INK
Inflation-linked token, a true stablecoin for African countries
Demo
About
Why are you participating for Based Africa? I'm a Fellow of the Actuarial Society of South Africa and believe that web3 is a tool that the financial industry can use to reach the unbanked people on our continent who don't have access to sophisticated products that can help manage the financial risks that they are exposed to. I want to be the bridge between Institutional Traditional Finance and the Web3 DeFi movement. I'll be sharing my project on my YouTube channel that has 36000 young actuarial student subscribers and hopefully inspire them to get involved in web3. Additional Features I've thought about Inflation linked tokens for a while but everything was built during the buildathon. I used a tailwind template, some smart contracts from thirdweb, one I made with AI and then put everything together.
How it's made
What challenges are you focusing on? I'm focusing on Inflation Risk. Money is meant to be a store of value and a medium of exchange but in Africa we experience very high inflation. Nigeria and many other countries in Africa experience inflation over 30% per year. This makes their money a poor store of value and a weak medium of exchange. High inflation discourages people from saving their money which makes it difficult for them to build wealth and escape poverty. The future rate of inflation is uncertain and without financial products it is very difficult for the average citizen to manage this risk. Not only does inflation erode your current savings but it also increases your future expenses and if your income doesn't rise along with it, then the cost of living increases. In some countries like Zimbabwe, inflation was so high that it had long term devastating impacts on the economy. Inflation might be an economic challenge but it's consequences cause many community challenges. How does your submission address this challenge? My project creates the investment infrastructure required for an asset manager to create and administer a product that addresses financial risks. As an example, it can be used to create INK - an inflation linked token. People exposed to inflation risk can use fiat currency to purchase a coupon bearing bond in the form of an NFT. This NFT can then be staked which will generate a continuous yield of INK tokens. The asset manager will invest the proceeds from the NFT sale into government issued inflation-linked bonds and other inflation hedged investments. The asset manager will then deposit the fiat currency proceeds of these investments into the Token Swap smart contract which will allow people to exchange INK tokens back into fiat currency. An exchange rate will be set based on an inflation index. People will rather hold INK token instead of fiat currency as INK's value will increase inline with inflation. A traditional stablecoin is just pegged to the value of a fiat currency whereas INK is a true stablecoin as its value is pegged to an inflation index liked the Consumer Price Index. Traditional stablecoins allow for a direct exchange of fiat for their token and hold an asset liability ratio of 1:1 which can sometimes experience volatility due to market conditions. INK requires the purchase of the NFT bond and a slow release of tokens, if the yield on the bond is set to 10%, then INK will have an asset liability ratio of 10:1 in the first year, which gives the Asset Manager time and coverage to invest in less liquid assets that can match inflation rates. INK could potentially be used as an alternative currency in high inflation markets as it is a better store of value and a more stable medium of exchange. In a nutshell, when there is high inflation, INK is better than money. Challenges we ran into First time building on Base (and haven't developed in years) and so it took a bit of time to fix the errors that came up when trying to implement Basenames. The Smart Wallet worked well on standardised smart contracts but didn't want to work on the customised smart contract that I deployed to allow for the token swap. ChatGPT helped me overcome some other small issues but overall I had a lot of fun making this project and felt like I learnt a lot.