WASHINGTON—Acting Comptroller of the Currency Michael Hsu is warning that cryptocurrencies and decentralized finance (DeFi) could pose risks for the broader economy, comparing them to the 2008 financial crisis.
“We saw innovations that brought genuine improvements to clients and risk managers; but we also saw innovations that would imperil the firms that promoted them and amplify the 2008 crisis,” said Hsu, addressing a meeting of the Blockchain Association. “I see similarities with emerging risks in the crypto and DeFi space today.”
Hsu noted that those who don’t learn from the past are condemned to repeat it, Ledger Insights reported.
Talking about the run up to the 2008 crisis, initially, the derivatives innovations addressed risks by enabling better hedging. However, by 2004 that had shifted to “correlation trading” and the creation of entirely new asset classes, Hsu explained. He paralleled this to the current state of crypto lending, with yields of 4%-14% being offered on stablecoin deposits.