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The collapse of Terra confirmed the correctness of the “careful and cautious” approach of the Office of the Comptroller of the Currency (OCC) within the US Treasury to cryptocurrencies. This was stated by the interim head of the department Michael Hsu.
In a speech at the DC Blockchain Summit 2022, he noted that the decline in the market capitalization of the crypto market by half a trillion dollars after the collapse of Terra did not lead to the “infection of traditional banking and finance.”
“The resilience of the banking system to recent developments in the crypto industry is not accidental. Rather, it has to do with, at least in part, federal regulators’ focus on safety, reliability and consumer protection,” Hsu said.
The OCC made this emphasis in an explanatory letter published in November, the official recalled. In it, the regulator warned banks that previously permitted activities in the field of cryptocurrency are permissible only if there are security control mechanisms and compliance with consumer protection laws.
“I believe these reminders have contributed to the security and reliability of the banking system, despite increased volatility and recent turmoil in the crypto markets,” Hsu said.
He confirmed his position as a crypto skeptic and stressed the dependence of the digital asset economy on the hype. Hype is the main generator of interest and investment for the growth of projects, Hsu believes.
“The recent collapse of the Terra stablecoin and the associated sell-off in crypto markets has shown that hype-induced growth can lead to bubbles, hurt consumers and supplant productive innovation,” he said.
Hsu also noted a number of fundamental problems from which the industry suffers. Among them, he called fragmentation due to the multitude of blockchains and the emergence of crosschain bridges as a result, which are vulnerable to hacking.
In his opinion, there are risks of “infection” of the crypto industry, which was confirmed by sales and a temporary loss of peg to the dollar of the USDT stablecoin from Tether, although the coin has a different stabilization mechanism from TerraUSD.
Hsu believes that the regimes for storing and enforcing the ownership of cryptocurrencies are not sufficiently developed for the scale and ambitions of the industry.
“The industry has grown too fast, and suffers from a hype ‘shoot, prepare, aim’ approach to innovation and value creation. Recent events should serve as a wake-up call and an opportunity to restart and recalibrate the issues that need to be addressed. Until then, the OCC will continue to take a thorough and cautious approach to cryptocurrencies to ensure the security, reliability and fairness of the national banking system,” Hsu concluded.
Recall that in January he allowed the situation of “bank panic” among the holders of stablecoins.
In April, Hsu announced the need to equate issuers of “stablecoins” with depository institutions with compulsory deposit insurance.
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