This story was initially revealed by ProPublica.
The U.S. Division of Housing and City Improvement is contemplating taking a primary step to utilizing cryptocurrency, based on a gathering recording and different supplies reviewed by ProPublica and three officers accustomed to the matter. Two officers advised ProPublica they imagine the initiative could also be a trial run for using crypto throughout the federal authorities.
The discussions have sparked concern amongst some on the division, particularly concerning the prospect of paying recipients of main federal grants in cryptocurrency, an uninsured digital asset related to monetary hypothesis, dramatic swings in worth and transnational crime.
The main target of the discussions to this point has been experimenting with utilizing the underlying expertise that makes crypto potential — the blockchain — to watch HUD grants. Blockchain advocates argue that the expertise is effective by itself for such functions. However the major use of blockchain, based on consultants, is for crypto transactions.
“It’s simply introducing one other unregulated safety into the housing market as if 2008, 2009 didn’t occur,” one HUD staffer stated, referring to the subprime mortgage disaster. “I don’t see any method this can assist something. I see a whole lot of methods this might harm,” stated the official, who, like others on this article, spoke on the situation of anonymity for concern of retribution. The HUD discussions have coated the potential use of a stablecoin, a type of crypto that’s pegged to a different asset to keep away from wild swings in worth, though such swings have occurred previously.
The blockchain concept is being pushed, a HUD official advised colleagues, by Irving Dennis. Dennis, the company’s new principal deputy chief monetary officer, is a former companion on the world consulting large EY, additionally generally identified by its unique identify, Ernst & Younger. EY itself is concerned within the proposal as nicely: An govt of the agency mentioned the thought with HUD officers final month.
The crypto trade has discovered an ally in President Donald Trump, whose administration has tapped industryboosters to steer federal companies, backed off investigations into crypto companies and created a “strategic Bitcoin reserve.” (Bitcoin plunged $5,000 inside an hour of the information of the reserve’s opening on Thursday.) Trump himself has significant financial interests in crypto. On Friday, the White Home is scheduled to host a “crypto summit” with main figures from the trade.
The proposal at HUD signifies a brand new method that the administration might search to bolster the trade: by incorporating blockchain and presumably cryptocurrency into the routine spending and accounting practices of federal companies. It’s a transfer that may align with the apparent desire of Trump adviser Elon Musk to make use of the blockchain to watch federal spending.
Dennis and HUD spokesperson Kasey Lovett each denied the accounts of their colleagues. “The division has no plans for blockchain or stablecoin,” Lovett stated. “Schooling is just not implementation.”
Robert Judson, the EY govt concerned within the conversations, confirmed that they happened. “We as a agency had been having discussions with choose people at that company,” he stated when reached by telephone. Judson advised ProPublica he would search EY’s approval for a full interview, then didn’t name again.
The White Home, EY and Musk didn’t reply to requests for remark.
HUD officers held at the least two conferences concerning the blockchain proposal final month. An inventory of attendees to the primary assembly included staffers from the workplaces of the CFO and Group Planning and Improvement. CPD administers billions of {dollars} in grants that assist low- and moderate-income folks, together with funding to develop reasonably priced housing, run homeless shelters, assist catastrophe restoration, relocate home violence survivors and construct parks, sewers and neighborhood facilities. It was the CFO’s workplace that referred to as for the assembly, one individual advised ProPublica.
Additionally listed as a gathering attendee was Judson from EY. For years Judson has advocated for the blockchain, a digital ledger of types that creates an immutable file of transactions saved throughout a number of computer systems. Boosters of the expertise solid it as a option to minimize middlemen resembling banks and bank card corporations out of monetary transactions and make these transactions extra clear and safe. Judson has written that the blockchain may also help organizations stop cash from being siphoned off for unintended functions. “As digital property resembling secure cash or digital currencies take maintain, extra highly effective purposes will emerge for built-in worth change,” he wrote. Dennis, who served as HUD CFO within the first Trump administration, additionally wrote, in a 2021 ebook, that the company ought to use expertise resembling “blockchain, robotics, and next-generation monetary administration programs.”
Stablecoins are backed by reserves together with conventional forex, commodities and Treasury securities. That’s supposed to make sure that their worth — not like that of, say, Bitcoin — doesn’t fluctuate. Nevertheless, on several high-profile occasions, the worth of stablecoins has performed simply that.
On the HUD assembly, attendees mentioned a “proof of idea” venture through which CPD would start to trace the funding going to a single CPD grant recipient and presumably subrecipients on the blockchain. The necessity for the venture was “not nicely articulated,” one attendee later wrote in assembly notes.
Following the assembly, a HUD official wrote and circulated a memo inside the company panning the thought. “With out exaggeration, each possible implementation of this at HUD seems harmful and inefficient,” the memo reads.
HUD has no problem monitoring grant spending, the memo contended, making the brand new expertise pointless. Incorporating it might be time-consuming, difficult and require in depth coaching. And, if the venture concerned paying grantees in cryptocurrency as an alternative of {dollars}, it might inject volatility and unpredictability into the funding stream, even when the forex was a stablecoin.
In subsequent discussions with HUD staffers, the memo’s writer described the proposal as a “beachhead” at HUD for the introduction of cryptocurrency, which the writer in comparison with “monopoly cash.”
CPD officers continued to lift considerations in a follow-up assembly, a recording of which was reviewed by ProPublica. (Judson didn’t attend this one.) Some attendees noticed advantage within the blockchain concept, suggesting it may scale back inaccurate information from grant recipients and allow real-time reporting and monitoring of their spending.
“Possibly there’s something that we may study from it,” one stated, “particularly if we really feel just like the broader federal authorities is transferring in the direction of some form of stablecoin possibility sooner or later.”
One official requested why the company was contemplating the venture. “As a result of it’s attractive,” somebody replied. One other stated, “Irv has requested us to pursue blockchain, in order that’s why we’re taking a look at it,” referring to Dennis.
Many particulars had been left unexplained on the assembly, together with, crucially, whether or not the proposal would contain paying grantees in cryptocurrency. However some signaled that it might.
“You are able to do it with what can be connected to a secure forex. That might be as much as Treasury, and I believe they’re already going that method, for what it’s price,” one official stated. “It will simulate the greenback.”
One other added, “It will mainly be a cryptocurrency that’s linked to the U.S. greenback on a one-for-one foundation.”
A finance official urged the thought may very well be utilized extra broadly throughout HUD. “We’re taking a look at this for your complete enterprise. We simply needed to begin in CPD,” he stated. The company can be contemplating the thought for the Workplace of Public and Indian Housing, he stated, for “tenant eligibility and stuff like that.” That workplace serves the thousands and thousands of people that reside in public and federally backed housing.
This isn’t the primary time that federal officers have thought of incorporating the blockchain into the work of the federal government. Companies together with the Treasury Division, the Division of Commerce and even HUD have been concerned in a examine, a prototype and a working group in recent times. However those that monitor the crypto trade weren’t conscious of as broad an software of the expertise within the federal authorities as what HUD officers have not too long ago mentioned.
Some crypto consultants had been doubtful. “It’s a horrible concept,” stated Corey Frayer, a former official on the U.S. Securities and Trade Fee, the place he centered on the crypto markets and monetary stability. “It’s completely wild that anybody with any sense would contemplate this.”
Frayer, now on the Shopper Federation of America, warned that HUD grants paid in stablecoin may fall in worth. He expressed best concern concerning the notion that the proposal may increase to different elements of the company. If that included, for instance, introducing stablecoin into the $1.3 trillion in mortgage insurance coverage supplied by the Federal Housing Administration, a fluctuation within the worth of the stablecoin may have a serious financial affect, he stated.
“Think about a world through which the entire authorities involvement within the housing trade, the entire funds circulating in that surroundings, dropped in worth by 13%,” he stated, citing a 2023 episode through which a stablecoin briefly fell 13 cents below the greenback. “It’s laborious to think about that wouldn’t be catastrophic.”
Hilary Allen, a legislation professor at American College who researches monetary regulation and expertise, famous that some high-profile makes an attempt to make use of the blockchain for functions unrelated to cryptocurrency have failed. She expressed skepticism that the expertise would fare higher within the context of presidency grants, the place unhealthy outcomes may hurt those that depend upon HUD funding to outlive.
“Blockchain expertise has been round for 15 years. Nobody needs to make use of it. And so now we now have an try and power the federal government to make use of it,” she stated, with “essentially the most susceptible folks” serving “as guinea pigs.”
Mollie Simon contributed analysis.
