The Real Power of a Crypto: Non-Flationary Value
Moving past stablecoin theories into the real, applied territory of resource economics.
We’ve recently published a special report on a new, critically important alternative asset mechanism that will unlock trillions in sidelined capital for the benefit of the real economy. It’s called non-flationary value.
What is non-flationary value? Or more specifically, non-flation?
Non-flation can occur when supply and demand dynamics are combined with managed purchasing power such that price fluctuations are balanced out by assets (resources) people can use and recreate on their own. By resources, we specifically mean things like food, land, energy, water, raw materials and data.
As you may already know, inflation occurs when the price of products and services increases, while the purchasing power of money decreases.
Deflation occurs when there is a general reduction of prices in the economy.
Non-Flation As a Stabilizing Mechanism
Right now, in most western economies, we are experiencing low inflationary rate adjustments with respect to monetary policy, while we are experiencing pockets of hyperinflationary conditions, whereby the prices of goods and services can rise by more than 50% a month in certain areas, due to an overall lag in purchasing power. This means that some people might have more money to spend, but they are getting far less ‘bang for their buck’. In other cases, many more people are jobless or underemployed as a result of the relative high pricing of products and services. We are seeing this play out in parts of Europe, the U.S. and in more glaring ways, South America and Africa — especially in areas where resource economics are seriously challenged by geopolitical agendas.
Paul Craig Roberts has put it well: “When the debt can’t be serviced, it can’t grow. Moreover, debt service drains income into interest and fee charges, further reducing consumer purchasing power. Thus, the offshoring of jobs has limited the expansion of aggregate consumer demand. As corporations are buying back their stock instead of investing, there is nothing to drive the economy. The economic growth figures we have been seeing are illusions produced by the understatement of inflation.”
Non-flation, therefore, balances out sharp or volatile swings in pricing by mediating, or mitigating the risks associated with, supply and demand.
Non-flation stabilizes money, while creating levers for properly managed resource production and distribution, commensurate with actual demand — demand that is not speculative or artificially induced.
We see non-flationary value as the driving mechanism for the next iteration of asset-backed tokens, and cryptocurrencies overall, which are typically not backed by real assets, nor do they exhibit the kind of intrinsic value that provides real world utility.
Projects like Smartlands are a good example of how token platforms are collateralizing real world industry to provide that utility.
And we can reduce this utility to single equivalents.
If utility can be defined as something vital that people can use in the real world, the next logical step is to tie new token issuance with something fundamental in the real world, such as a natural or renewable resource.
For example, each 1 kilo of pecans processed = 1 Kpecan token.
Or, each kilowatt of energy = 1 Etoken.
Or, each hectare of land = 1 Ltoken.
Some ‘stablecoin’ models do these units of measurement, most often to establish monetary or currency stability as a form of liquidity to get a project up and running, but not to maintain the value of an underlying asset, like a natural resource. In this sense, stablecoins are not all that much different from fiat currencies, or forms of fiat credit.
What’s commonly missing is a non-flationary baseline, specific to the creation of resource, the labor associated with it, and its redistributive reach or capacity.
A non-flationary baseline is established between a resource (asset) and a representative monetary unit, or a form of mutual credit. This baseline is established before introducing the token to the full ecosystem of companies and platforms. The agreement (a smart contract) factors in the conditions around the creation of the resource (an asset), the resultant labor, and its distribution. The technology infrastructure which proffers the data on local socioeconomic/ecological conditions, in combination with non-flationary tokenization, provides what we call a whole asset.
Once a whole asset is introduced into an ecosystem, it provides enormous benefit because it gives investors a more liquid, hard money-backed vehicle into which they can diversify as well as de-risk their investment exposure, and it gives entrepreneurs a fantastic way to self-subsidize based on their outputs. More importantly, it provides a means for collateralizing asset value.
With respect to collateralization, outputs or throughputs as a baseline benchmark (metric) also create a performance or participatory value on the asset itself. This means that the people’s efforts to steward or manage that asset have a direct effect on its value — what is traditionally understood to be labor force participation and labor force participation rates.
In this context, you can produce a living wage associated with the stewardship of the asset, as opposed to a labor wage which is contingent upon flationary conditions, which can easily commodify the value of labor, resulting in a lower wage relative to the amount of labor put in.
So, labor force participation would transition to participatory labor based on non-flationary value. In other words, utility-based participation.
Combining Renewed Purchasing Power with Real Utility
The difference between this construct and a traditional commodity or security is simple: The former measures non-flationary value as a true medium of exchange, while the latter makes market assumptions and speculates on that value, which is typically inflationary or deflationary. Further, labor in the traditional model is ultimately separated from the utility itself, which is why living wages are so difficult to maintain in many economies.
This is the basis for non-flationary value: Having investment flexibility, purchasing power and real world utility rolled into a single monetary or mutual credit vehicle.
In this way, it is also important to understand that non-flationary value introduces a truly complementary relationship between crypto and fiat.
We can see this in how energy models are shifting to prosumer approaches. Notice how purchasing power and (re)investment capability expands by using both forms of currency in tandem. Essentially, investors can buy into an ecosystem with fiat, while crypto enables them to participate in the sustenance of that ecosystem as operators, with an indefinite timetable for reinvestment. In other words, a person acting as an operator and investor would, for example, run his or her own microgrid. He or she can use fiat as a ‘buy-in’ to the asset pool, and crypto as a means to sustain it, thereby regenerating returns.
Stablecoins versus Stable Assets
While stablecoin models typically feature coins or tokens tethered or even pegged to fiat, and might create equivalents to actual resources, they don’t address the reusable or regenerative asset side of the equation (resource recreation and redistribution), and, they assume that scarcity — specifically, the limited supply of coins or tokens — keeps pricing in check.
Yet, the truth is that real assets are the only major hedge against (hyper)(in)(de)flationary risk.
Why? Because real assets, specifically natural resources, are in constant demand while oftentimes in short supply. So, regenerating them means that value and utility are constants. Their expansion based on real demand is a real measurement of accruable demand, even while that demand can go through cycles, as would be the case in the example used above, the regenerative energy grid. You may produce enough energy and storage capacity in a cycle of, say, one month, to supply energy for an entire community for 6 months. But the caveat here is in how you redistribute and manage the use of that energy, which carries its own sustained value. This, again, is where participation plays a key role.
In other words, supply, demand and purchasing power in a non-flationary scenario — in which resources are constantly recreated, redistributed and managed through various means or models, such as a DAO-like structure — would be self-mitigating and self-sustaining.
Crypto as the Ultimate Non-Flationary Instrument
Platforms like Coro, Regen Network and Holochain see the real potential of non-flationary value, and are leading the charge with viable ‘stablecoin’ (stable asset) models, as well as reinventing the notion of digital assets and asset-backed vehicles across a variety of domains, from commercial enterprises to civic structures.
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This thesis on non-flationary value covers off on a couple of real world use cases and is the run-up to our upcoming book, “The New Asset Class”.
You can download a free copy of the report here: