DeFi Risks Explained
Fri Jan 30 2026
$300 billion has already migrated from traditional banks into stablecoins. Under fractional reserve banking, every dollar withdrawn shrinks lending capacity by 2-3x—reducing credit, raising rates, and pressuring the entire banking system. Meanwhile, DeFi platforms offer higher yields through lower costs and automated execution. The competitive battle is real.
But DeFi isn't invincible. The November 2025 Balancer hack cost $120 million. Mt. Gox collapsed in 2014. And "decentralized" finance is becoming increasingly centralized—creating the exact single points of failure it was designed to eliminate.
In this episode, Professor Ravi Sarathy examines how DeFi is disrupting traditional banking, the security vulnerabilities threatening billions in assets, and the regulatory challenges nation-states must solve to prevent another 2008-style crisis.
You'll discover: → How stablecoins threaten bank deposits and credit availability → Why DeFi can offer higher yields than traditional banks → APIs and open banking: the battle over account access pricing → How banks are responding: copying, integrating, partnering → The centralization paradox in "decentralized" finance → Major security vulnerabilities: stolen keys, custody risks, governance flaws → Smart contract exploits and cross-chain bridge hacks → Mt. Gox and Balancer: $120M+ lost to security failures → DEX laundering and converting stolen crypto to fiat → Financial inclusion: DeFi serving the unbanked and refugees → Regulatory challenges: innovation vs. systemic stability → AML/KYC requirements and international harmonization → Lessons from 2008: preventing the next financial crisis
RESOURCES: Enterprise Strategy for Blockchain (MIT Press): https://mitpress.mit.edu D'Amore-McKim School of Business: https://damore-mckim.northeastern.edu
ABOUT THE HOST: Ravi Sarathy is a Professor of International Business and Strategy at Northeastern University's D'Amore-McKim School of Business and author of "Enterprise Strategy for Blockchain" (MIT Press). A crypto enthusiast who follows the industry closely, he brings academic rigor to understanding blockchain's business implications and systemic risks.
CHAPTERS: 0:00 - How DeFi Disrupts Traditional Finance 0:47 - Stablecoins: The $300B Threat to Banks 2:24 - Fractional Reserve Banking & Credit Contraction 4:14 - Yield Competition: Why DeFi Offers Higher Returns 5:59 - APIs and Open Banking Access Pricing 7:57 - How Traditional Banks Are Responding 10:55 - The Centralization Paradox 12:30 - Security Vulnerabilities: Stolen Private Keys 14:23 - Flawed Governance Models 15:30 - Smart Contract Exploits 17:13 - Cross-Chain Bridge Hacks 18:23 - Mt. Gox and Balancer Hacks 19:29 - Financial Inclusion: Serving the Unbanked 21:49 - Regulatory Challenges 23:39 - Systemic Risk: Lessons from 2008 24:20 - AML/KYC and Illicit Finance
ABOUT THE SHOW: International Business Today explores critical issues in global business with top academic experts. Hosted by professors from Northeastern University's D'Amore-McKim School of Business.
SUBSCRIBE: YouTube: https://www.youtube.com/@InternationalBusinessToday Spotify: https://open.spotify.com/show/2y21XexVdXEiTBdZQIuSyf Apple Podcasts: https://podcasts.apple.com/sg/podcast/international-business-today/id1665009512
DISCLAIMER: This content is for educational purposes only and does not constitute financial or investment advice. Cryptocurrency investments are volatile and carry significant risk. Consult a qualified financial advisor before making investment decisions.
#DeFi #DeFiRisks #TraditionalFinance #TradFi #Stablecoins #BankingDisruption #CryptoSecurity #FinancialRegulation #Blockchain #DEX #SmartContracts #BalancerHack #MtGox #FinancialInclusion #SystemicRisk #AML #KYC
DeFi risks explained, DeFi security, decentralized finance, banking disruption, stablecoins, crypto hacks, Mt Gox, Balancer hack, cross-chain bridges, smart contracts, financial regulation, systemic risk, Ravi Sarathy
More
$300 billion has already migrated from traditional banks into stablecoins. Under fractional reserve banking, every dollar withdrawn shrinks lending capacity by 2-3x—reducing credit, raising rates, and pressuring the entire banking system. Meanwhile, DeFi platforms offer higher yields through lower costs and automated execution. The competitive battle is real. But DeFi isn't invincible. The November 2025 Balancer hack cost $120 million. Mt. Gox collapsed in 2014. And "decentralized" finance is becoming increasingly centralized—creating the exact single points of failure it was designed to eliminate. In this episode, Professor Ravi Sarathy examines how DeFi is disrupting traditional banking, the security vulnerabilities threatening billions in assets, and the regulatory challenges nation-states must solve to prevent another 2008-style crisis. You'll discover: → How stablecoins threaten bank deposits and credit availability → Why DeFi can offer higher yields than traditional banks → APIs and open banking: the battle over account access pricing → How banks are responding: copying, integrating, partnering → The centralization paradox in "decentralized" finance → Major security vulnerabilities: stolen keys, custody risks, governance flaws → Smart contract exploits and cross-chain bridge hacks → Mt. Gox and Balancer: $120M+ lost to security failures → DEX laundering and converting stolen crypto to fiat → Financial inclusion: DeFi serving the unbanked and refugees → Regulatory challenges: innovation vs. systemic stability → AML/KYC requirements and international harmonization → Lessons from 2008: preventing the next financial crisis RESOURCES: Enterprise Strategy for Blockchain (MIT Press): https://mitpress.mit.edu D'Amore-McKim School of Business: https://damore-mckim.northeastern.edu ABOUT THE HOST: Ravi Sarathy is a Professor of International Business and Strategy at Northeastern University's D'Amore-McKim School of Business and author of "Enterprise Strategy for Blockchain" (MIT Press). A crypto enthusiast who follows the industry closely, he brings academic rigor to understanding blockchain's business implications and systemic risks. CHAPTERS: 0:00 - How DeFi Disrupts Traditional Finance 0:47 - Stablecoins: The $300B Threat to Banks 2:24 - Fractional Reserve Banking & Credit Contraction 4:14 - Yield Competition: Why DeFi Offers Higher Returns 5:59 - APIs and Open Banking Access Pricing 7:57 - How Traditional Banks Are Responding 10:55 - The Centralization Paradox 12:30 - Security Vulnerabilities: Stolen Private Keys 14:23 - Flawed Governance Models 15:30 - Smart Contract Exploits 17:13 - Cross-Chain Bridge Hacks 18:23 - Mt. Gox and Balancer Hacks 19:29 - Financial Inclusion: Serving the Unbanked 21:49 - Regulatory Challenges 23:39 - Systemic Risk: Lessons from 2008 24:20 - AML/KYC and Illicit Finance ABOUT THE SHOW: International Business Today explores critical issues in global business with top academic experts. Hosted by professors from Northeastern University's D'Amore-McKim School of Business. SUBSCRIBE: YouTube: https://www.youtube.com/@InternationalBusinessToday Spotify: https://open.spotify.com/show/2y21XexVdXEiTBdZQIuSyf Apple Podcasts: https://podcasts.apple.com/sg/podcast/international-business-today/id1665009512 DISCLAIMER: This content is for educational purposes only and does not constitute financial or investment advice. Cryptocurrency investments are volatile and carry significant risk. Consult a qualified financial advisor before making investment decisions. #DeFi #DeFiRisks #TraditionalFinance #TradFi #Stablecoins #BankingDisruption #CryptoSecurity #FinancialRegulation #Blockchain #DEX #SmartContracts #BalancerHack #MtGox #FinancialInclusion #SystemicRisk #AML #KYC DeFi risks explained, DeFi security, decentralized finance, banking disruption, stablecoins, crypto hacks, Mt Gox, Balancer hack, cross-chain bridges, smart contracts, financial regulation, systemic risk, Ravi Sarathy