So that people with off the books defi assets can diversify their holdings as if they bought into the non-defi world, without any of those pesky taxes or KYC requirements.

Which most governments will be strongly incentivised to prevent.

The ones that aren’t (basically rogue states under sanctions like Russia or DPRK) will have the rest of the governments very interested in preventing them from owning these securities.

By definition nothing onchain is off the books. You can download any public chain's history from genesis. Very traceable. Meanwhile KYC is pesky and onerous, but there is nothing precluding an onchain protocol from implementing KYC. Most protocols that deal with real world assets retain the ability to freeze and seize funds if required by law.