After Trump entered the White House, favorable policies for the crypto market have been frequently reported. On March 4, local time in the United States, the Senate passed a bill to repeal the DeFi Broker Rule by 70 votes to 27. David Sacks, director of AI and cryptocurrency at the White House, posted on the social platform that The White House is pleased to announce its support for the Congressional Review Act (CRA) proposed by Senator Ted Cruz and Congressman Mike Carey to revoke the so-called DeFi Broker Rule - a last-minute attack on the crypto community by the Biden administration.
However, the resolution still needs to be passed by the House of Representatives before President Trump can sign it into law. Once completed, not only will the rule be completely repealed, but the IRS will also be prohibited from implementing similar policies in the future. The White House said the president may sign the resolution quickly.
The Blockchain Association, which represents prominent cryptocurrency companies such as Coinbase, Kraken and Uniswap Labs, supports the repeal of the rule, saying it will avoid imposing unnecessary restrictions on DeFi innovation. The DeFi Education Fund called the Senate vote the first of many historic milestones for digital asset regulation in the United States.
Why revoke the DeFi Broker Rules?
The DeFi Broker Rules are a regulatory framework for decentralized finance (DeFi) intermediary service providers (such as trading platforms, lending protocols, etc.) that will be implemented on January 1, 2025, aiming to ensure compliance, user protection and risk management. The core content includes anti-money laundering (AML), user identity verification (KYC), smart contract audits, fund security and transparency requirements. According to TaxDAOs professional interpretation, this rule has a certain positive effect on anti-money laundering, anti-terrorism and anti-tax evasion.
In fact, the DeFi broker rules have caused considerable controversy in the industry before they were implemented. Since decentralized platforms do not hold funds or save customer data like traditional financial institutions, many critics believe that the rules are impractical and a form of over-regulation. Digital asset think tank Coin Center called the proposal technically unfeasible.
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The main reason is that the DeFi broker rules attempt to regulate DeFi using the TradFi approach, fail to conform to the development logic and characteristics of Crypto, ignore the decentralization and anonymity of DeFi, and fundamentally misunderstand the technology it is trying to regulate. The DeFi broker rules put forward higher requirements for compliance management, requiring practitioners to strictly fulfill their tax reporting obligations and enforce the KYC mechanism. Taking the 1099-DA form filling specification as an example, the regulation clearly requires brokers to submit investor digital wallet addresses and transaction volumes. This regulatory measure will substantially change the existing trading model: on the one hand, the KYC mechanism will lose the anonymity of DeFi, resulting in a significant reduction in the level of privacy protection; on the other hand, the collection, processing and reporting process of user data will greatly increase operating costs and compliance pressure.
This kind of TradFi regulation may have a more far-reaching impact on the development of DeFi: first, the increase in manual review links will interfere with the automated execution process of smart contracts and affect the operating efficiency of the decentralized governance mechanism; second, the obligation to disclose information is fundamentally in conflict with the core concept of the DeFi ecosystem. If regulation continues to strengthen transparency requirements and weaken anonymity, it will not only change the transaction behavior patterns of user groups, but it is also likely to severely restrict the market competitiveness and innovation vitality of the distributed financial system.
Senator Ted Cruz, the initiator of the DeFi broker rule revocation, said in a Senate speech before the vote: DeFi is a microcosm of the cryptocurrency revolution. He called the rule an incoherent federal overreach. He believes that rules that treat software developers as brokers (and force them to disclose user data and personal information) are meaningless, Their software never holds or controls user funds.
Michele Korver, head of regulation at a16z Crypto, also wrote that the new broker reporting rules released by the U.S. Treasury yesterday pose a direct threat to the development vision of DeFi and may hinder the future of DeFi innovation in the U.S. For this reason, a16z Crypto supports the Blockchain Association, DeFi Education Fund, and Texas Blockchain Council in filing a lawsuit, accusing the U.S. Internal Revenue Service and the Treasury Department of exceeding their statutory authority, violating the Administrative Procedure Act (APA), and even unconstitutional.
DeFi is the first to be affected by the crypto deregulation under Trump
The proposal was passed with an overwhelming victory of 70 votes to 27, indicating that not only Republicans but also many Democrats support the development of Crypto. A similar situation also occurred in the vote to repeal the SECs cryptocurrency accounting rules in the previous Congress, showing that the two parties support for the development of Crypto continues to increase, continuing the trend of cooperation in cryptocurrency legislation, which may bring benefits to this years stablecoin legislation and other crypto bills.
With Trump in office again, the most cryptocurrency-supportive U.S. Congress in history was born. Although the Presidential Coin, Lady Coin, and the recent market trends after Trump reiterated the strategic reserve of cryptocurrency have disappointed many people, it is undeniable that the policy shift is indeed beneficial to the crypto market. On January 23, 2025, the third day after returning to the White House, Trump signed an executive order to establish a cryptocurrency working group, whose tasks include proposing new digital asset regulatory recommendations and exploring the establishment of a national cryptocurrency reserve. The order explicitly prohibits the creation of a central bank digital currency (CBDC) in the United States to prevent government-issued digital currencies from competing with existing cryptocurrencies.
As the core component of the crypto world, DeFi was the first target of pressure and jurisdiction from regulators such as the SEC in the early years. However, recently, favorable regulatory signals have emerged in the DeFi field, and it is not difficult to see that the attitude of regulators has indeed changed. From the SECs announcement to withdraw the Kraken lawsuit; the closure of the investigation into Gemini; the termination of the three-year investigation into Uniswap Labs without taking any enforcement action; the two market maker giants Wintermute and Citadel Securities began to enter the US market; Tornado Cash founder Alexey Pertsev was temporarily released...
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In addition, the SEC revoked the accounting guidance that required listed companies to record third-party crypto assets as both assets and liabilities, and announced the establishment of a crypto task force to develop a comprehensive and clear regulatory framework. It also stated that it would reduce crypto enforcement efforts and reallocate more than 50 full-time lawyers and staff to reduce industry regulatory pressure. In addition, last month the SEC confirmed the crypto ETF applications filed by several traditional US giants, and centrally withdrew lawsuits and investigations against cryptocurrency projects such as Coinbase, Robinhood, and Uniswap. These measures indicate that the SECs attitude towards crypto assets is shifting from strong regulation to friendly.
In the future, under the loosening of regulatory policies represented by the revocation of the DeFi Broker Rules, the crypto market may not only usher in good news. In a loose regulatory environment, how to combat illegal activities such as money laundering, how to ensure tax fairness and market order? In the context of the rapid development of the crypto industry, how to find a balance between encouraging innovation and strengthening supervision? How will this crypto president fulfill his promise to make the United States the worlds crypto capital? All of this still needs to be answered through the continuous exploration and running-in of the crypto market and regulatory policies.
