Daily Balajisms - Flat coin
A currency that curbs inflation.
Balaji Srinivasan introduced a concept of a flat coin that would remain flat against a basket of goods. It is a newer type of a stable coin. It is not stable against fiat currency, that might inflate itself away, but it remains flat against a basket of goods tracked on-chain.
The DeFi matrix will be to this decade, what social graph was to the last one, says Balaji. Sooner or later, every asset will be put on chain, and become instantly liquid and tradeable against each other in a giant matrix of all-against-all assets. Imagine CBDCs, city coins, crypto-REITs, NFTs, various utility tokens, DAO tokens, company tokens and flat coins.
The DeFi matrix will do to assets what Google News did to newspapers. By comparing them against each other, Google News destroyed their regional monopolies, and they had to start competing on features. The same awaits central bankers and mayors. Their CBDC or a city coin needs to compete on features. And so, they need to boost their moral stack and tech stack to become a preferred destination/asset for globally mobile digital nomads and web3 founders.
A flat coin can be also a piece of the inflation dashboard proposed by Balaji. Truflation implements a v1 of the inflation dashboard as a demonstration of the ledger of record concept that aims to be an alternative to the paper of record and is also focused on solving the oracle problem for prices (true reporting of price inflation).
Balaji explains that the flat coin would need to place orders on both sides of the depth chart on N orderbooks to keep the flat coin stable against selected baskets of goods – and it would need reserves to do that.
And Balaji proposes a demurrage as a solution - to make the trade-off between crypto and fiat explicit: BTC has a short-term volatility but a long-term appreciation, while USD provides a short term price stability for a long-term depreciation.
A demurrage (paying a fee to hold assets like gold in a vault) would make this trade-off explicit and can make various flat coin managers compete against each other.
The 20th century was a centralizing century for the West, with peak centralization in the 1950s, says Balaji. Printing press, radio and television were centralizing technologies. But computers and internet are favoring decentralization.
The state and big companies shielded us from volatility. Big Macs and Macbooks have relatively stable prices, while commodities used to produce them are wildly fluctuating. Similarly, centralized media provided Overton window stability (Balaji connects Overton window with a depth chart).
Tech induced deflation, but sectors controlled by the state produced inflation – because of increasingly complex regulation in education, health care and construction.
Balaji wants to see competition between smart regulators and between flat coin managers. You still need to trust the issuer of the flat coin, but that’s portfolio theory, says Balaji. You don’t need to put zero trust nor 100% trust into one flat coin – you can have a portfolio of well managed flat coins.