'The Big Short' author Michael Lewis says crypto is 'more egalitarian' and could reform legacy finance — or the whole space could come crashing down

• Cryptocurrency poses a threat to legacy finance, according to 'Big Short' author Michael Lewis.
• "A separate financial structure is being built alongside the old legacy financial structure," Lewis told Yahoo.

The decentralized nature of cryptocurrency is reshaping the traditional financial sector, but great uncertainty remains in the space, according to "The Big Short" author Michael Lewis.

These days, Lewis explained, the Securities and Exchange Commission is responsible for a shrinking portion of the financial industry thanks to the rise in decentralized finance and cryptocurrency.

"A separate financial structure is being built alongside the old legacy financial structure, and it eliminates middlemen," Lewis told Yahoo Wednesday.

He added that retail traders on crypto exchanges today deal directly with the exchange, rather than a broker, which helps level the playing field for everyday investors.

"The mechanisms that are being built [in crypto]...are far more egalitarian, more equal," he said. "The participants in the marketplace are not privileged in relation to one another in the same way they are in the stock market."

So far, Lewis said the cryptocurrency model has proven that it can be effective as a market, and the traditional financial system may look to parts of crypto to improve its own framework. Decentralized finance may "end up being persuasive" in reforming legacy finance, he noted.

But, like the dollar and gold, Lewis pointed out that cryptocurrency is based on faith, and there's no telling how long people can sustain that faith for a relatively new technology.

"The whole thing may come crashing down," Lewis said. "But the longer it goes on, the more of a threat it poses to the existing financial order."