Acting Comptroller of the Currency Michael Hsu warns that the surging crypto and decentralized finance (DeFi) marketplaces are remarkably similar to the tech-driven innovations that came close to bringing the global financial system to its knees during the financial crisis of 2008.
Michael Hsu had talked openly about his reservations regarding the measures taken by his predecessor at the Office of the Comptroller of the Currency when he addressed [PDF] the Blockchain Association on September 21. In particular, Hsu said he would reconsider some previous decisions, including those involving cryptocurrency.
It’s worth mentioning that, in the speech to the board of directors of the lobbying organization composed of executives from some of the most prominent cryptocurrency companies, including Binance.US, Ripple, Kraken, and Anchorage, he strongly questioned the basis of what’s been occurring in the crypto space of late comparing the unnecessary innovation akin to creating an abundance of “fools gold”. In particular, Hsu stated:
“The problem of persistent inequality, for instance, could benefit greatly from purposeful innovation. Innovation for innovation’s sake, however, risks creating a mountain of fool’s gold. I have seen one fool’s gold rush from up close in the lead up to the 2008 financial crisis. It feels like we may be on the cusp of another with cryptocurrency and decentralized finance.”
Innovation for innovation’s sake
On whether he felt a future catastrophe might be avoided in the crypto and DeFi sectors, Acting Comptroller Hsu noted that prominent industry figures and developers must continuously assess their approaches and motivations.
In his address, Hsu pointed out three major areas of concern and followed up with three suggestions that crypto businesses may do to help develop their products and services.
Gillian Tett’s Fool’s Gold: The Inside Story of J.P. Morgan and How Wall Street Greed Corrupted Its Bold Dream and Created a Financial Catastrophe, published in 2010, was used by Hsu to express his worries about the issue. His experiences throughout the crisis also made it apparent that he views these new crypto and DeFi pursuits with more of a critical eye.
“Those in traditional finance may laugh at this. But crypto/DeFi is able to pose a threat to the status quo because many people feel ignored, taken for granted, or exploited by banks.”
Lastly, one of Hsu’s main concerns is that an immediate collapse in crypto/DeFi may spread similarly to the financial catastrophe. For instance, if the increasing base of cryptocurrency buyers becomes more widespread and more vulnerable to scams and market downturns.