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I already answered that in the OP. We need privacy. Privacy is the solution. Using defi instead of centralized exchanges doesn't change anything if we don't have privacy. There are now laws that says you can't use USDT or DAI or WBTC and many other coins and you have to do KYC on all defi transactions or you will be fined/prison. Without privacy they can see who is breaking their regulations by looking at the bitcoin ledger which has no privacy to protect us and they will just come and knock on your door and arrest you. It doesn't matter if you are using centralized or decentralized when there is no privacy.
No privacy or relative weak privacy? Looking at blockchain data alone isn't enough when owner of that address isn't doing anything which weaken his privacy further (e.g. post that address on his social media).