As the war with Iran and the closure of the Strait of Hormuz drive up oil prices, inflation is once again at the forefront of investors’ concerns.
Inflation in the United States accelerated last month to 0.9%, driven mainly by energy costs linked to the Middle East conflict; Core inflation, which excludes energy and food costs, was surprisingly below estimates. The overall increase in February was only 0.3%.
For Michael Ashton, co-founder of the stablecoin USDi with Andrew Fately, the figures highlight a flaw in the monetary architecture of crypto.
“The stablecoin boom accidentally only rebuilt half of the monetary system,” Ashton told CoinDesk in an interview. “Stablecoins have solved the medium of exchange problem for crypto, but no one has solved the store of value problem. USDi is the first serious attempt to complete the construction of the on-chain monetary system.”
The $300 billion stablecoin market, dominated by dollar-pegged tokens, has become an essential plumbing for cryptocurrency trading and payments. But these tokens, typically backed by cash or Treasury bills, are designed to hold a face value of $1, not to preserve purchasing power. In real terms, Ashton argues, they are losing value.
“As stablecoins move from crypto-trading tools to true payments infrastructure, the store of value gap becomes a real institutional concern, not just philosophical,” he said. “Treasurers, neobanks and cross-border payment platforms holding stablecoin float are quietly taking on inflation risk that they probably haven’t factored in.”
USDi
USDi is an attempt to fill this gap.
Instead of tracking the dollar, the token is designed to track inflation itself. Its value increases based on changes in the US Consumer Price Index (CPI), making it a blockchain-native version of capital protected against inflation.
Ashton describes USDi as being closer to the principal value of Treasury inflation-protected securities (TIPS), but without some of the drawbacks that have caught investors off guard in recent years.
Although TIPS provide a link to inflation, they are still bonds, meaning their market price can fall when interest rates rise. USDi, on the other hand, aims to function more as an inflation-linked savings instrument.
The stablecoin’s reserves are invested in a low-volatility private fund called the Enduring US Inflation Tracking Fund, which uses TIPS, US Treasury debt, futures and options on currencies and commodities; to generate returns.
“There really isn’t such a thing as an inflation-protected savings account,” Ashton said. “That’s the void we’re trying to fill.”
Oil-fueled inflation
Oil markets have experienced a sharp and volatile rise since the outbreak of war in Iran at the end of February. Prices initially climbed into the $80s before quickly rising above $100 a barrel as fears grew over disruptions in the Strait of Hormuz, a key artery for about 20% of global supplies.
High oil prices can fuel inflation by increasing transportation and production costs across the economy, which are often passed on to consumers in the form of higher prices.
These moves have been marked by extreme volatility, with daily swings driven less by fundamentals than by headlines, with markets pricing in a persistent war premium linked to the risk of prolonged supply disruptions.
“Treasuries are running around 3.5%, inflation is around 3%, but historically inflation has often exceeded short rates over long periods of time,” Ashton said. “Maybe we’ll get back to that pattern.”
This dynamic, he added, strengthens the case for an asset explicitly designed to track inflation rather than nominal returns.
Yet Ashton sees USDi as much more than a tactical transaction. He sees this as a structural evolution of cryptography, one that complements the system started by Bitcoin.
“Bitcoin was designed as an alternative monetary system, and potentially as a store of value like gold,” he said. “But its volatility makes it difficult to use over shorter horizons. Stablecoins have solved the payments problem. Now we need to solve the store of value problem.”
Customizable inflation exposure
Beyond its basic design, USDi plans to introduce something that Ashton says is difficult, if not impossible, to replicate in traditional finance: customizable exposure to inflation.
The CPI itself is a composite of several categories, including housing, health care, transportation and education. The architecture of USDi, Ashton said, could potentially allow users to tailor their exposure to specific components of inflation.
“You don’t have to hold just one overall basket,” he said. “You can isolate healthcare inflation, tuition inflation, or energy inflation. You can even scale it by geography: Dutch inflation, French inflation, underlying US CPI.”
This flexibility allows for more specialized applications, particularly in sectors directly exposed to specific cost pressures.
Insurance companies, for example, face inflation risk in areas such as medical costs but lack accurate coverage tools. Traditionally, they manage these risks by holding more capital or transferring their exposure through reinsurance or catastrophe bonds. But these tools are rudimentary and often unavailable for certain types of inflation risk.
“There’s never really been a direct hedge against something like health care inflation,” Ashton said. “If you can hedge that exposure more accurately, you can reduce the capital you need to hold or increase the amount of business you can write.”
He expects insurers and reinsurers to be among the first to adopt USDi during the second phase of USDi deployment.
Other potential applications include education funding. There are already programs in some parts of the United States that allow families to prepay tuition years in advance, effectively locking in prices. Ashton sees a token hedge against inflation as a more flexible alternative.
“Tuition is a classic inflation risk,” he said. “Being able to cover that directly is powerful.”
Fundraising
USDi is already up and running, with Ashton targeting a fundraising of around $1.5 million in the coming months.
However, the broader conversation is less about financing and more about redefining how investors perceive risk.
“You are born with inflation risk,” Ashton said. “You are not born with credit risk or equity risk.”
Learn more: Iran oil shock and risk of war keep crypto investors on the sidelines: Grayscale
