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’ minds.
In the United States, inflation 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, surprisingly missed estimates. February’s overall increase was only 0.3%.
For Michael Ashton, co-founder of the USDi stablecoin along with Andrew Fately, the figures underline a flaw in the monetary architecture of cryptocurrencies.
“The rise of stablecoins has accidentally rebuilt only half of the monetary system,” Ashton told CoinDesk in an interview. “Stablecoins solved the medium of exchange problem for cryptocurrencies, but no one solved the store of value problem. USDi is the first serious attempt to finish building the on-chain monetary system.”
The $300 billion stablecoin market, dominated by dollar-pegged tokens, has become an essential pipeline for cryptocurrency trading and payments. But those tokens, typically backed by cash or Treasury bills, are designed to maintain a face value of $1, not to preserve purchasing power. In real terms, Ashton argues, they are losing value.
“As stablecoins move from cryptocurrency trading tools to genuine payment infrastructure, the store of value gap becomes a real institutional concern, not just a philosophical one,” he said. “Treasurers, neobanks, and cross-border payments platforms that hold stablecoin floats are quietly taking on inflation risk that they likely have not priced in.”
USDi
The USDi is an attempt to fill that gap.
Instead of tracking the dollar, the token is designed to track inflation itself. Its value increases in line with changes in the US Consumer Price Index (CPI), effectively making it a blockchain-native version of an inflation-protected principal.
Ashton describes USDi as 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.
While TIPS offer a link to inflation, they are still bonds, meaning their market price can fall when interest rates rise. The USDi, on the other hand, is intended to function more as an inflation-linked savings instrument.
Stablecoin reserves are invested in a private, low-volatility fund called the Enduring US Inflation Tracking Fund, which uses TIPS, US Treasury debt, currency and commodity futures and options; to generate return.
“There’s really no such thing as an inflation-protected savings account,” Ashton said. “That’s the void we’re trying to fill.”
Oil-driven inflation
Oil markets have seen a strong and volatile rally since the outbreak of war with Iran in late February. Prices initially rose to $80 before quickly surpassing $100 a barrel as fears grew about disruptions in the Strait of Hormuz, a key artery for about 20% of global supply.
High oil prices can fuel inflation by raising transportation and production costs throughout the economy, which are often passed on to consumers in the form of higher prices.
The moves have been marked by extreme volatility, with daily swings driven less by fundamentals than headlines, as markets price in a persistent war premium tied to the risk of a prolonged supply disruption.
“Treasury bills are around 3.5%, inflation is around 3%, but historically, inflation has often outpaced short rates for longer periods,” Ashton said. “We may be returning to that pattern.”
The dynamic, he added, strengthens the case for an asset explicitly designed to track inflation rather than nominal returns.
Still, Ashton frames USDi as more than a tactical operation. He sees it as a structural evolution of cryptocurrencies, one that completes the system that Bitcoin started.
“Bitcoin was conceived as an alternative monetary system and potentially as a store of value like gold,” he said. “But its volatility makes it difficult to use it that way over shorter horizons. Stablecoins solved the payments side. Now we need to solve the store of value side.”
Customizable inflation exposure
Beyond its core design, USDi plans to introduce something that Ashton says is difficult, or impossible, to replicate in traditional finance: customizable inflation exposure.
The CPI itself is a combination of multiple categories, including housing, healthcare, transportation, and education. Ashton said the USDi architecture could eventually allow users to tailor exposure to specific components of inflation.
“It is not necessary to support a global basket,” he said. “You could isolate health care inflation, tuition inflation, or energy inflation. You could even scale it by geography: Dutch inflation, French inflation, US core CPI.”
That flexibility allows for more specialized applications, particularly in industries with direct exposure to specific cost pressures.
Insurance companies, for example, face inflation risks in areas such as medical costs, but lack accurate coverage tools. Traditionally, they have managed those risks by holding more capital or transferring exposure through reinsurance or catastrophe bonds. But those tools are blunt and often not available for certain types of inflation risk.
“There’s never really been a direct protection for 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 expand the amount of business you can write.”
He expects insurers and reinsurers to be among the first institutions to adopt it in a second phase of the USDi rollout.
Other possible applications include education financing. 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 tokenized inflation hedge as a more flexible alternative.
“Tuition is a classic inflation risk,” he said. “Being able to cover that directly is powerful.”
Fundraising
USDi is now up and running and Ashton is targeting an initial raise of around $1.5 million in the coming months.
However, the broader discourse has less to do with financing and more to do with reframing the way investors think about risk.
“You’re born with the risk of inflation,” Ashton said. “You are not born with credit risk or stock risk.”
Read more: Oil crisis and risk of war with Iran keep cryptocurrency investors on the sidelines: Grayscale
