Coinbase wants developers to build inflation-pegged ‘flatcoins’ on its new ‘Base’ network

Crypto exchange Coinbase sees inflation-pegged “flatcoins” as one of four “critical” innovations that should be built on the newly launched layer-2 network base.

The other three include an on-chain reputation system, an on-chain limit order book (LOB) exchange, and tools that make the decentralized finance (DeFi) ecosystem safer.

The trading platform outlined the four areas in a March 24 post — about a month after Coinbase launched Base on February 23. The base is secured by Ethereum and powered by other layer-2 network Optimism.

First was the development of an inflation-linked flatcoin. In light of the recent banking crisis, Coinbase said it is now “more important than ever” to build an inflation-tracking stablecoin that negates bad monetary policy decisions by central banks:

“[We] is particularly interested in ‘flatcoins’ – stable coins that track the rate of inflation, enabling users to have stability in purchasing power while remaining resilient to the economic uncertainty caused by the old financial system.”

While most stablecoins are linked to a benchmark asset such as the US dollar (USD), flatcoins aim to be linked to the “cost of living” by tracking consumer price index and inflation data.

Coinbase added that it is also open to other ideas that “fill the space” between fiat-pegged stablecoins and volatile cryptocurrencies.

The concept has the approval of investor Ray Dalio as well, who recently said he wants to see an “inflation-linked coin” that serves to ensure consumers can secure their purchasing power.

“The closest thing to that is an inflation-indexed bond, but if you created a coin that said OK, this is purchasing power that I know I can save and deposit my money over a period of time and trade anywhere, I think that would be a good coin, he said.

Coinbase has also encouraged developers to look into developing an on-chain reputation system, which it says will play a “critical role” in establishing “onchain trust” between users, Coinbase said.

A reputation protocol can implement a credit score or rank-like system that ensures certain criteria are met before an onchain identity can interact with a decentralized finance (DeFi) application:

“This could look like a FICO or Google page rank type on ENS name, seller ratings/reviews and other measures that help build trust in the chain.”

Ganesh Swami, CEO of blockchain data aggregator Covalent previously told Cointelegraph that this could be achieved by reviewing past transaction data for a particular wallet address on competitor protocols, as the blockchain leaves behind what he describes as “historical breadcrumbs.”

However, Coinbase said reputation protocols must ensure users’ privacy and autonomy are preserved.

In its third focus area, Coinbase said that an on-chain limit order book exchange could serve as a more “advanced exchange” because it could perform the normal exchange operations while eliminating counterparty risk through self-custodial.

Limit orders are used to place an order to buy or sell the stock with a limit on the maximum price (or minimum price) at which a user wishes to trade. A limit order book is a list of orders for a given security.

By taking this onchain, Coinbase explained that it can offer professional traders and institutions a new trading venue to execute trading strategies that they are familiar with in the traditional financial system:

“The high throughput of Base opens up significant new opportunities to design new mechanisms for spot trading, limit orders, options, perpetuals and more. And builders can use open source tools like OP Stack to build L3s that give them even more speed and control, and possibly enabling even deeper liquidity, still available through L2.

Related: Coinbase new blockchain seen as ‘massive vote of confidence’ for Ethereum

The latest area of ​​focus, according to Coinbase, is making the decentralized finance (DeFi) ecosystem safer for users and developers.

To achieve that feat, it wants to enable tools that protect against vulnerabilities in smart contract code and protocol logic errors.

The firm explained that self-service security testing tools and stronger auditing services can help reduce threat prevention, circuit breakers and incident response systems.

Coinbase said it would also like to see more insurance protocols to serve as a “critical backstop” for users in the event of a smart contract exploit.

Meanwhile, to help speed up DeFi on Base, Coinbase launched its Base Ecosystem Fund to help fund early-stage projects that build on Base. The layer-2 network now supports over 30 blockchains, according to a recent post from Base.

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