Very interesting. I wonder how stable it will be vs USD over the long run.

I am interested in someone making a CPI coin, that tracks some value of a basket of goods instead of another currency. I think that would be sort of the ultimate inflation hedge because ideally the value would not change at all over the long run.

The real question would be "how". A [crypto]asset backed by another currency is easy in principle: simply hold the currency to back it (and make sure you have some sort of transaction fee to cover your storage costs, and don't lie about it...). Same with a [crypto]asset backed by oil or metals. But CPI goods include many goods which are either perishable or lose value over time, and the composition of actual CPI baskets changes over time so you can't do that.

In the absence of that backing you can create a purely synthetic asset that can only track CPI if you've got the ability to withdraw significant quantities from circulation every time the value starts to drop. (That's sort of what central banks do with targeting a fixed non-zero rate of CPI inflation. But they have an economy built on debt so the money supply can contract organically by debts being repaid faster than new debts are issued. This is less troubling for the future of a coin than alternative strategies like having to use VC/company funds to buy back coins, or making a percentage of coins disappear)

Well, DAI exists and is pegged to USD without USD backing. Why couldn't one create a similar system with a CPI value target instead of a 1 USD target?

You could it's a really interesting idea. Synthetix and kwanta have done it with TSLA share price. It requires a liquidity pool to balance the asset. The liquidity pools are usually seeded with rewards from the companies that start them. They eventually find stability via automated market makers.

Short description: RAI dampens volatility (goes up slower, goes down slower) of its collateral (Eth). All thanks to some straightforward control theory tricks!