The head of the Office of the Comptroller of the Currency (OCC) has issued a dire warning over crypto in the wake of the collapse of the Terra ($LUNA) ecosystem.
The OCC is “an independent bureau of the U.S. Department of the Treasury that charters, regulates, and supervises all national banks, federal savings associations, and federal branches and agencies of foreign banks. Its goal is to ensure that the banks it supervises “operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations.”
Speaking in an interview with Yahoo Finance on June 2, Michael Hsu, who is the Acting Comptroller of the Currency (and therefore, the CEO of the OCC), said that Terra’s collapse exposed three massive vulnerabilities in the crypto industry.
Hsu pointed out that stablecoins are not that stable, using TerraUSD as a primary example. While TerraUSD was widely believed to be pegged to the value of a dollar, the stablecoin was instead backed by a basket of volatile assets that eventually led to its failure.
Hsu also argued that most of the growth in the crypto industry was driven by hype. According to Hsu, Terra was able to grow so quickly due to its hype and attractive — but ultimately unsustainable yields — resulting in its rapid collapse.
The OCC head claimed his final issue with the crypto industry was related to the risk of contagion.
As reported by The Daily Hodl, Hsu said,
You saw the selloff lead to both a broader selloff in the cryptocurrency market generally. I think half a trillion dollars of value was lost in a relatively short period of time and you saw some pressure on another stablecoin, Tether, which is not algorithmic. Tether briefly depegged.
Hsu said Terra had the effect of exposing fragilities in the crypto market, and warned the industry to be “really careful” moving forward. He also cautioned investors to do their research on digital assets and to fully understand what they were getting involved with, including the risks.