The U.S. Department of Housing and Urban Development (HUD) is reportedly contemplating a preliminary move towards integrating cryptocurrency into its operations, as revealed by recordings of internal meetings and insights from three officials who are familiar with the discussions. According to two sources, this initiative could potentially serve as a pilot project for broader cryptocurrency use within federal agencies.
### Concerns Over Cryptocurrency in Federal Grants
The discussions have raised alarm among some HUD staff, particularly regarding the possibility of compensating recipients of substantial federal grants with cryptocurrency—an unregulated digital asset linked to extreme price fluctuations and potential illicit activities. The current focus appears to be on leveraging blockchain technology, which underlies cryptocurrencies, to enhance the tracking of HUD grants. Proponents of blockchain assert its independent value for such applications, although experts primarily associate the technology with cryptocurrency transactions.
A HUD employee expressed skepticism about the initiative, warning that it could mirror the financial instability witnessed during the 2008-2009 subprime mortgage crisis. The official, who requested anonymity due to fear of repercussions, emphasized that the introduction of an unregulated security into the housing market could lead to detrimental effects rather than positive outcomes.
### The Push for Blockchain and Stablecoins
Discussions at HUD have included the potential use of stablecoins—cryptocurrencies designed to maintain a stable value by pegging them to other assets. However, past instances have shown that even stablecoins can experience significant value fluctuations. Irving Dennis, HUD’s new principal deputy chief financial officer and a former partner at EY (formerly Ernst & Young), is reportedly championing the blockchain initiative. EY itself has also been involved in these discussions.
The cryptocurrency sector has found a supporter in former President Donald Trump, whose administration has appointed advocates for the industry to lead federal agencies and has eased scrutiny on crypto firms. Furthermore, Trump has been known to have significant financial interests in cryptocurrency. A “crypto summit” is scheduled at the White House, featuring key figures from the industry.
### Potential Federal Spending Overhaul
The HUD initiative reflects a new strategy the administration might adopt to support the cryptocurrency sector by integrating blockchain and possibly cryptocurrency into federal spending and accounting practices. This aligns with the interests of Trump adviser Elon Musk, who has advocated for using blockchain to oversee federal expenditures.
Both Dennis and HUD spokesperson Kasey Lovett have denied the claims made by their colleagues regarding blockchain or stablecoin plans, clarifying that educational discussions do not equate to implementation. Robert Judson, the EY executive involved in the discussions, acknowledged their occurrence but did not provide further comments without seeking approval from EY.
### Internal Meetings and Discussions on Blockchain
HUD officials convened at least two meetings last month to deliberate on the blockchain proposal. Attendees included staff from the CFO’s office and the Community Planning and Development (CPD) sector, which oversees billions in grants aimed at aiding low- and moderate-income individuals. The CFO’s office initiated these meetings, as confirmed by an insider.
Judson, who has been a proponent of blockchain technology, described it as a digital ledger that records transactions across numerous computers. Advocates of the technology argue that it can eliminate intermediaries such as banks from transactions, enhancing transparency and security. Judson has previously asserted that blockchain can help prevent funds from being misappropriated.
### Stablecoins and Their Risks
Stablecoins, which are backed by reserves that include traditional currencies and commodities, aim to offer stability in value. Yet, there have been notable instances where stablecoins have deviated from their intended value. During the HUD meeting, participants discussed a “proof of concept” project to track funding for a specific CPD grant recipient using blockchain. However, the rationale for this project was not clearly articulated.
Following the meeting, a HUD official circulated a memo criticizing the proposal. The memo argued that HUD already effectively tracks grant spending, rendering the new technology unnecessary and potentially burdensome. It warned that using cryptocurrency for payments could introduce volatility, even if a stablecoin were used.
### Skepticism and Broader Implications
In subsequent discussions, some HUD staff expressed concerns about the proposal, with one suggesting it could serve as a “beachhead” for cryptocurrency within the agency, likening it to “monopoly money.” Others noted potential benefits of blockchain, such as improved data accuracy and real-time reporting.
The rationale behind pursuing this initiative was questioned, with one participant suggesting it was driven by its trendy appeal. Another indicated that the move was in response to requests from Dennis. While specific details regarding the payment of grantees in cryptocurrency remain unclear, some participants hinted that it might be a possibility.
### Historical Context of Blockchain in Government
This is not the first instance of federal agencies considering blockchain technology. Various departments, including the Treasury and Commerce, have previously explored its applications. However, the depth of discussions within HUD appears to exceed previous efforts.
Skepticism persists among experts regarding the viability of this initiative. Corey Frayer, a former official at the U.S. Securities and Exchange Commission, criticized the idea as misguided, warning that stablecoin payments could lead to significant financial risks. He expressed particular concern about the implications if stablecoins were introduced into the $1.3 trillion mortgage insurance sector managed by the Federal Housing Administration, suggesting that a decline in stablecoin value could be economically damaging.
### Regulatory Concerns and Vulnerable Populations
Hilary Allen, a law professor specializing in financial regulation, expressed doubt about the effectiveness of blockchain in government grants, referencing past failures in unrelated blockchain projects. She cautioned that vulnerable populations relying on HUD funding could be adversely affected by the implementation of untested technologies in their financial support systems. Allen criticized the push to adopt blockchain, suggesting that it risks using those most in need as experimental subjects in a new technological endeavor.
