The “naturally” part is interesting...we manipulate money supply partly to hit target inflation rate. Would there be a way to use the ongoing transactions on a blockchain itself to calculate an inflation metric, and then naturally increase or decrease the money supply to keep it around 2-3% or whatever?

That's exactly what I've been thinking. Of course the inflation target would be arbitrary, but once agreed upon and baked into the blockchain logic it could maintain itself based on some parameter or set of parameters

>Such that supply can increase or decrease either on command

who would use it? you might as well have tether (or the government backed equivalent)

>or naturally

and what metric do you use determine the "optimal" supply? and how do you prevent that metric from being gamed?

Would be easy to implement, but hard to manage (what if govt loses privkey for printing money?) and build trust (what if next congress decides to stop this currency).

#1 could be solved by having a scheduled key rollover system, anchored robustly by the central bank (eg public display of key fingerprint at headquarters).

#2 doesn't sound any different from other fiat currencies or bonds issued by nation states. It's in the issuer's ecnoomic self-interest to preserve their credibility.