime supply of Bitcoin is limited to 21 million coins, specifically to protect Bitcoin from the government’s tendency to print more money whenever they need it.
The dollar may be worthless, the thinking goes, but bitcoin will hold its value much like gold. That description seemed to make sense until the crypto-market meltdown of 2022, when nothing seemed to be working according to plan. Bitcoin was no longer the hedge against inflation that it had promised to be, and gold had overtaken it.
While Bitcoin is becoming somewhat of a safe haven for crypto investors in 2023, it is by no means perfect and there is always a demand for cryptocurrencies that hedge against inflation. Even billionaire investor Ray Dalio — a Bitcoin bear — admitted earlier this year that an “inflation-linked currency” would be genius.
Enter Flatcoin. A flatcoin is similar to a stablecoin (which is usually pegged 1:1 to the US dollar) but is instead pegged to the rate of inflation. The idea is that each currency will be tied to the cost of living, so purchasing power will remain constant over time. If inflation were to rise, so would the value of this flatcoin.
Imagine walking into a supermarket and being completely taken aback by the skyrocketing price of eggs, or filling up your SUV at the gas pump and not caring that gas prices are going up. Coinbase CEO Brian Armstrong used a hamburger to explain the concept: “Each coin buys you a McDonald’s Hamburgers today, and hopefully, in five years, one coin will still buy you a McDonald’s hamburger.” In terms of purchasing power, if you’re paying with flatcoins, nothing has really changed.
Right now, flatcoin is just an idea. However, on March 23, Coinbase put out a call for developers to start working on a practical version of these flatcoins. Given the current state of global financial markets, Coinbase sees an opportunity to create exactly the kind of flatcoin that investors concerned about inflation are demanding.
Can Coinbase pull this off?
While the development of a flatcoin will be challenging and will likely attract the attention of regulators and lawmakers, Coinbase has two big things going for it. First, its co-creator USD currency (USDC 0.01%), one of the most popular stablecoins in the world. At the moment, USD Coin’s total market cap is $32.7 billion. So Coinbase has a lot of experience and expertise in creating similar crypto assets.
Second, Coinbase is uniquely positioned to develop this new flatcoin because of its recent launch of Base, a Layer 2 scaling solution. Ethereum. When Coinbase put out a call to developers for Flatcoin, it did so through the Base blog, not the main Coinbase blog.
Thanks for partnering with optimism, this base blockchain project can be optimized for decentralized finance (DeFi) and will be interoperable with Ethereum. So while it may seem like Coinbase is building a flatcoin from scratch, it’s actually leveraging some of the existing blockchain infrastructure. Coinbase may be able to bring a flatcoin to market sooner than anyone expects.
Coinbase and the future of money
It’s an interesting time for anyone interested in the future of finance. Central banks and sovereign governments around the world are calling for the introduction of central bank digital currencies (CBDCs). Some countries are calling for an end to the petrodollar and an era of de-dollarization. And almost everyone can agree that the amount of money printed in the US recently has gone off the charts. In 2022, 80% of all dollars in circulation were printed in the previous two years.
Thus, I really think there is demand and interest for a flatcoin. As long as inflation remains a threat, investors will continue to look for ways to protect their hard-earned money. While it’s easy to pick on Coinbase these days, even cryptocurrency skeptics have to admit that a new flatcoin would be a game-changer. And Coinbase will become a better long-term buy if it can pull this off.
Dominic Basulto has positions in Bitcoin, Ethereum and USD coins. The Motley Fool has and recommends positions in Bitcoin, Coinbase Global, and Ethereum. Motley Fool has a revealing policy.