Bank of America (BAC) has stated in a recent research report that the recent correction in digital asset markets led to a shift in focus and capital from speculative trading to projects with actual functionality.
However, the bank believes that decentralized finance (DeFi) currently only “barely scratches the surface.”
According to the report, platforms like Gauntlet are driving the evolution of DeFi applications, but regulatory barriers, poor user interfaces, and limited functionality may prevent mainstream adoption in the short term.
The inability to perform AML/KYC requirements, access credit scores, and identify users are some of the key challenges that DeFi is facing, which also creates headwinds for mainstream adoption.
The bank suggests that soulbound tokens or non-transferable identity and reputation NFTs could be the key to expanding DeFi’s functionality frontier, but most of the existing applications are under three years old and will require time to mature.
BAC believes that DeFi applications require development to produce a differentiated product and positive user experience, which drives adoption and usage.
In the long run, BAC expects the development of DeFi applications with real-world functionality to increase the efficiency of traditional financial products and services.
The bank anticipates that these applications will evolve by optimizing the tradeoffs between user incentives and risks over the next 30 years.
Despite the challenges faced by DeFi, BAC remains optimistic about the potential of decentralized finance and sees it as a major change in applications that may take place in the future.
