DeFi Could Cause a Recurrence of 2008 – The Untold Story of Decentralized Finance

In 2015, MakerDAO introduced what would become known as ‘decentralized finance’, commonly referred to as DeFi† “With DeFi you have full access” is a common saying in the cryptoverse.

The industry, which now holds more than $200 billion, is being hailed for revolutionizing the traditional financial industry. Hilary Allen, a professor at the Washington College of Law, however, explores the unspoken corners of DeFi.

A decentralized illusion

In her paper, Professor Allen argues that DeFi is not as decentralized as users would have you believe. According to her, most DeFi protocols are managed by small groups of developers or venture capitalists.

She further states that, unlike traditional banking services that offer consumer protection, DeFi doesn’t allow you to call to request a refund if something goes wrong.

Professor Allen further states that “DeFi innovation has limited benefits for society.” She argues that DeFi should be suppressed, but doesn’t have much hope that regulators will follow her advice.

DeFi could lead to a repeat of 2008

Allen believes that if financial institutions embrace DeFi — by, for example, offering stablecoins or backing DeFi loans — we could see a repeat of the 2008 financial crisis.

She further compares DeFi to credit default swaps (CDS) and mortgage-backed securities (MBS), which catalyzed the global financial collapse in 2008.

On the other hand

Contrary to Allen’s opinion, many investors and market analysts have called DeFi the “greatest thing in the history of finance.”

Why should you be concerned?

Like many others, Professor Hilary Allen expressed her views and concerns about the burgeoning DeFi industry in a published article. As such. it should not be considered investment advice.

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This post DeFi Could Cause a Recurrence of 2008 – DailyCoin’s Untold Story of Decentralized Finance was original published at “https://www.investing.com/news/cryptocurrency-news/defi-could-spark-a-repeat-of-2008–the-untold-story-of-decentralized-finance-2787512”

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