{"id":10895,"date":"2021-09-24T11:10:32","date_gmt":"2021-09-24T10:10:32","guid":{"rendered":"https:\/\/coinscreed.com\/staging\/?p=10895"},"modified":"2021-09-24T11:10:43","modified_gmt":"2021-09-24T10:10:43","slug":"acting-occ-head-cautions-that-fools-gold-in-defi-reminds-him-of-lead-up-to-great-financial-crisis","status":"publish","type":"post","link":"https:\/\/coinscreed.com\/staging\/acting-occ-head-cautions-that-fools-gold-in-defi-reminds-him-of-lead-up-to-great-financial-crisis\/","title":{"rendered":"Acting OCC head cautions that \u2018fools gold\u2019 in DeFi reminds him of lead-up to Great Financial Crisis"},"content":{"rendered":"\n
Acting OCC Director Michael Hsu warned that some crypto and DeFi <\/a>financial instruments were reminiscent of those that triggered the 2008 Global Financial Crisis (GFC).<\/h5>\n\n\n\n
\"Acting<\/figure>\n\n\n\n

However, despite the fact that cryptocurrency has mostly avoided the ravages of hacking, scams, and collapses in the past, acting OCC chief Michael Hsu\r\n \r\n \r\n \r\n <\/g>\r\n \r\n \r\n \r\n <\/clipPath>\r\n <\/defs><\/svg><\/span><\/a> warns that the risks may be increasing as the technology becomes more widely adopted.<\/p>\n\n\n\n

He warned, in a speech delivered before the Blockchain <\/a>Association on Sept. 21, that the rapid proliferation of digital asset derivatives could lead to the creation of a “mountain of fool's good.” <\/p>\n\n\n\n

He drew parallels between the rapid proliferation of digital asset derivatives and the explosion in mortgage and debt derivatives such as Credit Default Swaps (CDS) that preceded the 2008 global financial crisis:<\/p>\n\n\n\n

\u201cI have seen one fool\u2019s 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 cryptocurrencies (crypto) and decentralized finance (DeFi) […] Crypto\/DeFi today is on a path that looks similar to CDS in the early 2000s.\u201d<\/p><\/blockquote>\n\n\n\n

Prior to the introduction of credit default swaps (CDS) in the mid-1990s, Hsu writes that “it was nearly impossible to hedge the risk of a borrower defaulting.” <\/p>\n\n\n\n

But by the time he joined the SEC <\/a>in 2004, the acting OCC chief recalled that credit derivatives promised investors superior risk-adjusted returns through the use of novel products that “relied largely on math and financial engineering.<\/p>\n\n\n\n

\u201cThey believed they were leading a financial revolution, creating an entirely different asset class, using an entirely different set of models. Sound familiar? Today, programmers and coders, instead of quants and financial engineers, are the core innovators.\u201d<\/p><\/blockquote>\n\n\n\n

Hsu cites several risks that could destabilize the crypto sector including \u201ca run on a large stablecoin <\/a>[…] forks, hacks, rug pulls, vampire attacks, and flash loans.\u201d <\/p>\n\n\n\n

While acknowledging that crypto so far withstood all of the aforementioned incidents thus far, Hsu warns that such threats could loom larger as the cryptocurrency user base grows:<\/p>\n\n\n\n

The author, drawing parallels between exotic DeFi <\/a>derivatives and the systemic risk that underpinned the collapse of America's residential real estate market in 2008, observed that “most innovation appears to be focused on enhancing trading.” <\/p>\n\n\n\n

In cryptocurrency today rather than realizing the vision of greater financial autonomy articulated by Satoshi Nakamoto in the Bitcoin <\/a>Whitepaper.<\/p>\n\n\n\n

For example, “a run on a large stablecoin [\u2026] forks, hacks, rug pulls, vampire attacks, and flash loans” are among the hazards identified by Hsu that might collapse the crypto market. <\/p>\n\n\n\n

As much if Hsu acknowledges that bitcoin has so far managed to avoid all of the aforementioned occurrences, he cautions that as the cryptocurrency user base grows, such dangers may become more prevalent:<\/p>\n\n\n\n

\u201cMy hypothesis is that until recently, most users have been hardcore believers in the technology and thus are both understanding of the risks and willing to forgive them. As the scope and reach of crypto\/DeFi <\/a>expands, though, more mainstream users, with regular expectations of safe and sound money, will dominate and drive reactions.\u201d\u00a0<\/p><\/blockquote>\n\n\n\n

Overall, however, the official believes that if the industry “applies the lessons from the 2008 crisis \u2014 anchor innovation in a clear purpose, foster an environment for skeptics to speak up, and follow the money. <\/p>\n\n\n\n

The risks of fool's gold can be mitigated and the real promise of blockchain <\/a>innovation can be achieved,” the risks of fool's gold can be mitigated and the real promise of blockchain innovation can be achieved.<\/p>\n\n\n\n

However, it appears that Hsu's time as chairman of the OCC <\/a>is drawing to a close, with reports circulating that the Biden administration is considering nominating law professor Saule Omarova to take over as chairman.<\/p>\n\n\n\n

According to observers, Omarova will be in charge of tightening laws that govern both the cryptocurrency and mainstream banking industries if she is selected. <\/p>\n\n\n\n

Omarova has previously identified digital assets as a weapon for private interests to abuse because they are outside of the jurisdiction of regulatory authorities and hence subject to abuse.<\/p>\n","protected":false},"excerpt":{"rendered":"

Acting OCC Director Michael Hsu warned that some crypto and DeFi financial instruments were reminiscent of those that triggered the 2008 Global Financial Crisis (GFC). However, despite the fact that cryptocurrency has mostly avoided the ravages of hacking, scams, and collapses in the past, acting OCC chief Michael Hsu warns that the risks may be […]<\/p>\n","protected":false},"author":13,"featured_media":10909,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[197,4625,3861,323],"class_list":["post-10895","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-defi","tag-great-financial-crisis","tag-mortgage","tag-occ"],"jetpack_featured_media_url":"https:\/\/coinscreed.com\/staging\/wp-content\/uploads\/2021\/09\/image-254.png","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/posts\/10895","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/comments?post=10895"}],"version-history":[{"count":0,"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/posts\/10895\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/media\/10909"}],"wp:attachment":[{"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/media?parent=10895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/categories?post=10895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/coinscreed.com\/staging\/wp-json\/wp\/v2\/tags?post=10895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}