Is DeFi Dangerous? Elizabeth Warren Thinks So

U.S. Senator Elizabeth Warren of Massachusetts has said decentralized finance (DeFi) is dangerous and that in this ecosystem "someone can’t even tell if they’re dealing with a terrorist.”

What Happened: Warren questioned Professor Hilary J. Allen of the American University Washington College of Law on whether a stablecoin "bank run" could affect the broader United States financial system during a Tuesday hearing.

While Allen said that such an event was not likely to have any "systemic consequences" for traditional markets, he said the effects would be more apparent within the DeFi ecosystem.

Warren answered by claiming that since stablecoins are "the lifeblood of the DeFi ecosystem,” their value would collapse when those market participants need their stability the most and that would indeed impact the traditional financial landscape.

See Also: BEST STABLECOINS

Warren then went on a tirade against DeFi, which she described as "the most dangerous part of the crypto world." She said this is the market segment "where the regulation is effectively absent, and — no surprise — it’s where the scammers and the cheats and the swindlers mix among part-time investors and first-time crypto traders." She said:

"In DeFi, someone can’t even tell if they’re dealing with a terrorist.”

See Also: HOW TO EARN INTEREST WITH STABLECOINS

Allen said that he does not think DeFi can grow without stablecoins and said it is "contained to the point where it won’t impact financial stability," but if it grows enough it could become a threat as suggested by Warren.

This threat, he said, would be particularly relevant "if it becomes intertwined with our traditional financial system.”

Sen. Elizabeth Warren. Benzinga file photo by Dustin Blitchok.