Bank of America: DeFi's Current Functionality Is Just Scratching The Surface

A report from Bank of America BAC highlights the current state of decentralized finance (DeFi) in the digital asset market, stating that despite the shift in focus towards projects with real-world functionality, DeFi's current offerings "barely scratch the surface."

According to Coindesk, the report acknowledges that platforms like Gauntlet are driving the evolution of DeFi, but warns that regulatory barriers, poor user interfaces, and limited functionality could hinder mainstream adoption in the short term.

Bank of America stated that the inability to perform proper identity verification and comply with anti-money laundering (AML) and know-your-customer (KYC) regulations is a significant headwind for DeFi's mainstream adoption.

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The report suggests that the use of soulbound tokens or non-transferable identity and reputation NFTs could play a crucial role in expanding DeFi's functionality frontier.

It also acknowledges that the majority of DeFi applications are relatively immature, but the authors remain optimistic about their potential.

They expect that the development of DeFi applications with real-world functionality will increase the efficiency of traditional financial products and services and that these applications will evolve to optimize the trade-off between user incentives and risks.

"DeFi applications require development to produce a differentiated product and positive user experience, which drives adoption and usage," the report stated. "Increasing adoption and usage result in increasing revenues and native token appreciation if properly designed, both of which can be reinvested in development."

It further stated that despite the current limitations, "we remain in the early stages of a major change in applications that may take place over the next 30 years."

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