The House overturns the "Defi Broker Rule," how many obstacles are left on the road to crypto regulation?

Author: Bright, Foresight News

On March 11, local time in the United States, the House of Representatives passed a resolution by a vote of 292 to 132 to overturn the IRS's broker rules for DeFi entities, which required decentralized finance (DeFi) platforms to collect user tax and transaction information. Previously, on March 4, 70 senators had voted in favor of repealing the regulation, but due to budget rules, the Senate still needs to vote again. If the Senate passes it again and it is signed by President Donald Trump, the rule will be permanently prohibited from being reintroduced.

Abolishing the "DeFi Broker Rule": The Struggle Between Regulation and Decentralization Vision

Since the IRS issued Notice 2014-21 in 2014, officially defining cryptocurrency as property rather than currency and establishing a corresponding tax treatment framework, the struggle between decentralization and regulation has never ceased. The signing of the Infrastructure Investment and Jobs Act (IIJA) in 2021 further required all transactions involving crypto assets to be reported and introduced Form 8300, expanding the reporting scope of crypto asset transactions to include Form 1099, making tax regulation of crypto asset transactions increasingly stringent. Form 1099 not only requires brokers to detail the date and type of transactions (such as buying, selling, exchanging, etc.) but also to accurately report transaction amounts, covering total gains and potential gains, losses, and cost basis information. Crucially, brokers must provide comprehensive information about investors, including names, addresses, social security numbers, and extend to specific types, quantities, and fair market values of digital assets.

Starting January 1, 2025, the IRS will officially implement the broker reporting requirements for digital asset sales and transactions (i.e., the "DeFi Broker Rule"), which includes core content such as anti-money laundering (AML), user identity verification (KYC), smart contract audits, fund security, and transparency requirements. This legislation marks an unprecedentedly strict phase of tax regulation for crypto assets in the United States.

Although according to TaXDAO's interpretation, this rule has certain positive effects on anti-money laundering, anti-terrorism, and anti-tax evasion, this move has already drawn widespread criticism from the crypto industry. The digital asset think tank Coin Center was the first to express that the proposal is "technically unfeasible." Decentralized platforms fundamentally differ from traditional financial institutions; they do not hold funds or store customer data like traditional institutions. Industry analysts believe that the "DeFi Broker Rule" adopts the management mindset of TradFi, ignoring the core innovations of DeFi's decentralization and anonymity, and imposes severe compliance management pressure on corresponding crypto institutions, significantly increasing operational costs.

On February 20, 2025, the Blockchain Association, along with 75 participants from the cryptocurrency industry, signed an open letter calling on the U.S. Congress to repeal the IRS's DeFi Broker Rule, with participants including well-known crypto companies such as Coinbase, Kraken, and Uniswap Labs. The letter pointed out that the "DeFi Broker Rule," finalized at the end of the Biden administration, is a manifestation of "overregulation," fundamentally misunderstanding the technology it attempts to regulate and ignoring the intentions of Congress.

Michele Korver, head of regulatory affairs at a16z Crypto, also tweeted on X that the new broker reporting rules issued by the U.S. Treasury pose a direct threat to the development vision of DeFi and may hinder the future of DeFi innovation in the U.S.

Undeniably, since Trump took office, although the market has shown a negative attitude towards the realization of expectations, cryptocurrency regulatory policies have indeed made substantial breakthroughs. On March 4, 2025, the "Crypto Tsar," current White House AI and cryptocurrency director David Sacks, posted on X, stating, "The White House is pleased to announce support for the Congressional Review Act (CRA) proposed by Senator Ted Cruz and Congressman Mike Carey to repeal the so-called 'DeFi Broker Rule'—this is an attack on the crypto community by the Biden administration at the last moment."

Post-Bill Era: Three Major Potential Regulatory Variables Emerge

Now, while the House's overturning resolution has lifted the shackles on DeFi, the regulatory game in the crypto industry is far from over. Based on legislative dynamics and policy frameworks, three major potential regulatory directions may become the focus of the next phase:

1. Accelerated Implementation of Stablecoin Legislation. The Trump administration has clearly listed stablecoins as "payment infrastructure," and the Senate's "GENIUS Act" and the House's "Stablecoin Act" are being advanced simultaneously, aiming to establish a federal unified licensing system that requires issuers to maintain 100% reserves and undergo bank-level audits. This means that the issuance thresholds for dollar stablecoins like USDC and BUSD will be significantly raised, while algorithmic stablecoins may be directly included under securities regulation. The Blockchain Association analysis indicates that if stablecoin legislation is passed, the U.S. could become the first major economy with systematic stablecoin rules, but it may also force small and medium issuers out of the market.

2. Intensified Jurisdictional Dispute Between SEC and CFTC. Although the "DeFi Broker Rule" has been overturned, the SEC continues to strengthen its recognition of tokens as securities through the "Howey Test." Recently, the termination of the Uniswap Labs investigation released subtle signals—when a protocol achieves a high degree of decentralization (such as having no centralized team control), the SEC tends to classify it as a "commodity," while otherwise it is viewed as "unregistered securities." This logic of "the degree of technical decentralization determines regulatory jurisdiction" encourages project parties to accelerate their de-licensing transformation. Meanwhile, the CFTC is vying for spot exchange regulatory authority based on the Digital Commodity Consumer Protection Act, and platforms like Coinbase have applied for dual licenses, with compliance costs rising by 37% year-on-year.

3. On-Chain Taxation and Anti-Money Laundering Regulation Shifts to "Technical Tracking." Although the IRS has lost the authority for mandatory DeFi reporting, it has joined FinCEN to expand the use of on-chain analysis tools. Data from Q1 2025 shows that it tracked $1.2 billion in crypto crime funds through platforms like Arkham and Elliptic, a 210% increase compared to the same period last year. Notably, while prohibiting CBDCs, the Trump executive order requires the Treasury to study technical solutions for "Bitcoin reserves and tax transparency," not ruling out future pilot programs for automatically withholding capital gains tax through smart contracts. This trend of "regulatory technology replacing rule enforcement" forces exchanges and wallet service providers to upgrade their KYT (Know Your Trade) systems.

As the struggle over the "DeFi Broker Rule" is about to come to an end, the compliance resources of crypto institutions are beginning to shift towards stablecoin registration, token attribute audits, and on-chain risk control systems. For example, Coinbase's chief compliance officer revealed that the company has formed a 300-person team dedicated to stablecoin license applications while collaborating with AWS to develop a "decentralization degree certification" tool.

Meanwhile, after the termination of the investigation, Uniswap Labs announced that it would lower the community proposal threshold for governance token UNI from 10,000 to 5,000 to accelerate the decentralization process. These actions confirm the industry consensus: U.S. regulation is shifting from "one-size-fits-all" to "technology feature matching regulation," and finding a technical fulcrum between innovation and compliance will be key to the next phase of competition. Perhaps this will also become a new point of explosion after the market's deflation.