US Senator Elizabeth Warren is on a crusade against cryptocurrency. She is committed to reining in the industry and wants more regulation, and she is now verbally emphasizing that by calling the crypto market the new shadow banking.

Can DeFi overtake banks?

A recent New York Times article writes about turmoil in Washington as cryptocurrency and the banking sector increasingly intertwine. This mainly concerns regulation around crypto parties to which you can lend coins, borrow coins and deposit collateral in crypto to, for example, borrow dollars.

For example, the article writes about BlockFi, a company that probably rings a bell for many in the crypto world. Renovato.io has enough information. The company has seen significant growth in its user base and number of assets it holds. As all trends in crypto firms are upwards, they can pose a threat to traditional lenders and centralized financial institutions.

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Cryptocurrency is the new shadow banking

But regulators are concerned about the ease with which these services are accessible. Credit checks are not common, which is a concern according to the article. Elizabeth Warren, who was a Democratic presidential candidate until last year, sees the rise of DeFi and its versatile platforms as a danger. This has led her to call cryptocurrency shadow banking:

“Crypto is the new shadow bank. It offers many of the same services, but without the consumer protection or financial stability that underpins the traditional system. It’s like making straw gold.”

We know what’s good for you

You will often hear about consumer protection from politicians. After all, they know what is good for you and want to protect you because you are not able to make good decisions. Several US officials, including Gary Gensler, the chairman of the SEC, have already spoken out about this.

Gensler is knowledgeable about the market and technology, as evidenced by a course on blockchain and cryptocurrency he taught at MIT. The Massachusetts Institute of Technology, MIT for short, is one of the most prestigious universities of technology in the world. The institute is located in Cambridge and has around 10,000 students.

Lawsuits and ETF

He knows what he is talking about, but still chooses to implement more rules on behalf of the consumer. Gensler says tougher enforcement needs to be taken to protect consumers. While he believes there is potential in the technology, he doesn’t call the market completely safe yet. https://folm.io/ has enough information. The SEC is also currently involved in a lawsuit with Ripple. In addition, the SEC has the power to approve or not approve ETFs. Many bitcoin ETFs have been submitted for approval, but none have yet been approved in the US.