We continue our discussion of Hilary Allen’s paper on DeFi and shadow banking and dive into her comparative analysis between Wall Street and Silicon Valley. We see how there are direct analogues between the kind of financial innovations and systemic fragilities that led to the 2008 crash and the crisis dynamics of DeFi: overleveraging and crypto tokens; rigidity and smart contracts; bank runs and stablecoins. Allen then argues that the best approach is not to legitimize DeFi through regulation, but to erect a firewall that prevents it from integrating with the mainstream economy and financial sector.

Some stuff we reference:
••• DeFI: Shadow Banking 2.0 | Hilary J. Allen https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4038788
••• Is Crypto Re-Creating the 2008 Financial Crisis? | Charlie Warzel, Hilary Allen https://newsletters.theatlantic.com/galaxy-brain/624cb2ebdc551a00208c1524/crypto-bubble-web3-decentralized-finance/
••• Defi and Shadow Banking 2.0: Leverage, rigidity and bank runs | Cory Doctorow https://doctorow.medium.com/defi-and-shadow-banking-2-0-7bae9d1d308e

Subscribe to hear more analysis and commentary in our premium episodes every week! patreon.com/thismachinekills

Grab fresh new TMK gear: bonfire.com/store/this-machine-kills-podcast/

Hosted by Jathan Sadowski (twitter.com/jathansadowski) and Edward Ongweso Jr. (twitter.com/bigblackjacobin). Production / Music by Jereme Brown (twitter.com/braunestahl)