How will Trumps reversal of IRS rules affect the crypto industry?

اصل مضمون بذریعہ: ٹوکن Dispatch, Prathik Desai

اصل ترجمہ: بلاک یونیکورن

U.S. President Donald Trump scored his first کرپٹوcurrency victory on Thursday when he signed a resolution repealing the IRSs controversial decentralized finance (DeFi) broker rules. This is also the first crypto-related bill signed by a president in U.S. history. After years of regulatory uncertainty, the crypto industry finally has solid evidence that Washington is listening.

The resolution passed with impressive bipartisan support, 70 to 28 in the Senate and 292 to 132 in the House, suggesting that cryptocurrency may have finally transcended political divides.

The reversal does more than just remove a problematic tax rule; it could be a prelude to determining how the decentralized finance ecosystem evolves in the world’s largest economy.

In this article, we’ll walk you through the origins of the DeFi broker rule, the significance of its repeal, and, more critically, how it will lay the foundation for a whole new approach to crypto regulation under a Trump 2.0 administration.

Bidens parting gift

On December 27, 2024, the Biden administration finalized a controversial IRS rule in its final weeks requiring “DeFi brokers” to collect and report user transaction information—the last crackdown on crypto innovation before the change of government.

The rule, which expanded the definition of “broker” in the 2021 Infrastructure Act to include DeFi platforms, requires them to issue 1099 forms to users and report transaction details to the IRS, and was originally scheduled to take effect on January 1, 2027.

This shocked industry experts and prompted them to fight back.

Why? Seven words: It’s technically impossible to comply.

The Biden administration has specifically targeted “front-end service providers.” Think of MetaMask or Uniswap, websites used by millions of users to exchange tokens—intuitive interfaces that make decentralized protocols accessible to ordinary users.

Under the rule, these front ends would be required to collect names, addresses, phone numbers, and transaction details — information they would not have access to in a truly decentralized ecosystem.

When faced with criticism for this contradiction, the IRS responded with a perfunctory statement:

Persons with technical expertise who carry on a trade or business related to financial services should be subject to the same rules as other persons carrying on a financial services business.

This exposed a profound misunderstanding of how decentralized systems work. Industry leaders described it as an “irreconcilable contradiction” — requiring entities to collect information they have no access to.

This means that platforms will either have to rebuild their protocols to collect information that goes against core principles of user privacy and decentralization, or exit the U.S. market entirely.

The Biden Treasury Department’s last-minute rule extension to DeFi was seen as executive overreach without congressional approval.

David Sacks, Trump’s AI and crypto czar, bluntly called it “midnight regulation,” saying it “will stifle American innovation, raise privacy concerns, and impose unprecedented compliance burdens on American DeFi companies.”

Transition

Repealing the rule itself would be far more significant than just a minor tinkering with tax policy.

Under the Congressional Review Act, which Congress used to repeal the rule, the IRS cannot issue “substantially similar” regulations without new congressional authorization. This does more than just suspend the rule, but creates a breathing space for developers and entrepreneurs who can now proceed with development with greater confidence.

The passage of the resolution represents a realization of a goal the crypto industry has pursued for years: gaining significant political capital in Washington.

Want more good news? This may just be the beginning. Treasury Secretary Scott Bessent said at the recent White House Digital Asset Summit that he plans to “revoke and modify” relevant crypto tax rules.

Cross-party and industry support

The most important feature of this reversal is the bipartisan nature of its victory.

When Republicans joined dozens of Democrats in voting to overturn the Democratic administration’s rules, it revealed a shift in the political importance of cryptocurrency and that financial technology innovation deserves room to grow.

This marks a significant shift from the days of the SEC under Gary Gensler, when Democratic leadership largely supported aggressive enforcement actions against crypto companies.

Even Senate Minority Leader Chuck Schumer broke with his party’s leadership to support the measure, a political calculus that speaks volumes about the growing importance of cryptocurrency in elections.

Industry groups that once struggled to gain recognition are now influential voices.

The Blockchain Association and the DeFi Education Fund led an aggressive lobbying effort that successfully flipped the Democratic vote to a majority sufficient to override a veto. Their success shows how cryptocurrency advocacy has quickly matured, with outreach efforts to key lawmakers focused on specific policy issues rather than general blockchain education.

When the Biden administration introduced the rule, the Blockchain Association promised to take “aggressive action.” They did exactly that.

Four months after filing the lawsuit, the association is now celebrating the repeal of the rule that threatened to end the U.S. crypto industry.

Importantly, the victory came despite opposition from some influential Democrats who argued that the resolution could encourage tax evasion.

Representative Richard Neal, a Massachusetts Democrat, has warned that the move could cost the government $4 billion in tax revenue, an amount estimated to come from unreported capital gains, which will remain a point of contention as crypto advocates push for further deregulation.

Global Positioning

The signing of this resolution significantly changes the United States position in the competition for global encryption dominance.

The contrast is stark. Just a few months ago, crypto companies were abandoning the U.S. market due to regulatory uncertainty.

Coinbase had prepared a contingency plan to move overseas. Now, the Trump 2.0 administration’s campaign promise to position the United States as the “crypto capital of the world” appears to be taking effect.

As global investment in DeFi surges — about $90 billion is currently locked in the protocol, according to DefiLlama — countries that create a friendly regulatory environment will reap huge economic benefits: high-skilled jobs, tax revenue from legal operations, and technological leadership.

The resolution also sends a strong signal to regions and countries such as Hong Kong, the UAE, and Japan that are positioning themselves as crypto-friendly alternatives.

For crypto entrepreneurs and investors around the world, Thursday’s signing sent a clear message: America is open for business.

The Balance

The resolution raises legitimate questions about the balance between innovation and tax compliance.

Critics, such as Rep. Lloyd Doggett, D-Texas, argue that repealing the rule would create loopholes that wealthy investors could exploit.

This concern is not entirely unfounded.

The decentralized nature of DeFi protocols means that transactions take place without the record keeping of traditional intermediaries. While the blockchain itself is transparent, it remains challenging to link wallet addresses to taxpayers. Without some kind of reporting mechanism, tax compliance relies heavily on voluntary disclosure.

Some policy experts have proposed a compromise – creating an optional compliance framework that trades certain disclosures for regulatory clarity. This safe harbor approach would allow DeFi protocols to operate legally while gradually introducing appropriate safeguards.

Our View

Trump’s signing of the resolution is a breakthrough in resolving the core contradiction in crypto regulation that has plagued the industry since day one: the collision of industrial-age regulatory frameworks and digitally native financial systems.

This victory shows that Washington has finally acknowledged that forcing decentralized systems to fit into centralized regulatory frameworks doesn’t work. Innovation requires proper guardrails, not retrofit barriers.

This moment reveals something deeper about 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 attempts to pre-regulate before understanding the natural evolution of technology. Its failure suggests that the U.S. is returning to its traditional strengths – allowing innovation to flourish while addressing specific problems as they arise.

Celebration should be pragmatic. The crypto industry faces a critical credibility test. Having been granted regulatory breathing space, it must now deliver tangible benefits beyond trader profits. Can DeFi significantly improve financial access? Will it reduce the cost of everyday transactions? Can it create more efficient markets that benefit the broader economy?

The bipartisan nature of this victory is both an opportunity and a warning. While crypto transcends party lines today, its support still depends on demonstrating real-world practicality. If the industry fails to move beyond speculation and solve real problems, today’s allies may become tomorrow’s critics.

The reversal is a wake-up call for global competitors who believe the United States has ceded leadership in digital asset innovation. The United States has unparalleled capital markets, technical talent, and regulatory flexibility—factors that, when combined, create a powerful competitive advantage.

There are still challenges ahead. SEC regulation of tokens, CFTC jurisdiction over derivatives, banks’ concerns about stablecoins — these issues remain unresolved. But the resolution shows that well-organized advocacy focused on specific technical issues can succeed where broad ideological arguments often fail.

The window for innovation has opened. Now industry needs to work with regulators to create a framework that both protects consumers and drives real innovation. Thursday’s signing suggests that, perhaps for the first time, both sides are ready to have such a conversation.

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