But how would developers mitigate this in the next iteration of the "next Wasabi"? Or what other alternatives can be built, using another path, to protect and preserve Bitcoin's fungibility? Offchain layer with Zero-Knowledge Proofs perhaps? Is that possible?
Best alternative wallet I see is Mercury wallet that is working on totally different principle of swaping private keys in secure way, in that way fees are much lower and privacy can be much higher.
I don't think regulators will be able to do anything with Mercury wallet, but there is always good old mixers we all know, or using Lightning Network is viable alternative.
Instead of creating bunch of shitcoin projects, developers should focus more on making better privacy for bitcoin, but hey you can't scam people like that and become rich overnight...
I believe a "for-privacy" offchain layer could be a feaible path for preseving fungibility for Bitcoin. Merely a network for handling a high volume of transactions might not be enough. Lightning is a little cumbersome to use. Users can simply trade their coins for faster shitcoins. There has to be some other form of utility for Lightning that users truly need.