Shibtoshi, the founder of the SilentSwap privacy-preserving trading platform, outlined several concerns that make institutions hesitant to adopt decentralized finance (DeFi) solutions, including privacy, a lack of standardized compliance regulations, and legal accountability.
The DeFi founder told Cointelegraph that the high transparency of onchain transactions presents a problem for companies that must conceal sensitive information, including trading strategies, payroll information, and business-to-business agreements. Shibtoshi said:
“The main concerns — regulatory uncertainty, privacy limitations, and complex user experience — are real, but solvable. Innovations in privacy-preserving protocols are making DeFi increasingly compatible with enterprise needs. Platforms like SilentSwap are a step in that direction.”
Regulatory uncertainty continues to be one of the biggest problems for DeFi and is compounded by a fragmented approach across legal jurisdictions, which prevents institutional adoption, Shibtoshi added.
“Are DeFi tokens securities? What happens if a decentralized autonomous organization (DAO) messes up — and who is responsible when it does? It is all still pretty unclear,” the SilentSwap founder told Cointelegraph.
Shibtoshi urged common sense regulations that encourage innovation and preserve the value propositions of decentralized finance, including self-custody, speed, and cost-effective transactions.
The total value locked across the DeFi ecosystem has not yet returned to peak levels witnessed in 2021 and 2022. Source: DeFiLlama
Related: Specialized purpose DEXs poised for growth in 2025 — Curve founder
Both chambers of the United States Congress recently voted to overturn the highly unpopular DeFi broker rule requiring decentralized finance protocols and platforms to report customer transactions to the Internal Revenue Service (IRS).
The US Senate repealed the IRS broker rule in a 70 to 27 vote on March 4, followed by members of the US House of Representatives voting to repeal the IRS rule on March 11.
Despite the repeal of the archaic rule, overregulation may end up killing a sector that was born as a decentralized, more accessible, and pseudonymous alternative to traditional finance.
According to crypto entrepreneur and investor Artem Tolkachev, regulatory compliance is undermining decentralization in DeFi and destroying the value proposition of the nascent sector.
The emphasis on regulatory compliance measures increases the potential for censorship and shifts control from the users to third-party intermediaries and large institutions, Tolkachev wrote.
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