{"id":6985,"date":"2022-03-24T14:53:23","date_gmt":"2022-03-24T14:53:23","guid":{"rendered":"https:\/\/newmoneyreview.com\/?p=6985"},"modified":"2022-05-16T10:37:21","modified_gmt":"2022-05-16T10:37:21","slug":"defis-dangerous-alphabet-soup","status":"publish","type":"post","link":"https:\/\/newmoneyreview.com\/index.php\/2022\/03\/24\/defis-dangerous-alphabet-soup\/","title":{"rendered":"DeFi\u2019s dangerous alphabet soup"},"content":{"rendered":"

In 2008, a few obscure three-letter financial products\u2014MBS, ABS, CDOs and SIVs\u2014set off the biggest financial crisis in history.<\/p>\n

Now, could a new alphabet soup of DAOs, NFTs, Dapps, DMMs and DEXes pose similar risks to financial stability?<\/p>\n

Yes, says Hilary Allen, our guest on the latest New Money Review<\/em> podcast<\/a>. Allen is a professor at the American University Washington College of Law, where she teaches financial regulation.<\/p>\n

\"\"<\/p>\n

Hilary Allen<\/em><\/p>\n

The latest acronyms\u2014for decentralised autonomous organisations (DAOs), non-fungible tokens (NFTs), decentralised applications, market makers and exchanges (Dapps, DMMs and DEXes)\u2014all come from the decentralised finance (\u201cDeFi\u201d) market.<\/p>\n

DeFi is a $210bn market of financial services built on top of cryptocurrency networks like ethereum.<\/p>\n

Total value locked in DeFi applications<\/em><\/p>\n

\"\"<\/p>\n

DeFi activities parallel those undertaken in the traditional financial system, such as trading, lending and investing\u2014but without banks, central trading platforms or investment firms.<\/p>\n

\u201cWhat has really struck me the most is how quickly we forget\u201d<\/p><\/blockquote>\n

The sector includes<\/a> a number of automated lending protocols, such as Aave, bZx v2, Compound, Maker, Polygon Aave and Venus. It also contains automated market making protocols, such as Uniswap, Curve, and Balancer, and automated investment vehicles, such as Yearn and Convex.<\/p>\n

But according to Allen<\/a>, DeFi increasingly resembles the \u2018shadow banking\u2019 sector that triggered the 2008 meltdown\u2014and very few people are paying attention.<\/p>\n

Allen says that three key risks in DeFi\u2014heightened leverage, rigidity, and the potential for investor runs\u2014are the same as those that grew out of control fifteen years ago.<\/p>\n

\u201cWhat has really struck me the most,\u201d Allen says in the podcast, \u201cis how quickly we forget.\u201d<\/p>\n

Listen to the podcast<\/a> to hear more.<\/p>\n

Sign up here<\/a> for the New Money Review newsletter<\/em><\/p>\n

Click here<\/a> for a full list of episodes of the New Money Review podcast: the future of money in 30 minutes<\/em><\/p>\n

Related content from New Money Review<\/em><\/span><\/p>\n

Cordon off and shut down DeFi<\/a><\/p>\n

Why settlement matters<\/a><\/p>\n

Unstable DeFi could trigger wider crash<\/a><\/p>\n

Hedge fund\/crypto cocktail could be lethal<\/a><\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

In 2008, a few obscure three-letter financial products\u2014MBS, ABS, CDOs and SIVs\u2014set off the biggest financial crisis in history. Now, could a new alphabet soup of DAOs, NFTs, Dapps, DMMs […]<\/p>\n","protected":false},"author":3,"featured_media":4628,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1013,1053,1026,1011],"tags":[1550,2115,2116],"class_list":{"0":"post-6985","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-account","8":"category-featured-1","9":"category-latest-slider","10":"category-value","11":"tag-defi","12":"tag-hilary-allen","13":"tag-shadow-banking"},"yoast_head":"\nDeFi\u2019s dangerous alphabet soup - New Money Review<\/title>\n<meta name=\"description\" content=\"The risks in the decentralised finance ("DeFi") market resemble those in the financial system before the 2008 crash, says our podcast guest\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/newmoneyreview.com\/index.php\/2022\/03\/24\/defis-dangerous-alphabet-soup\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"DeFi\u2019s dangerous alphabet soup - 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