The Need for Collaboration Between the Crypto Industry and Regulators
The crypto industry needs to collaborate with regulators to establish a framework that both protects consumers and fosters genuine innovation. This article is sourced from Token Dispatch, authored by Prathik Desai, and organized, translated, and written by Block Unicorn.
(Background summary: “Major Victory for DeFi” Trump signs repeal of IRS “DeFi Broker Rule,” gaining overwhelming support in both houses of Congress)
(Background information: The repeal of the IRS “DeFi Broker Rule” has been submitted to Trump for signing into law, marking a significant victory for the crypto industry)
Trump Signs Repeal of Controversial DeFi Broker Rule
On Thursday, U.S. President Trump signed a resolution repealing the Internal Revenue Service’s (IRS) controversial decentralized finance (DeFi) broker rule, achieving his first victory in cryptocurrency. This also marks the first time in U.S. history that a president has signed a crypto-related bill. After years of regulatory uncertainty, the crypto industry finally has clear evidence that Washington is listening.
The resolution passed with impressive bipartisan support, with the Senate voting 70 to 28 and the House voting 292 to 132, indicating that cryptocurrency may finally be transcending political divides.
This turnaround is not just about the cancellation of a problematic tax rule; it may be a prelude to how the decentralized finance ecosystem evolves in the world’s largest economy.
In this article, we will take you through the origins of the DeFi broker rule, the significance of its repeal, and, more critically, how it will lay the groundwork for a new approach to crypto regulation under a Trump 2.0 administration.
Biden’s Farewell Gift
On December 27, 2024, the Biden administration finalized a controversial IRS rule requiring “DeFi brokers” to collect and report user transaction information—this was the last blow to crypto innovation before the government transition.
The rule expanded the definition of “broker” from the 2021 Infrastructure Bill to include DeFi platforms, requiring them to issue 1099 forms to users and report transaction details to the IRS, with the rule set to take effect on January 1, 2027.
This left industry experts stunned and prompted them to fight back.
Why? Seven words: Technically impossible to comply.
The Biden administration specifically targeted “front-end service providers.” Think of MetaMask or the Uniswap website, which millions of users use to swap tokens—these intuitive interfaces allow ordinary users to access decentralized protocols.
According to the rule, these front-ends would need to collect names, addresses, phone numbers, and transaction details—yet in a truly decentralized ecosystem, they cannot access this information at all.
When faced with criticism of this contradiction, the IRS responded dismissively: “Individuals with technical expertise engaged in the trade or business of providing financial services should comply with the same rules as others engaged in the business of providing financial services.”
This exposed a profound misunderstanding of how decentralized systems operate. Industry leaders described it as an “irreconcilable contradiction”—requiring entities to collect information they cannot access.
This means platforms either had to rebuild protocols to collect information that violates users’ privacy and the core principles of decentralization or completely exit the U.S. market.
The last-minute expansion of the rule to DeFi by the Biden Treasury was seen as an overreach of executive authority without congressional approval.
David Sacks, Trump’s head of AI and crypto affairs, bluntly called it a “midnight regulation,” stating it “would stifle American innovation, raise privacy concerns, and impose unprecedented compliance burdens on American DeFi companies.”
A Turning Point
The significance of repealing the rule goes far beyond a mere tweak to tax policy.
According to the Congressional Review Act used to repeal the rule, the IRS cannot issue “substantially similar” regulations without new congressional authorization. This does not merely suspend the rule; it creates breathing room for developers and entrepreneurs who can now develop with greater confidence.
The passage of the resolution indicates that the crypto industry’s long-sought goal has finally been achieved: significant political capital has been gained in Washington.
Want to hear more good news? This may just be the beginning. Treasury Secretary Scott Bessent stated at a recent White House digital asset summit that plans are underway to “revoke and amend” related crypto tax rules.
Bipartisan and Industry Support
The most important feature of this turnaround is its bipartisan nature.
When Republicans and dozens of Democrats voted together to overturn the Democratic administration’s rule, it revealed a shift in the political importance of cryptocurrency and the need for fintech innovation to have space to grow.
This marks a significant departure from the era under SEC Chairman Gary Gensler, during which Democratic leadership largely supported aggressive enforcement actions against crypto companies.
Even Senate Minority Leader Chuck Schumer broke ranks with party leadership to support the measure, highlighting the growing importance of cryptocurrency in elections.
Once marginalized industry groups have now become influential voices.
The Blockchain Association and the DeFi Education Fund led active lobbying efforts, successfully turning around the Democratic voting landscape and ultimately securing enough votes to override a veto. Their success indicates that crypto advocacy has matured rapidly, with outreach to key legislators now focusing on specific policy issues rather than generic blockchain education.
When the Biden administration introduced the rule, the Blockchain Association pledged to take “aggressive action.” They indeed delivered on that promise.
After filing a lawsuit four months ago, the Association now celebrates the repeal of this rule that threatened the U.S. crypto industry.
Significance of the Victory
Importantly, despite opposition from some influential Democrats who argued that the resolution could foster tax evasion, this victory was still achieved.
Massachusetts Democrat Representative Richard Neal warned that this move could lead to a $4 billion loss in government revenue. This revenue is estimated to stem from unreported capital gains, and with crypto advocates pushing for further regulatory relaxation, this will remain a point of contention.
Global Positioning
The signing of this resolution has significantly altered the United States’ position in the global competition for crypto dominance.
It is a stark contrast. Just a few months ago, due to regulatory uncertainty, crypto companies were abandoning the U.S. market.
Coinbase was preparing contingency plans to move overseas. Now, the Trump 2.0 administration’s commitment to position the U.S. as the “Crypto Capital of the World” seems to be taking effect.
As global investment in DeFi surges—currently about $90 billion locked in protocols according to DefiLlama—countries that create friendly regulatory environments will reap enormous economic benefits: high-skilled job opportunities, tax revenues from legitimate operations, and technological leadership.
A Strong Signal
The resolution also sends a strong signal to regions and countries like Hong Kong, the UAE, and Japan, which position themselves as crypto-friendly alternatives.
For global crypto entrepreneurs and investors, Thursday’s signing conveys a clear message: the U.S. is open for business.
The Way Forward
The resolution raises reasonable questions about balancing innovation with tax compliance.
Critics, such as Texas Democrat Representative Lloyd Doggett, argue that repealing the rule will create exploitable loopholes for wealthy investors.
This concern is not without merit.
The decentralized nature of DeFi protocols means transactions occur without traditional intermediaries keeping records. While the blockchain itself is transparent, linking wallet addresses to taxpayers remains challenging. Without some reporting mechanism, tax compliance largely relies on voluntary disclosure.
Some policy experts propose a compromise—establishing an optional compliance framework that trades off some disclosure for regulatory clarity. This “safe harbor” approach would allow DeFi protocols to operate legally while gradually introducing appropriate safeguards.
Our Perspective
Trump’s signing of this resolution is a groundbreaking advancement in addressing the core contradiction of crypto regulation that has plagued the industry from day one: the clash between an industrial-era regulatory framework and a digital-native financial system.
This victory indicates that Washington has finally recognized that forcing decentralized systems to conform to centralized regulatory frameworks is untenable. Innovation needs appropriate guardrails, not repurposed barriers.
This moment reveals a deeper layer of the U.S. regulatory philosophy. For decades, U.S. financial regulation has followed a pattern: innovation occurs, problems emerge, and regulation responds. The DeFi broker rule attempted to preemptively regulate before understanding the natural evolution of technology. Its failure indicates that the U.S. is returning to its traditional strength—allowing innovation to flourish while addressing specific issues as they arise.
Celebration should remain pragmatic. The crypto industry faces a critical test of credibility. Having gained regulatory breathing room, it now must deliver tangible benefits that extend beyond trader profits. Can DeFi significantly improve financial accessibility? Will it lower the cost of everyday transactions? Can it create more efficient markets that benefit a broader economy?
The bipartisan nature of this victory is both an opportunity and a warning. While crypto has today transcended party lines, its support will still depend on demonstrating real-world utility. If the industry cannot move beyond speculation and address real issues, today’s allies may become tomorrow’s critics.
For global competitors who believe the U.S. has given up its leadership in digital asset innovation, this reversal serves as a wake-up call. The U.S. possesses unparalleled capital markets, technical talent, and regulatory flexibility—when these factors align, they create a powerful competitive advantage.
The road ahead remains challenging. The SEC’s regulation of tokens, the Commodity Futures Trading Commission’s jurisdiction over derivatives, and banks’ concerns about stablecoins—these issues remain unresolved. Yet this resolution indicates that, in an environment where broad ideological arguments often fall flat, focused advocacy on specific technical issues can succeed.
The window for innovation has opened. Now, the industry needs to work with regulators to establish a framework that both protects consumers and fosters genuine innovation. Thursday’s signing indicates that both sides may be ready for this dialogue for the first time.
