by Jacek Korneluk

Very often I use words like Stablecoin, Tether, USDT, USDC, DAI, or CBDC.

For me, it is completely obvious and normal. The terms are well known to the majority of my friends, but not to all of them.

How about you?

Are you crypto-native or what they call a “norm”? Which hat are you wearing, or planning to wear?Very soon, even normies will be familiar with digital assets, the digital economy, and Web3 (IMO).

The digital transformation toward a digital economy is rapidly progressing and steadily maturing. So, having multiple types of digital assets in our portfolios is starting to look pretty inevitable.

The changes to our lifestyle are happening almost automatically and often in stealth mode.

We like it, or not but we are all affected by it. Consequently, we are constantly changing.

I will try in this article to make those terms more friendly in a hopefully interesting way. So even if you do not have an interest in Cryptocurrency, Digital Assets, or Web3 – platforms do not stop reading it, please.

It is fully understandable that not everyone developed an interest, or taste in cryptoeconomy and cryptofinance as I did.

But it may be useful to know a bit about stablecoins if you accidentally enter a conversation, or read something dedicated to cryptocurrency, Web3, and blockchain.

Finally, the number of digital assets and Web3 followers continuously growing, so sooner or later blockchain-based finance may become a reality not for cryptonatives only, but for all norms as well which may be obligatorily affected.

So, “Better Know Early, then Sorry Later”, I would say.

Have a good reading.

For most of us, money has already gone digital. We pay with phones, send money with apps, and probably have not touched cash for ages. Some even went further and paid with their faces, how awesome.

But there is something much bigger brewing under the surface.

Whether it is happening in partly stealth mode, or you do not read about it and trying to ignore it, it is growing and maturing despite your ignorance.

The institutional acceleration of the digital economy is happening.

Governments, tech companies, and crypto communities are all building their versions of digital money. They are not just upgrading how we pay but they are trying to redesign the monetary system and money itself.

Right now, three main types of digital currencies are getting all the attention: CBDCs, stablecoins, and flatcoins.

They sound a bit similar, but they are built for totally different reasons and depending on which one takes off as a financial leader, the future of money could look very different.

We can start with the most government-approved version:

CBDCs are digital forms of a country’s sovereign currency, issued and regulated by central banks. Unlike stablecoins and flatcoins, CBDCs are legal tender and represent a direct claim on the central bank.

These are digital dollars, euros, yuan, or whatever your country’s currency is. It is issued and completely controlled by central banks.

A CBDC is not some new cryptocurrency. It is more like your normal bank balance but issued directly by your government.

You still need a dedicated App or digital wallet to use it.

It is sometimes referred to as programmable money as well, and there is a serious reason for that.

Retail CBDCs: Designed for use by the general public, can be token-based (anonymous) or account-based (identity required).

Wholesale CBDCs: Used by financial institutions for interbank transfers and settlements.

Some examples may include Sand Dollar, the first national CBDC launched in 2020 in Bahamas or Jam-Dex, the first CBDC ratified as a legal tender in Jamajca, or finally eNaira, the first African CBDC launched in 2021 in Nigeria.

But there are more examples and counting. CBDCs are being piloted and adopted worldwide with each implementation reflecting the country’s regulatory and technological priorities.

It is not a surprise that governments like CBDCs because they offer more control over them. They can distribute aid instantly, track fraud, and even automate taxes. How awesome again!

But with that control comes questions. Could your spending be monitored much more closely? Could transactions be blocked or social-scored?

Financial Inclusion: CBDCs can provide access to digital financial services for people who are unbanked or underbanked, especially in regions with limited traditional banking infrastructure.

Faster and Cheaper Transactions: They can make payments (including cross-border remittances) faster, cheaper, and more efficient by reducing reliance on intermediaries and cutting transaction fees.

Security and Transparency: CBDCs can offer secure, traceable transactions, helping to reduce fraud, money laundering, and illicit activities.

Emergency Aid and Direct Payments: Governments can use CBDCs to quickly distribute emergency aid or social benefits directly to citizens, especially in crises where physical cash or banking services are inaccessible.

Reduced Costs: Lower costs for handling and distributing physical cash, and potentially for consumers as well.

Better Monetary Policy: Central banks can gain more effective tools for managing the economy, such as real-time data and direct monetary policy transmission.

Privacy Concerns: Depending on the design, CBDCs could give central banks access to detailed transaction data, raising concerns about financial surveillance and loss of privacy.

Cybersecurity Risks: CBDCs, as digital systems, are vulnerable to hacking, cyberattacks, and technical failures, which could put user funds at risk.

Bank Disintermediation: If people prefer holding CBDCs over bank deposits, it could weaken traditional banks, reduce their ability to lend, and potentially destabilise the financial system.

Systemic Risk: Rapid shifts from bank deposits to CBDCs, especially in times of crisis, could trigger bank runs and financial instability.

Exclusion of Technologically Disadvantaged: Those without access to digital devices or the internet may be left out, potentially worsening inequality if not addressed.

Implementation Complexity: Rolling out CBDCs requires major investments in technology, regulatory frameworks, and public education, which can be costly and challenging.

Potential for Government Overreach: Centralised control could allow governments to impose capital controls, freeze accounts, or otherwise intervene in personal finances more easily.

There is a hot debate here between efficiency and privacy, pros and cons, and all consequences.

Now is a good time to learn and think about it before you would have no chance except to comply and live with it.

(In case you do not know Fiat is a name for government-issued currency. Fiat has value because a government maintains it for people. Also, it is in common use as people have a faith in its value, not because it is backed by a physical commodity like gold.)

Stablecoins are cryptocurrencies pegged to external reference assets. Most commonly fiat currencies like the US dollar, but also commodities or other cryptocurrencies. Their goal is to minimise price volatility, making them more suitable for everyday transactions and as a store of value compared to traditional cryptocurrencies like Bitcoin or Ether.

Fiat-backed: Pegged 1:1 to fiat currencies (e.g., USD, EUR). Issuers hold reserves in cash or cash equivalents.

Commodity-backed: Pegged to assets like gold or other commodities.

Crypto-backed: Collateralised by other cryptocurrencies, often overcollateralised to manage volatility.

Algorithmic: Use algorithms and smart contracts to control supply and demand, maintaining a peg without direct collateral.

What makes stablecoins attractive is that they move fast, cost less, and work across borders. But they are not all created equal.

Some may be a bit infamous like TerraUSD (UST) which collapsed completely apparently due to flawed designs.

So, while stablecoins can be useful, they rely heavily on trust in whoever is issuing or managing them.

The third type named flatcoins is still new, but the idea behind them is super interesting.

While stablecoins are pegged to the dollar, flatcoins aim to stay stable in terms of purchasing power. In other words, they are meant to hold their value over time, even if the dollar itself loses buying power due to inflation.

They peg their value to inflation indexes, aiming to resist the effects of inflation and preserve what you can actually buy with the coin over time.

Flatcoins use algorithms and oracles to track & trace changes in the cost of living, or inflation rates.

Adjust supply dynamically to maintain a “flat” value in terms of purchasing power, not just nominal currency value.

You may think of it this way. A flatcoin would not just aim to be worth one dollar but instead, it would aim to always buy you the same amount of stuff, even as prices change.

Tricky, but it is not a miracle based.

That is especially useful in countries with high inflation or in long-term savings situations.

Projects like Ampleforth and ideas floated by folks like Vitalik Buterin and Balaji Srinivasan have explored how these could work using oracles, baskets of assets, or even tracking CPI data.

Quite recently Blocksquare announced their introducing a POINT token which will be tracing the value of Real World Assets (RWA).

POINT is not a flatcoin by the strict definition today, but it is designed with the flexibility to incorporate flatcoin-like mechanisms in the future, aiming for purchasing power stability through diversified collateral and protocol-managed risk. Its initial value is closely tied to stablecoins and tokenized real estate, not directly to an inflation index or cost-of-living metric.

Consequently, what is the difference between all these coins?

It mostly comes down to who controls them and what they are trying to do for and with you.

CBDCs = government-issued, centralised, apparently focused on national policy.

Stablecoins = crypto-based, often private, focused on ease of use and fast transactions.

Flatcoins = experimental but steadily maturing, aimed at stability over time, not just price.

CBDCs could give you stability and legal backing, but also less privacy.

Stablecoins are flexible and decentralised (sometimes) but can be risky if the issuer is not honest and transparent.

Flatcoins may be the best long-term store of value, but they are still evolving.

This is not just a nerdy-crypto debate either. These coins are showing up in real life.

In Nigeria, the government launched the eNaira (a CBDC). In Argentina, people use stablecoins like USDT to escape inflation. In the U.S., companies are testing flatcoin models that could one day protect your savings from inflation.

More examples just mounting.

Governments want control people.

Cryptonatives and cryptocommunities want freedom.

Regular people (so-called “norms”) just want something that works.

And depending on how this plays out, the money in your pocket, or more likely your phone might look very different a couple of years from now.

Always remember what the cryptonative old school saying: Not your private keys, not your money!

It is as simple as that.

In the end, you will probably end up using at least one of these, whether you choose it or not. Perhaps even all. The real question is which one fits your values and your needs.

Do you want something backed and controlled by your government? Something fast and borderless? Or something that can be resistant and outpace inflation?

Whatever the answer you have, one thing is crystal clear to me. Money’s getting a major overhaul and glow-up and this time, it is certainly more than just a cosmetic move or as the overused words say: “Hype” or “Buzz”.

This time it is a serious stuff mate.

So, stay well educated to make more informative decisions with plenty of “Hopium”.

Oryginally published on:

https://spektrumlab.io/cbdcs-stablecoins-flatcoins-the-future-of-money/