The U.S. Department of Housing and Urban Development (HUD) is considering employing cryptocurrency and blockchain technology to monitor the employment of agency grants, which some staffers believe could be a “trial run” for wider deployment of the technology across the federal government. This is according to a report published Friday by ProPublica.
The outlet authored the report based on a recording of a meeting and conversations with “three officials familiar with the matter,” but a HUD spokesperson disputed the veracity of the report saying that there were no plans to implement such technology.
“The focus of the discussions so far has been experimenting with using the underlying technology that makes crypto possible — the blockchain — to monitor HUD grants,” the report said. “Blockchain advocates argue that the technology is valuable on its own for such purposes. But the primary use of blockchain, according to experts, is for crypto transactions.”
A staffer who spoke with the outlet under the condition of anonymity cast doubts on the ability of the plan to succeed, citing the unregulated nature of the technology and the 2008 housing crisis as evidence of a need to proceed cautiously.
“It’s just introducing another unregulated security into the housing market as though 2008, 2009 didn’t happen,” the staffer told the outlet. “I don’t see any way this will help anything. I see a lot of ways this could hurt.”
The report also states that the idea is being championed by Irving Dennis, HUD’s new chief financial officer and principal deputy.
“Dennis, the agency’s new principal deputy chief financial officer, is a former partner at the global consulting giant EY, also commonly known by its original name, Ernst & Young,” the report said. “EY itself is involved in the proposal as well: An executive of the firm discussed the idea with HUD officials last month.”
But Dennis and HUD spokesperson Kasey Lovett denied the substance of the report in statements to ProPublica.
“The department has no plans for blockchain or stablecoin,” Lovett said. “Education is not implementation.”
An EY executive privy to the conversations confirmed for the outlet that they did take place, but after saying he would inquire about the possibility of an interview he did not re-establish contact with the outlet’s reporters.
Two meetings on the proposal reportedly took place in February, according to materials reviewed by ProPublica. A memo later circulated by a HUD staffer in response to the content of the meeting panned the proposal.
“Without exaggeration, every imaginable implementation of this at HUD appears dangerous and inefficient,” the memo said, according to the report. Since the department does not have challenges tracking grant spending, introducing new technology would be unnecessary and the potential for paying grantees in cryptocurrency would also introduce volatility into the funding system, the memo added.
“In subsequent discussions with HUD staffers, the memo’s author described the proposal as a ‘beachhead’ at HUD for the introduction of cryptocurrency, which the author compared to ‘monopoly money,’” the report explained.
Other experts interviewed in the report were openly hostile to the concept, with former Securities and Exchange Commission (SEC) official Corey Frayer telling ProPublica that it would be “a terrible idea.” One of the reasons he cites is that grants paid from HUD in cryptocurrency could fluctuate in value, which would have serious consequences for something like Federal Housing Administration (FHA) insurance if introduced.
The mortgage industry broadly has been curious about the potential efficiencies that could come from cryptocurrency and blockchain technology for some time. The Mortgage Industry Standards Maintenance Organization (MISMO) in 2023 released a white paper on the topic, particularly after the housing regulatory crackdown in the years following the 2008 crisis tended to increase production expenses.
“The use of blockchain has potential to advance the gains made in efficiency, security and transparency and significantly reduce overall loan manufacturing timelines by at least 30% and costs that are at least 25% lower than the industry average,” the white paper said.
But in a government environment and at an agency like HUD, which provides grants for vulnerable populations, introducing what some consider to be an unstable element into critical assistance programs is not worth potential risks.
“Blockchain technology has been around for 15 years. No one wants to use it,” Hilary Allen, a law professor at American University who studies the fintech and regulatory spaces, told ProPublica. “And so now we have an attempt to force the government to use it.” [T]he most vulnerable people [will serve] as guinea pigs.”