Iran war oil-price shock revives inflation trade and a new stablecoin play

As the war with Iran and the closure of the Strait of Hormuz send oil prices higher, inflation is once again at the forefront of investors' minds.

In the U.S., inflation accelerated last month to 0.9%, driven mostly by energy costs linked to the Middle East conflict; core inflation, which excludes energy and food costs, surprisingly fell short of estimates. February's headline increase was just 0.3%.

For Michael Ashton, co-founder of the USDi stablecoin along with Andrew Fately, the figures underscore a flaw in crypto’s monetary architecture.

“The stablecoin boom has accidentally rebuilt only half of the monetary system,” Ashton told CoinDesk in an interview. “Stablecoins solved the medium-of-exchange problem for crypto, but nobody solved the store-of-value problem. USDi is the first serious attempt to finish building the monetary system onchain."

The $300 billion stablecoin market, dominated by dollar-pegged tokens, has become essential plumbing for crypto trading and payments. But those tokens, typically backed by cash or Treasury bills, are designed to hold a nominal value of $1, not preserve purchasing power. In real terms, Ashton argues, they are losing value.

“As stablecoins graduate from crypto-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 payment platforms holding float in stablecoins are quietly taking inflation risk they probably haven't priced."

USDi

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 U.S. 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 inflation linkage, they are still bonds, meaning their market price can fall when interest rates rise. USDi, by contrast, aims to function more like an inflation-linked savings instrument.

The stablecoin's reserves are invested in a in a low-volatility private fund called the Enduring U.S. Inflation Tracking Fund, which uses TIPS, U.S. Treasury debt, foreign exchange and commodity futures and options; to generate return.

“There isn’t really an inflation-protected savings account,” Ashton said. “That’s the gap we’re trying to fill.”

Oil-fueled inflation

Oil markets have been on a sharp and volatile upswing since the outbreak of the Iran war in late February. Prices initially jumped into the $80s before rapidly breaking above $100 a barrel as fears mounted over disruptions to the Strait of Hormuz, a key artery for roughly 20% of global supply.

Elevated oil prices can stoke inflation by raising transportation and production costs across 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 by headlines as markets price in a persistent war premium tied to the risk of prolonged supply disruption

“T-bills are around 3.5%, inflation is around 3%, but historically, inflation has often outpaced short rates over 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 yields.

Still, Ashton frames USDi as more than a tactical trade. He sees it as a structural evolution in crypto, one that completes the system bitcoin began.

“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 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 Ashton says is difficult, or impossible, to replicate in traditional finance: customizable inflation exposure.

CPI itself is a composite of multiple categories, including housing, health care, transportation and education. USDi’s architecture, Ashton said, could eventually allow users to tailor exposure to specific components of inflation.

“You don’t have to hold one aggregate basket,” he said. “You could isolate health-care inflation, or tuition, or energy. You could even tailor it by geography: Dutch inflation, French inflation, U.S. 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 risk in areas like medical costs but lack precise hedging tools. Traditionally, they've managed such risks by holding more capital or transferring exposure through reinsurance or catastrophe bonds. But those tools are blunt and often unavailable for certain types of inflation risk.

“There’s never really been a direct hedge for something like health-care inflation,” Ashton said. “If you can hedge that exposure more precisely, you can reduce the capital you need to hold, or expand the amount of business you can underwrite.”

He expects insurers and reinsurers to be among the earliest institutional adopters in a second phase of USDi’s rollout.

Other potential applications include education financing. Programs already exist in parts of the U.S. 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 hedge that directly, that’s powerful.”

Fundraising

USDi is already up and running, with Ashton targeting a seed raise of around $1.5 million in the coming months.

The broader pitch, however, is less about funding and more about reframing how investors think about risk.

“You’re born with inflation risk,” Ashton said. “You’re not born with credit risk or equity risk."

Read more: Oil shock, Iran war risk keep crypto investors on sidelines: Grayscale