There is a lot of hype surrounding cryptocurrencies and DeFi technology, with excitement around the potential innovations they offer financial systems. Often lacking in the discussion is an objective and critically informed viewpoint, leading to confusion and misunderstanding. In today's conversation, we get the balanced perspective that we need with Professor Hilary Allen, who has a wealth of experience in banking, law, financial regulation, corporate finance, and business administration. She is a law professor at the American University of Washington College of Law and her research focuses on the impact of new financial technologies on the stability of the current finance system. She has written many academic papers on the subject, including the book Driverless Finance, which provides readers with a balanced perspective on the opportunities and threats of fintech innovations. In our candid and fascinating conversation with Professor Allen, we learn about the threats and opportunities DeFi technologies pose to the financial system. We hear what shadow banking is, the similarities that decentralized finance has with shadow banking, the risks of cryptocurrencies, if innovation in finance is always positive, why regulation is essential, whether DeFi is actually decentralized, the basics of stablecoins, how you can help affect change in the financial system, if you should invest in cryptocurrencies, and much more. Tune in to get the clarity you need about the world of crypto with expert Professor Hilary Allen!

Key Points From This Episode:

We start the show by learning what shadow banking is and how it is associated with the financial crisis in 2008. [0:04:05]
Professor Allen explains what DeFi is and gives us some examples. [0:07:16]
Learn about some of the innovations that DeFi technology proposes. [0:09:21]
Similarities between shadow banking activities and DeFi technology. [0:11:06]
Other risks that Professor Allen sees with the DeFi system. [0:12:12]
What effect replacing intermediaries with algorithms have on financial systems. [0:16:03]
The effect complexity has on a financial system. [0:17:19]
She explains what financial stability is and the objective of financial regulation. [0:19:27]
How the financial stability of the existing system compares to the DeFi system. [0:21:01]
Whether stability of the existing financial system is exposed to problems within DeFi. [0:22:14]
Which DeFi innovations pose the biggest risk to the current financial system. [0:23:23]
Find out if stablecoins could affect monetary policy. [0:25:23]
The regulatory lessons from the 2008 financial crisis that are relevant to DeFi. [0:26:28]
Outline of the problems that the existing financial system has. [0:30:44]
How successful DeFi has been at being decentralized. [0:33:14]
If Professor Allen has any concerns that regulation might stifle innovation in DeFi. [0:36:06]
Find out if financial innovation is always a good thing. [0:37:41]
What the best possible regulatory outcomes are regarding crypto and DeFi. [0:39:30]
Whether it is too late to regulate cryptocurrencies. [0:42:48]
Why Professor Allen thinks some politicians are pushing crypto-friendly agendas. [0:43:52]
How people can affect change in the right direction regarding the financial system. [0:46:08]

Understanding Crypto 10: Prof. Hilary Allen: DeFi: Shadow Banking 2.0?

The Rational Reminder Podcast