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Michael Hsu, who runs a key U.S. banking agency, said the recent fiery collapse of terraUSD (UST) and the wider drama that came with it should serve as a “wake-up call” to the industry, which he argued has grown too fast.
Hsu, the acting chief of the Office of the Comptroller of the Currency (OCC), spoke at the DC Blockchain Summit in Washington on Thursday, saying the cryptocurrency industry has an unhealthy “dependency on hype” that he thinks is getting worse.
"The recent collapse of the terraUSD stablecoin and associated sell-off in crypto markets has shown that hype-driven growth can lead to bubbles, harm consumers and crowd out productive innovation," said Hsu, whose agency will likely have a prominent role in regulating stablecoins and chartering crypto firms seeking to become banks. He argued the incident demonstrated that crypto failures can have wider effects as this one "sparked contagion to the largest stablecoin, tether [USDT], and to the broader crypto ecosystem."
The self-described “crypto skeptic” said he does see some benefits to the rise of digital assets, but noted he’s satisfied with his agency’s moves to ensure that it’s difficult for traditional banks to become overly exposed to crypto. He ran through a lengthy list of negatives about the industry, including that it's so vulnerable to hackers and doesn't seem to be heading toward a widely shared infrastructure that could be easier to defend.
He also cited the recent admission by Coinbase (COIN) that a bankruptcy could tie up customer's assets. That disclosure from the big U.S. exchange also prodded the Biden administration to decide to press Congress for new segregation rules that would wall off customer assets, CoinDesk has reported.
"For a technology and industry so focused on promoting an 'ownership society,' the lack of clarity on ownership rights, modes of ownership, and custody of digital assets seems like a fundamental problem that needs to be solved," Hsu said.
UPDATE (May 24, 2022, 22:08 UTC): Adds comments from Hsu's speech and context.