Morgan Stanley sees DeFi remaining ‘fairly small’ as growth to slow

03/22 13:46

The exponential growth seen in decentralized finance (DeFi) in recent years may be set to slow owing to hurdles such as regulation and overcollateralization, Morgan Stanley said in a research report. While the promise of no middlemen may seem appealing, and proponents pitch DeFi as a way of improving the existing financial system, Morgan Stanley says it has not seen much evidence that DeFi protocols are more efficient than the current system. Introducing KYC/AML requirements will “force DeFi to be more centralized.” KYC is the process of identifying and verifying a client’s identity, and is used to combat fraud as well as money laundering. “Overcollateralization in lending/borrowing means DeFI lending doesn’t expand the money supply (for the same cryptocurrency), which means, without centralization, it will be harder for DeFi to be seen as an alternative to the current fractional reserve banking approach,” the note said. Therefore, the bank expects DeFi to remain fairly small in the coming years.

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