"Regulatory uncertainty continues to be one of the biggest problems for DeFi"

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

Shibtoshi, the founder of the privacy-preserving trading platform SilentSwap, has outlined several concerns that make institutions hesitant to adopt decentralized finance (DeFi) solutions.

Shibtoshi, the founder of the privacy-preserving trading platform SilentSwap, has outlined several concerns that make institutions hesitant to adopt decentralized finance (DeFi) solutions.

In an interview with Cointelegraph, Shibtoshi, who prefers to be known by his pseudonym, discussed the challenges posed by privacy, a lack of standardized compliance regulations, and legal accountability in the rapidly evolving decentralized finance landscape.

Shibtoshi explained 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 explained 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.

“Imagine a large institution having to broadcast its complete payroll on a public blockchain explorer for all to see. Or, imagine a hedge fund having to reveal its entire trading strategy with every transaction made on a decentralized exchange,” he said.

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 said.

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

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 optimistic news concerning the fate 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.