Massachusetts Senator Elizabeth Warren did not hold back in her criticism of decentralized finance, expressing concern about how a run on stablecoins would affect the average investor.<\/p>\n
In a Tuesday hearing with the Senate Banking Committee discussing stablecoins, Warren questioned Professor Hilary J. Allen of the American University Washington College of Law as to whether a run on stablecoins could potentially endanger the U.S. financial system. Though Allen said an \u201cen masse\u201d redemption of stablecoins from people who had lost faith in the tokens would be unlikely to have \u201csystemic consequences\u201d for traditional markets at present, the DeFi system would be more likely to feel the effects. <\/p>\n
Warren countered that because stablecoins provided \u201cthe lifeblood of the DeFi ecosystem\u201d outside of regulated markets, she believed their value would \u201ctake a nosedive precisely when people most need stability\u201d with the impact affecting traditional finance. <\/p>\n
\u201cDeFi is the most dangerous part of the crypto world,\u201d said Warren. \u201cThis is where the regulation is effectively absent, and \u2014 no surprise \u2014 it\u2019s where the scammers and the cheats and the swindlers mix among part-time investors and first time crypto traders. In DeFi, someone can\u2019t even tell if they\u2019re dealing with a terrorist.\u201d<\/p>\n
Allen added that the potential threat Warren posited may be in DeFi\u2019s future without addressing her claim on illicit transactions:<\/p>\n
\u201cI don\u2019t think DeFi can grow without stablecoins. I think it would struggle. Right now, I think DeFi is contained to the point where it won\u2019t impact financial stability, but if it grows, I think there\u2019s a real threat there, particularly if it becomes intertwined with our traditional financial system.\u201d<\/p><\/blockquote>\n
The discussion among U.S. lawmakers present at the hearing, named Stablecoins: How Do They Work, How Are They Used, and What Are Their Risks?<\/em>, follows committee chair Sherrod Brown requesting crypto firms release information related to consumer and investor protection on stablecoins. Professor Allen appeared at a witness alongside Alexis Goldstein, director of financial policy at Open Markets, Jai Massari, a partner at Davis Polk & Wardwell, and Dante Disparte, chief strategy officer and head of global policy at Circle.<\/p>\n