Coinbase Champions Unpegged ‘Flatcoins’ on Layer-2 Base: A DeFi Evolution?

In a bold move signaling a potential shift in the stablecoin landscape, crypto giant Coinbase has issued a call to developers, specifically highlighting the need for stablecoins that dare to break free from the traditional dollar peg. This isn’t your typical stablecoin story; Coinbase is actively encouraging the creation of what they’re calling ‘flatcoins’ on their new Layer-2 network, ‘Base’. But what exactly are flatcoins, and why is Coinbase so interested? Let’s dive into this exciting development in the DeFi space.

What are Flatcoins and Why Now?

Coinbase’s announcement explicitly mentioned projects like Olympus DAO, Reflexer, and Frax Finance as examples of the direction they’re interested in. These aren’t your average stablecoin projects. They are exploring innovative mechanisms to create digital currencies that maintain purchasing power, not necessarily a fixed dollar value. Enter the concept of the ‘flatcoin’.

The term ‘flatcoin,’ as Coinbase describes it, refers to stablecoins designed to counter inflation. A prime example of this is Frax Finance‘s FPI stablecoin. Instead of being pegged to the US dollar, FPI is linked to a basket of real-world consumer goods, mirroring the Consumer Price Index (CPI) in the United States. Think of it as a cryptocurrency designed to keep pace with the rising costs of everyday items.

Key features of Flatcoins like FPI:

• Inflation Resistance: FPI aims to maintain its purchasing power by tracking the CPI, essentially hedging against inflation.
• Yield Generation: FPI generates returns proportional to the CPI, reflecting the 12-month inflation rate in the US. This means holding FPI could potentially offset the impact of inflation on your crypto portfolio.
• Growing Market: Currently, FPI boasts a market capitalization of around $82 million (according to CoinGecko), indicating growing interest in this type of stablecoin.

Sam Kazemian, the founder of Frax Finance, even responded enthusiastically in their project’s Telegram group, stating, “someone should tell them we’re up for” building FPI on Base. This clearly shows the excitement and readiness within the DeFi community to explore Coinbase’s vision.

Reflexer and RAI: Floating Stability

Another project highlighted by Coinbase is Reflexer, known for its RAI token. RAI takes a different approach to stability. It’s a ‘floating-pegged’ stablecoin backed by ETH. Instead of targeting a fixed dollar value, RAI’s price is determined by market dynamics – the supply and demand of both RAI and ETH – along with a sophisticated price stabilization mechanism.

Ameen Soleimani from Reflexer expressed openness to collaborating with Coinbase’s Layer-2, stating, “Reflexer is open to working with a number of ETH L2s to explore bringing RAI’s technology to new chains, particularly Base.” With approximately $30 million in ETH deposited on Reflexer to mint RAI, there’s significant backing and potential for growth.

RAI’s Unique Approach:

• ETH-Backed: RAI’s value is underpinned by Ether (ETH), a leading cryptocurrency.
• Floating Peg: Unlike traditional stablecoins, RAI doesn’t target a fixed dollar peg, allowing its price to adjust based on market conditions and a built-in stabilization mechanism.
• Decentralized Stability: RAI aims for stability through algorithmic adjustments and market forces, rather than relying on centralized reserves.

Olympus DAO: DeFi 2.0 and Beyond?

Remember Olympus DAO, the project that spearheaded the ‘DeFi 2.0’ wave in 2021? They’re also in discussions with Coinbase! Wartull, a contributor to Olympus DAO, mentioned to Decrypt that they are “currently investigating the options and are in contact with the Coinbase team.” While acknowledging the team’s current workload, Wartull indicated they are considering deploying on Base if it aligns with their goals.

The recent turmoil in traditional banking and the de-pegging of USDC seem to have strengthened the case for unpegged flatcoins. Wartull praised Coinbase for recognizing “the need for an unpegged flatcoin,” seeing Coinbase’s interest in Olympus DAO as “further validation” of this approach.

Beyond Flatcoins: What Else is Coinbase Envisioning?

Coinbase’s vision for ‘Base’ extends beyond just inflation-resistant stablecoins. Their call to developers also included:

• Social Applications: Tools to help users build their on-chain reputation, potentially revolutionizing how we interact and trust each other in the digital world.
• Improved Crypto Security: Innovations aimed at making the crypto space safer and more accessible for everyone.
• Limit Order Book (LOB) Exchanges: While Automated Market Makers (AMMs) like Uniswap dominate the decentralized exchange landscape, Coinbase is hinting at a resurgence of order book-style exchanges. These could offer higher performance and faster execution, mimicking the experience of centralized exchanges but with decentralized security.

Why Order Book Exchanges Matter:

Coinbase’s Layer-2: A Strategic Move for DeFi Dominance?

Coinbase is clearly making a significant push to establish dominance in the on-chain world with its Layer-2 blockchain. By inviting developers to build unconventional applications, they are signaling a desire to foster true innovation and expand the utility of DeFi. As Wartull from Olympus DAO pointed out, “Coinbase has unique access to millions of retail users who currently do not have (much) DeFi exposure.” This Layer-2 initiative could be the bridge that brings mainstream users into the world of decentralized finance.

This isn’t just about creating another blockchain; it’s about shaping the future of finance. Coinbase’s call for flatcoins and other innovative applications on ‘Base’ could be a pivotal moment, driving the evolution of DeFi and potentially offering real solutions for inflation and financial accessibility. Keep an eye on ‘Base’ – it looks like the foundation for something big is being laid.