HUD Explores Cryptocurrency Use, Facing Criticism
The U.S. Department of Housing and Urban Development (HUD) is exploring the use of cryptocurrency and blockchain technology, according to internal discussions and documents reviewed by ProPublica. This potential shift has raised concerns among some within the department, particularly regarding the potential for paying federal grant recipients with cryptocurrency.
Two officials, speaking anonymously, indicated that this initiative might be a trial run with broader implications for cryptocurrency use across the federal government. The primary focus appears to be experimenting with blockchain technology to monitor HUD grants, though some are wary of the technology’s association with crypto transactions and financial volatility.
“It’s just introducing another unregulated security into the housing market as though 2008, 2009 didn’t happen,” one HUD staffer stated, referencing the subprime mortgage crisis. “I don’t see any way this will help anything. I see a lot of ways this could hurt.”
The discussions have centered on the potential use of a stablecoin, a form of cryptocurrency pegged to another asset to mitigate significant value fluctuations. However, the track record of stablecoins, including past instances of value swings, has added to the apprehension.
Driving Forces and Industry Ties
Irving Dennis, HUD’s new principal deputy chief financial officer and a former partner at global consulting firm EY, is reportedly championing the blockchain idea. EY is also involved in the proposal, with an executive from the firm having discussed it with HUD officials.
The crypto industry has found a supporter in former President Donald Trump, whose administration previously appointed industry advocates to federal agencies and established a “strategic Bitcoin reserve.” Trump also has considerable financial interests in cryptocurrency.
The HUD proposal could represent another avenue for the administration to support the industry by integrating blockchain and cryptocurrency into federal spending and accounting practices. This aligns with the reported interests of Trump advisor Elon Musk in utilizing blockchain for monitoring government spending. Dennis and HUD spokesperson Kasey Lovett have denied the accounts of their colleagues.
Meeting Details and Internal Opposition
HUD officials held at least two meetings last month to discuss the blockchain proposal. Attendees included staff from the offices of the CFO and Community Planning and Development (CPD). CPD administers billions of dollars in grants for low- and moderate-income individuals, funding affordable housing and homeless shelters, and supporting disaster recovery and community development initiatives.
Robert Judson, an EY executive, also attended the meetings and has long advocated for blockchain technology, positioning it as a tool to improve financial transparency and security by eliminating intermediaries. He posits that blockchain can prevent funds from being diverted for unintended purposes.
Following an initial meeting, a HUD official drafted and circulated an internal memo expressing skepticism about the proposal, stating that “every imaginable implementation of this at HUD appears dangerous and inefficient.” The memo emphasized that HUD already has effective grant tracking mechanisms and incorporating new technology would be time-consuming, requiring intensive training.
In the memo, the author compared the proposal to “monopoly money” and warned that paying grantees with cryptocurrency could inject volatility into the funding stream, even if stablecoins were used.
Continued Concerns and Perspectives
CPD officials voiced continued concerns at a follow-up meeting. One official stated, “Maybe there is something that we could learn from it, especially if we feel like the broader federal government is moving towards some sort of stablecoin option in the future.”
While many details remained unclear at the meeting, including whether the proposal involved paying grantees in cryptocurrency, some participants suggested that it would.
“You can do it with what would be attached to a stable currency. That would be up to Treasury, and I think they’re already going that way, for what it’s worth,” one official noted.
Another official added, “It would basically be a cryptocurrency that is linked to the U.S. dollar on a one-for-one basis.”
A finance official suggested a wider application of the idea within HUD, including possibly using it for the Office of Public and Indian Housing for “tenant eligibility.” This office serves millions of people in public and federally subsidized housing.
Some crypto experts are dubious. Corey Frayer, a former official at the U.S. Securities and Exchange Commission, now at the Consumer Federation of America, called the idea “a terrible idea.” He warned of potential risks, including stablecoin value fluctuations and how it could harm the housing industry if extended to the $1.3 trillion in mortgage insurance provided by the Federal Housing Administration.
Hilary Allen, a law professor at American University, is skeptical that the technology will improve government grants. “Blockchain technology has been around for 15 years. No one wants to use it. And so now we have an attempt to force the government to use it,” she said, with “the most vulnerable people” potentially “serving as guinea pigs.”
