To achieve Terra’s stated goal of stability and adoption, we advocate the addition of flatcoins, a stable-coin pegged to a fiat currency from a specific date or basket of goods. The launch of a UST2020 flatcoin pegged to the value of USD in 2020 will expand the use case of Terra to include store of value as well as medium of exchange. This can be achieved through the same price stabilizing mechanisms of Terra stablecoins such as the burning & minting of Luna, decentralized oracles, and validator rewards. The introduction of flatcoins will maintain Terra’s useability and immutability while also achieving inflation resistance.
Market Size : The current market capitalization of stores of value Gold, Bitcoin and Treasury Inflation-Protected Securities (TIPS) is $17.6T (Gold $12.4T, TIPs $4.4T, BTC $0.8T). This 2022 $17.6T market cap is after close to 4 decades of relatively low inflation in most NATO countries. At the end of the highly inflationary 1970s, Gold had increased to the value of all global equities at $2.5T. If we saw the same conditions today, the TAM of stores of value would be $115T. With this in mind, let’s assume the TAM of stores of value is between $17.6T and $115T.
Why now? As of April 2022, YoY inflation is 8.5% in America and 7.5% in the EU. With continued supply disruption due to Russian war and Covid-19 pandemic flair ups, as well as demand spikes from fiscal and monetary stimulus, inflation will continue for the foreseeable future. The inflation protected bond market has doubled in the last 2 years to $4.4T. Stores of value such as Gold and Bitcoin have seen all time highs in the last 12 months. The public across NATO countries sees inflation as the top economic threat.
How are flatcoins better than alternative stores of value?
When evaluating stores of value, customers are looking for price stability relative to goods and protection from seizure. Bitcoin and Gold, while presenting upside should they become reserve assets, see significant price fluctuations. Gold, the less volatile of the pair, decreased 15% between July 2020 and March 2021, while inflation for this period was only 1.6%. If an investor has a short time horizon, Gold is far from an ideal option. Bitcoin is still too volatile to serve as a store value for short time horizons. BTC decreased 26% in just 2 months from November 2021 to January 2022.
Treasury Inflation Protected Securities are more stable but are at high risk for economic censorship or seizure. NATO governments have increased their comfortability in financial censorship with sanctions, de-banking and seizures over the last 5 years. The best method to achieve inflation resistance, immutability, and stability is the deployment of flatcoins on the Terra blockchain.
How will it work? Much like stablecoins, flatcoins will have miners submit a vote for what they believe to be the current exchange rate in the target fiat asset. For instance, in the United States it is likely that flatcoins will follow the CPI print as that is the commonly accepted inflation rate. If the inflation reports become politically corrupted in a region, miner oracles can vote for the true inflation rate.
As an example, if we were to launch a UST2020 flatcoin today, it would likely cost $1.11 Luna (due to 11% cumulative inflation) to mint $1 UST2020. Conversely, by burning $1 UST2020, you will mint $1.11 Luna. In 2025, if there has been 40% cumulative inflation since 2020, it will cost $1.40 Luna to mint $1 UST2020.