Senator Elizabeth Warren says DeFi is the most dangerous part of crypto

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Senator Elizabeth Warren from Massachusetts, who is known for criticizing crypto, recently again was forthright in her criticism on decentralized finance (DeFi). She displayed her concern about the impact of a run on stablecoins on the average investor.

In a hearing with the Senate Banking Committee on Tuesday, where they were discussing stablecoins, Warren questioned Hilary Allen, a professor at the American University Washington College of Law, about whether a run on stablecoins could put the United States financial system at risk. Allen responded that it could.

Allen believes that a “mass redemption” of stablecoins from people who’ve lost confidence in the tokens will not have “systemic consequences” for traditional markets, but that in the future, the DeFi system will be more likely to be affected.

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Conversely, Warren asserted that because stablecoins served as “the lifeblood of the DeFi ecosystem” outside of regulated markets, their value would “take a nosedive precisely at the time when people most need stability,” with the consequences affecting traditional finance.

Vulnerability of DeFi due to lack of regulations

DeFi, according to Warren, is the most dangerous part of the cryptocurrency world. “This is an area where regulation is nearly non-existent, and it should come as no surprise that this is where scammers, cheats, and swindlers congregate among part-time investors and first-time crypto investors.” She says that it is impossible to tell whether or not someone is a terrorist. Warren has previously introduced a bill in October to gather information around crypto’s involvement in ransomware. 

As per the report by Elliptic, the attacks in DeFi protocol have spiked $12 billion this year. While Allen did not directly address Warren’s claim about illicit transactions, he did say that the potential threat might be in DeFi’s near future.

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Despite heavy criticism, there have been many promising DeFi projects floating around with huge potential as Jane Hume, the Australian senator, believes that these can solidify the country’s economy.

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