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The DeFi sector continues to face major roadblocks in attracting institutional players, largely due to privacy concerns, unclear regulations, and the lack of legal accountability, according to Shibtoshi, the founder of privacy-focused trading platform SilentSwap.
In a recent interview, Shibtoshi stated that while DeFi offers efficiency and transparency, the very openness of onchain transactions makes it unappealing to institutions. Large enterprises, which rely on confidentiality for their trading strategies, payroll data, and business contracts, are reluctant to embrace a system where sensitive information is exposed on public blockchains.
“The main concerns — regulatory uncertainty, privacy limitations, and complex user experience — are real but solvable,” Shibtoshi explained. He believes that privacy-preserving protocols are the key to making DeFi compatible with enterprise needs, citing SilentSwap as an example of a platform working toward this goal.
However, privacy issues are just one part of the problem. The lack of standardized compliance regulations across jurisdictions is another major hurdle. The SilentSwap founder noted that institutions are reluctant to engage with DeFi because they remain unsure whether DeFi tokens are securities and who holds legal responsibility in case of protocol failures.
Lack of Privacy and Clear Rules Deterring Institutions
The fragmented regulatory landscape has only deepened the uncertainty surrounding adoption. Shibtoshi pointed out that even recent victories, such as the U.S. Congress repealing the IRS DeFi broker rule, have not been enough to ease institutional concerns.
Both the U.S. Senate and the House of Representatives voted to overturn the broker rule in March, which would have required DeFi platforms to report customer transactions to the IRS. While its repeal was a win for the community, Shibtoshi warned that heavy-handed regulation could still hinder growth.
Overregulation Threatens DeFi Core Principles
Despite the relief from the IRS broker rule, some industry experts argue that overregulation could stifle decentralized finance’s original mission. Crypto entrepreneur Artem Tolkachev believes that enforcing strict compliance measures could undermine decentralization by increasing the power of third-party intermediaries.
“Overregulation could destroy the value proposition of DeFi, turning it into a centralized financial system in disguise,” Tolkachev warned.
