The U.S. Office of the Comptroller of the Currency (OCC) warned investors that crypto may be "fool's gold" this week as crypto markets took a beating.
Hsu stated that the nascent crypto industry today has reminded him of the financial climate before the global financial crisis in 2008. He spoke at the Blockchain Association.
"The 2008 financial crisis was brought on by a fool's gold rush," he said. "I feel like we are near the cusp of another when it comes to crypto and decentralized finance."
The DeFi sector of crypto mimics many of the popular services of traditional finance without the use of centralized brokers.
Hsu, who was working as an economist for the Securities and Exchange Commission at the time of the 2008 crisis, had a front-row seat to the crisis.
Hsu compared the optimistic intellectual climate and promises of crypto today to the one around "innovative" credit derivatives back then.
"[Credit derivatives] were heavily dependent on financial engineering." Financiers, physicists, and finance experts took part in the program for the intellectual challenges and the money. According to him, they thought they were creating a new category of assets, using an entirely new set of models.
The DeFi sector is also targeted by Hsu because it generates returns without indicating how they are generated.
DeFi platforms offer a variety of services, including staking, yield farming, and liquidity mining. According to him, all of these are passive investments. The seller does not need to buy or sell actively. The returns are generated in what manner? Straight answers are hard to come by without quickly devolving into crypto-speak."
Hsu's speech on Tuesday marked the second time in a month that the blockchain industry has been compared with finance before the meltdown.
Hsu spoke about how the 2008 crisis shaped his approach to policy on a Banking with Interest podcast at the beginning of the month.
Gary Gensler, SEC chief, told the Wall Street Journal last month that DeFi should be regulated. Then, a couple of weeks later, he made an appearance at the European Parliament and called cryptocurrency "highly speculative."