The wildly different approaches the crypto industry has taken to designing and hosting stablecoins may be good for innovation but bad for practical and safe usage, argued Michael Hsu, the acting chief of the Office of the Comptroller of the Currency, at a Georgetown University Law Center event on Friday.
Hsu, who is among several U.S. regulators working on guardrails for how stablecoins should be overseen, noted that a single type of token, such as tether (USDT), isn’t the same across different blockchains, nor is it directly exchangeable with other dollar-based tokens. If private stablecoins ever become a common means of buying and selling things – rather than trading other cryptocurrencies – Hsu said they can’t be freely swapped with each other, in contrast to a dollar deposited at institutions such as Chase or Wells Fargo.
“Without interoperability amongst [U.S. dollar]-based stablecoins, the risk of digital ecosystems being fragmented and exclusive – with walled gardens – is heightened,” Hsu argued. “If or when stablecoins expand from trading to payments, this lack of interoperability will become more apparent.”
He said he also worries about these financial gardens excluding people.
“What’s the standard-setting body for interoperability on stablecoins? There is none right now,” he said. “So I would encourage some thinking along those lines and having a public voice at that table.”
An evolving position
Though Hsu been an outspoken critic in the past of crypto’s potential hazards, equating the industry with the risky financial products that caused the financial system to collapse in 2008, his latest remarks reveal he’s not entirely dismissing the industry. As Treasury Secretary Janet Yellen did in her first speech on digital assets Thursday, Hsu granted that digital-asset innovations may dramatically revolutionize the system.
“Today, cryptocurrencies are used primarily for trading on exchanges,” he said. “Tomorrow, they may collapse and exist only on the shadowy peripheries of the financial system, or they may grow and power the next evolution of our digital lives and the digital economy.”
Much of the bandwidth of federal financial regulators is now taken up by crypto issues, as has been seen this week in the speeches of Yellen, Hsu and Securities and Exchange Commission (SEC) Chair Gary Gensler. While Gensler’s SEC has been actively chasing enforcement actions to rein in crypto firms, Hsu’s predecessors at the OCC had in recent years attempted to welcome digital-assets businesses into the banking system.
Shortly after Hsu took over the OCC last May, however, he slammed the brakes on much of that while the agency works out what to do about stablecoins and other assets.
Hsu noted on Friday that there are some technical pitfalls in marrying banking and crypto, including dangers to a lender’s liquidity cushion if they’re immersed in large-scale cryptocurrency transactions.
“The accumulation of blockchain-based payments over, say, a weekend could outstrip a bank’s available liquidity resources,” he said. Hsu suggested the answer could be to silo such activity into a separate, bank-chartered part of the company.
Hsu said he’s also been impressed with some of the “really thoughtful” legislative efforts trying to address stablecoins.
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