Are Crypto and DeFi Threats to the Global Financial System?

The US agency that was once the cryptocurrency world’s great hope is now issuing strong warnings to the industry that it risks echoing the toxic culture before the 2008 financial crisis.

Michael Hsu, the acting head of the Office of the Comptroller of the Currency (OCC), argued on Tuesday that cryptocurrencies and decentralized finance (DeFi) could become threats to the financial system in the same way as some derivatives. almost collapsed it. than ten years ago. Notorious credit default swaps (CDS) were designed by mathematical wizards the same way crypto emerged, he said.

“Crypto / DeFi is now on a path that resembles CDS in the early 2000s,” Hsu told the Blockchain Association during a webcast. “Fortunately, this group has the power to change course and avoid a crisis.”

The OCC was previously headed by a former Coinbase Global Inc. executive Brian P. Brooks, who led a pro-crypto charge to establish policies more welcoming to the industry and to provide some of the company’s banking charters. . When he was installed at the OCC by Treasury Secretary Janet Yellen, Hsu suspended his pro-crypto policies and was among regulators calling for a new unified approach between agencies.

Among his comments today:

  • Adopting a skeptical tone similar to that of Securities and Exchange Commission (SEC) Chairman Gary Gensler, Hsu said he was troubled by the industry’s high-yield savings products and asked, “How are the returns? generated? It is difficult to get clear answers that do not quickly turn into cryptographic language.
  • “Crypto / DeFi solutions to problems in the real economy are scarce,” Hsu said.
  • He also said a math could be on how “diehard tech believers” give way to mainstream users who aren’t as keen to forgive the risk of the products. These people will “dominate and elicit feedback,” which he says could mean more risk of panic that will destroy crypto investments and threaten struggling companies.
  • Hsu has participated in discussions within the President’s Financial Markets Task Force on what the government should do about stablecoins, a key segment of digital currencies, including the popular Tether token.

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Don F. Davis