Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to unlock the Medium of Exchange use case.

The crypto market crashed again. The crash centered around the Terra ecosystem which consists of the Luna token, the Terra (UST) stablecoin, and Luna Foundation Guard’s Bitcoin reserve. The Luna token and the Bitcoin reserve are supposed to provide backing for the UST stablecoin. However, when the peg failed, the market went into a death spiral. The Terra ecosystem could not withstand the speculative attack. It collapsed. The future of a decentralized stablecoin remains elusive. We can’t create stability on unstable foundations. The Luna token has no value beyond trust in the system. Bitcoin is inherently volatile. We have seen the lessons of the DAI stablecoin and the UST ecosystem. The collapse of Luna highlights the need for an inflationary cryptocurrency.

Bitcoin is inherently volatile

Bitcoin is inherently volatile due to its limited and disinflationary supply. Bitcoin’s use case is a Store of Value. The system incentivizes people to hold bitcoins. In the long term, Bitcoin gains value and rewards holders. However, in the short term, it is an instrument for speculation. Its price is affected by market trading. Bitcoin is stuck with the Store of Value use case. The Luna Foundation Guard (LFG) made a rational choice by building up their reserves. The Luna token is backed by nothing. A Bitcoin reserve can provide some support. However, the Terra community underestimated the inherent volatility of Bitcoin. Given enough capital, it is not difficult to conduct a speculative attack on Bitcoin’s price.

The Terra ecosystem is centralized

A centralized ecosystem introduces a single point of failure. The LFG wanted to live up to its promise of a pegged UST/USD. The consensus algorithm increased the supply of the Luna token to shore up the price of UST. This drives down the price of the Luna token. By following the market, the algorithm is prone to manipulation. When the algorithmic adjustment failed to halt the crash, the LFG leadership panicked. They sold the Bitcoin reserve to defend the peg. The sale of Bitcoin exacerbated the crash of both Bitcoin and the Luna token. The ecosystem made mistakes by trusting a centralized consensus algorithm and a centralized organization.

Stability through Constant Inflation and Proof of Work

We have seen failures of algorithmic stablecoins. An algorithm following the market will be manipulated by the market. We need to rethink our approach. To create a stable system, we need to make the market follow the coin. The algorithm is constant inflation. A constant inflation will not be affected by market volatility. We don’t need a company or a foundation to manage the ecosystem. The system needs to be decentralized. Proof of Work is a proven and decentralized consensus. Bitcoin is the Store of Value. An inflationary Proof of Work cryptocurrency can unlock the Medium of Exchange use case. In the short term, it may be volatile due to the supply constraint. In the long term, it may provide ways to create a stable monetary system.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to unlock the Medium of Exchange use case.