In Request For Builders, Base has mentioned four critical areas that they believe will help Base's on-chain economy grow, namely flatcoins, on-chain reputation, Onchain Limit Order Book (LOB) Exchange, and safer Defi. In terms of flatcoins, the Base team believes that with the recent challenges in our global banking system, explorations on flatcoins are more important than ever.
For us, we believe that a flatcoin can provide true value stability to users, as well as be applied to wages, unconditional basic income, and more. Flatcoins track the rate of inflation, enabling users to have stability in purchasing power while also having resiliency from the economic uncertainty caused by the legacy financial system. There are different forms of flatcoins, some peg to fiat, while some are not. In this article, we’ll delve into more about Floatcoin’s mechanism.
Floatcoin ($FLOAT) will be the stablecoin pegged to US CPI. FLOAT is designed to maintain its purchasing power through on-chain stability mechanisms that keep its value constant relative to the price of all items in the CPI basket.
Floatcoin Committee ($FCC) will be the governance token of the ecosystem. $FCC holders will receive any additional yield from the treasury, and if the FLOAT treasury is unable to maintain the increased backing per $FLOAT due to inflation, new $FCC tokens may be created and sold to bolster the treasury.
FLOAT depends on data from Truflation's daily Consumer Price Index (CPI) to maintain its value. A specialized oracle from Chainlink immediately records this data on-chain as it becomes public. The inflation rate reported by this oracle is then used to calculate the redemption price of $FLOAT in the system contract. This redemption price changes every second on-chain, reflecting the current inflation rate (or deflation rate, in rare cases). Once every 24 hours, the peg calculation rate is updated using Truflation's daily CPI data. Consequently., the $FLOAT peg is always aligned with the daily inflation rate and is anchored to it by the $FLOAT redemption contract. When traders buy $FLOAT using another asset, such as ETH, they are effectively speculating that the CPI's purchasing power will appreciate more rapidly over time than will the sold ETH. Conversely, if traders sell $FLOAT for ETH, they are taking the position that ETH's growth will outpace the CPI's inflation rate for the US Dollar.
Our aim is for $FLOAT to serve as a substitute for the US dollar-pegged stablecoin in certain functions, which is why we require as much exposure as possible from stablecoins. Initially, only 5 pools (5LP) namely USDC/USDT/DAI/FRAX/crvUSD will be accessible for minting and redeeming $FLOAT. This selection aims to diversify the portfolio and provide necessary stablecoin liquidity to the ecosystem.
Initially, the collateral ratio stands at 200%. This implies that for a deposit of $100 worth of 5LP, the user can mint up to $50 worth of $FLOAT. However, it is important to note that the $FCC has the authority to adjust the collateral ratio.
Our stability mechanism is straightforward: $1 of FLOAT can be exchanged for $1 of 5LP. Keeping our starting 200% collateral ratio in mind, it is highly improbable for $FLOAT to fall below the required collateral amount. Nonetheless, if the collateral falls underwater, a TWAMM mechanism comes into play, wherein $FCC will be sold for $FLOAT to maintain a minimum of 100% collateral ratio.
Our protocol has a revenue stream that benefits our investors. Since LPs can earn value through fees or changes in price, when collateral surpasses its expected value, the excess amount is directed to the treasury. This excess amount will eventually be distributed to FCC/FLOAT stakers.
The $FCC token will serve as the central governance component and risk management hub for the protocol. To participate in voting, receive a share of the treasury income, and earn $FCC rewards, users must secure $FCC/$FLOAT LP tokens through staking. In turn, the FCC/FLOAT pool will act as a buffer for selling $FCC in the event of undercollateralization in the treasury.
Floatcoin Protocol will be active in three phases:
The protocol is considered robust with a collateral of only 5LP and a CR of 200%. We do not anticipate any risks for the $FCC selling event at this point.
Our approach is to gradually adjust the CR until it reaches a proximity of 100%, which will enable us to mint more $FLOAT and maximize the utilization of user funds.
During Phase III, additional tokens such as BTC, ETH, and USDT 3 Pool, as well as FCC/FLOAT Pool, will be accepted as collateral. By using cryptocurrencies as collateral, the project's treasury can increase its real value, resulting in greater income for the treasury.
As the stablecoin pegged to US CPI, Floatcoin reveals the new paradigm of stablecoin, aiming to protect users’ purchase power as well as provide better value measurement and value preservation functions than fiat-anchored stablecoins. With Floatcoin, users are able to hedge against inflation and take advantage of arbitrage opportunities.