Morgan Stanley doubts DeFi growth

In a research report, Morgan Stanley said it expects growth within decentralized finance to slow down. It cited regulation and overcollateralization as the two primary factors affecting DeFi’s deceleration.

Why should we care?
In its quest for growth, DeFi has often touted its decentralized infrastructure as its pathway to runaway success. Morgan Stanley actually sees this as its weakest link—especially when it comes to getting more traditional institutions to sign on. In particular, know-your-customer (KYC) and anti-money laundering (AML) compliance will “force DeFi to be more centralized,” transforming DeFi’s distributed ecosystem into a new configuration. We should contextualize Morgan Stanley’s analysis by looking at other Wall Street giants; the disconnect suggests a less-than-unilateral relationship between established financial institutions and nascent DeFi players. While Goldman Sachs recently made its first over-the-counter crypto trade, Morgan Stanley seems more hesitant to jump on the blockchain bandwagon. That’s a big deal—Morgan Stanley holds more than $1T in assets, and, as a major financial institution, its research is taken seriously by far more than just its employees. If Morgan Stanley is right, then we may expect institutional enthusiasm for DeFi to cool in the coming months, especially as the SEC and CFPB roll out new rulings that affect the sector.