Crypto’s Unregulated DeFi Boom Raises Shadow Banking Comparisons

Many of the negative hallmarks of shadow banking -- such as the excessive leverage and opacity that precipitated the 2008 global financial crisis -- have already seeped into the world of decentralized finance.

That’s the warning of Hilary Allen, a professor at American University’s Washington College of Law, in a recently published paper titled “DeFi: Shadow Banking 2.0?”

Unless regulators move to provide stronger oversight of this burgeoning sector of the cryptocurrency world, the risk to the broader financial system will grow, she said. Loosely defined, the shadow banking system consists of lenders, brokers and other intermediaries that ...