Comparing public blockchains to a transparent stage might be the most fitting analogy—every participant's actions and every flow of funds are ruthlessly exposed under the spotlight for all to see. This isn't an issue for retail users, but for institutional investors managing hundreds of millions or even billions of dollars? That's a completely different story.

Institutions crave the high efficiency and innovative mechanisms offered by DeFi, but they cannot accept such an "exposed" trading environment. Any significant position adjustment made public can be instantly detected by sensitive arbitrage bots, causing transaction costs to skyrocket. This also explains why, over the past few years, a large amount of institutional capital has remained hesitant outside of DeFi.

But the situation is changing. By the end of 2025, as the tokenization of real-world assets (RWA) heats up, we see some privacy-focused public chains beginning to truly play a role—they are like "digital vaults with one-way glass" designed for financial institutions, protecting privacy while not completely sacrificing traceability.

**The Balance Between Privacy and Compliance**

What is the biggest obstacle for institutions to enter? It all boils down to one word: contradiction. Privacy and compliance seem opposed, yet neither can be abandoned.

On traditional public chains like Ethereum, privacy is severely lacking. If a hedge fund publicly adjusts a position worth hundreds of millions of dollars, MEV bots can detect this signal within fractions of a second, and the trading liquidity is immediately consumed. That’s why many institutions prefer to stay on centralized exchanges rather than step into DeFi—the cost difference is too great.

Some privacy solutions use zero-knowledge proofs and privacy smart contracts to cloak each transaction. The key is how this is achieved—using specialized virtual machine architectures and cryptographic proofs to ensure you have the right to operate on the funds and that the logic is sound, while simultaneously hiding your true identity and transaction scale from outsiders. This approach solves the problem of large transaction information leaks and leaves a channel for future compliance audits.

**From Privacy to Compliance: The Next Step**

Having privacy alone is not enough. What truly attracts institutions is a compliance layer built on top of privacy. Some projects have designed mechanisms that allow ordinary users to enjoy full privacy protection, while regulators and licensed entities can access specific transaction details through special authorizations. This "differentiated transparency" approach is key for DeFi to embrace institutional capital.

From another perspective, it’s like the ideal state financial institutions have long desired: secure transactions that also meet regulatory requirements. Unprecedented efficiency + privacy protection + compliance channels—achieving all three.

**New Opportunities in the RWA Wave**

Why now, especially now? Because the wave of real-world asset tokenization (RWA) has changed the game. Real estate, bonds, artworks, and other tangible assets are starting to be on-chain, and behind these assets are mostly large institutions. These institutions have strong privacy needs—their investment portfolio data, trading timing, and position sizes involve trade secrets.

A public chain that can simultaneously provide privacy and compliance capabilities becomes especially valuable in this era. It not only addresses technical challenges but also handles legal and trust issues in the real world. Institutional entry into DeFi is no longer a reluctant compromise but backed by real technological support.

In summary, the privacy dilemma in DeFi is being broken. From the binary choice of "privacy or compliance," we are evolving into a new stage where both are achievable. This is good news for the entire industry.