The decentralized finance (DeFi) sector faces major roadblocks in attracting institutional players, chiefly due to privacy concerns, unclear regulations, and the absence of legal accountability.
Privacy and Regulatory Issues
Shibtoshi, founder of SilentSwap, noted that while DeFi offers efficiency and transparency, its openness makes it unattractive to large enterprises. These companies, reliant on confidentiality, are wary of public blockchains. "The main concerns — regulatory uncertainty, privacy limitations, and complex user experience — are real but solvable," Shibtoshi stated, highlighting the need for privacy-preserving protocols.
Consequences of Lack of Standards
The absence of standard compliance regulations exacerbates adoption challenges. The U.S. Congress's recent move to overturn the IRS DeFi broker rule hasn't eased concerns. Despite the victory, uncertainty lingers, as institutions remain unsure about legal responsibility and token classification.
Threats of Overregulation
Despite the relief from the broker rule, experts caution against overregulation. Crypto entrepreneur Artem Tolkachev argues strict compliance could undermine decentralization by bolstering intermediary power. "Overregulation could destroy the value proposition of DeFi, turning it into a centralized financial system in disguise," Tolkachev warned.
Privacy issues and lack of regulations are major barriers to institutional DeFi adoption. Solutions that address these challenges while maintaining decentralization are crucial.
