US Senator Elizabeth Warren has openly voiced her reservations about decentralized finance (DeFi), stating the effect that a run on stablecoins could have on an average investor.
The Massachusetts Senator spoke about her concerns on Tuesday, during a hearing with the Senate Banking Committee, while stablecoins was being discussed.
At the hearing, Warren drilled Hilary Allen regarding if a run on stablecoins poses a potential threat to the financial system of the United States or not. Allen replied saying a mass redemption of stablecoins by people who no longer believe in the tokens is not likely to have a telling effect on the traditional markets. Allen argued that the impact would most possibly be more felt by the DeFi system.
Senator Warren quickly countered that in her opinion, the value of stablecoins would definitely plunge and that’s because stablecoins provides a sort of backbone for the DeFi ecosystem, particularly outside of regulation. According to Warren, when the values of stablecoins nosedives, the impact would be directly felt by traditional finance.
US Senator Criticizes Decentralize Finance, States Reason Behind Her Claim
“DeFi is the most dangerous part of the crypto world,” said Warren. The lawmaker mentioned that for the mere fact that the space is effectively unregulated, as would be expected, it provides a place where scam and different forms of illegal activities can thrive.
She also added that part-time investors and first-time crypto traders could even be dealing with a terrorist in DeFi, without knowing.
In response to the claims of the US Senator however, Allen did not exactly acknowledge the connection to illegal activities.
Allen believes that as at present, DeFi is contained to the point where it can not impact financial stability, but in the event if its growth, the professor thinks DeFi might truly pose a threat to traditional financial system.
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