Cryptocurrency exchange Coinbase considers inflation-linked “flat coins” one of four “critical” innovations that should be built into its recently launched Layer 2 network foundation.
The other three include an on-chain reputation system, an on-chain limited order book (LOB) exchange, and tools that make the decentralized finance (DeFi) ecosystem more secure.
The trading platform outlined the four areas in a March 24 mail – about a month after Coinbase launched Base on February 23. Base is protected by Ethereum and works with Optimism of the layer 2 network.
Are you a builder with a passion for growing the on-chain economy, but looking for where to start?
We just published a request for builders: four areas we’d love for builders to explore in Base (with funding from the Base Ecosystem Fund) https://t.co/XSSdPnusyc
—Base (@BuildOnBase) March 24, 2023
The first was the development of an inflation-linked flatcoin. In light of the recent banking crisis, Coinbase said that it is now “more important than ever” to build an inflation-tracking stablecoin that overrides poor monetary policy decisions by central banks:
“[We] They are particularly interested in ‘flatcoins’, stablecoins that track the rate of inflation, allowing users to have stability in purchasing power and, at the same time, resistance to economic uncertainty caused by the legacy financial system.”
While most stablecoins are pegged to a benchmark asset such as the US dollar (USD), flat coins aim to be pegged to the “price of life” by tracking consumer price index and stock market data. inflation.
Coinbase added that it is also open to other ideas that “fill the gap” between fiat-pegged stablecoins and volatile cryptocurrencies.
The concept also has the approval of investor Ray Dalio, who recently said he would like to see an “inflation-linked currency” to ensure consumers can secure their purchasing power.
“The closest thing to that is an inflation index bond, but if you created a currency that says OK this is purchasing power that I know I can save and put my money over a period of time and transact anywhere I think it would be a good coin,” he said.
Coinbase is making a request for builders on their L2 and one of the products they want to incubate is a non-fiat stablecoin. pic.twitter.com/Fx7PSL2MOD
— ℳiLLiΞ⏳ (@0xmillie_eth) March 26, 2023
Coinbase has also urged developers to consider developing an on-chain reputation system, which it says will play a “critical role” in establishing “on-chain trust” among users, Coinbase said.
A reputation protocol could implement a credit score or range-like system that ensures certain criteria are met before an on-chain identity can interact with a decentralized finance (DeFi) application:
“This might look like a FICO or Google page rank type score on ENS names, merchant 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 a particular wallet address’s past transaction data on competing protocols, as blockchain leaves what he describes as ” historical breadcrumbs”.
However, Coinbase said that reputation protocols must guarantee the preservation of user privacy and autonomy.
In its third area of focus, Coinbase said that an on-chain limit order book exchange could serve as an “advanced exchange” because it can carry out normal exchange operations and eliminate counterparty risk through self-custody.
Limit orders are used to place an order to buy or sell shares with a restriction on the maximum (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 on this chain, Coinbase explained that it can offer professional traders and institutions a new trading venue to execute trading strategies they are familiar with in the traditional financial system:
“Base’s high performance 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 L3 that give them even more speed and control, potentially allowing for even deeper liquidity, still accessible via L2.”
Related: Coinbase’s New Blockchain Seen as a “Massive Vote of Confidence” for Ethereum
The final area of focus, according to Coinbase, is making the decentralized finance (DeFi) ecosystem safer for users and developers.
To achieve that feat, you want to enable tools that protect against smart contract code vulnerabilities and protocol logic errors.
The firm explained that more robust self-service security testing tools and auditing services can help mitigate threat prevention, automatic switches, and incident response systems.
Coinbase said it would also like to see more insurance protocols that serve as a “critical backup” for users in the event of a smart contract exploit.
Meanwhile, to help accelerate DeFi on Base, Coinbase launched its Base Ecosystem Fund to help finance early-stage projects being built on Base. The Layer 2 network now supports more than 30 blockchains, according to a recent post by Base.
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