The Historical Necessity of New DeFi Tax Regulations and Industry Response

Recently, the U.S. Department of the Treasury and the IRS issued a new regulation that includes DeFi front-end service providers in the definition of "broker." This regulation requires relevant platforms to start collecting user transaction data from 2026 and to submit 1099 forms containing user earnings, transaction details, and identity information to the IRS starting in 2027.

Trump's changing attitude towards cryptocurrency reflects the complex position of this field within the American political system. From initially labeling Bitcoin as a "scam" to later getting involved in NFT projects and proposing the inclusion of Bitcoin in the national strategic reserve, his actions demonstrate the intertwining of personal interests and industry development.

Although there is still time before the new regulations are implemented and the definition of "broker" is controversial and may face revisions, it is necessary for us to discuss the historical context of this policy's introduction and the industry's response strategies.

From Traditional Colonialism to New Financial Colonialism

Traditional colonial resource logic

Traditional colonialism mainly achieved resource plunder through military power and territorial occupation. For example, Britain used the East India Company to control India's cotton and tea resources, while Spain extracted gold from Latin America. These are typical cases of directly seizing resources to achieve wealth transfer.

Modern Model of Financial Colonization

Modern colonialism is centered around economic rules, achieving wealth transfer through capital flow and tax control. The U.S. Foreign Account Tax Compliance Act (FATCA) is an important manifestation of this logic, requiring global financial institutions to disclose asset information of U.S. citizens. The new DeFi tax regulations are a continuation of this model in the digital asset space, aiming to leverage technological means and rules to enforce global capital transparency, increase U.S. tax revenue, and simultaneously strengthen control over the global economy.

America's New Colonial Tools

Tax Rules: From FATCA to Decentralized Finance New Regulations

FATCA set a precedent for the weaponization of taxes, and the new regulations on DeFi further extend this logic by requiring DeFi platforms to collect and report user transaction data, expanding the United States' control over the digital economy. This will allow the United States to obtain more accurate data on global capital flows, enhancing its control over the global economy.

The Combination of Technology and the US Dollar: The Dominance of Stablecoins

In a stablecoin market worth 200 billion USD, USD stablecoins account for over 95%, primarily backed by US Treasury bonds and USD reserves. USD stablecoins represented by USDT and USDC, through their application in the global payment system, not only consolidate the global position of the USD but also lock more international capital within the US financial system.

The Appeal of Financial Products: Bitcoin ETF and Trust Products

The Bitcoin ETF and trust products launched by Wall Street giants have attracted a large inflow of international capital into the US market. These financial products not only provide greater enforcement space for US tax rules but also further integrate global investors into the US economic ecosystem. The current market size is approximately $100 billion.

Real Asset Tokenization (RWA)

The tokenization of real assets has become an important trend in the field of Decentralized Finance. The scale of tokenization of US Treasury bonds has reached 4 billion USD. This model enhances the liquidity of traditional assets through blockchain technology, while creating new dominance for the US in the global capital markets, promoting the global circulation of Treasury bonds.

Economy and Finance: Deficit Pressure and Tax Equity

U.S. deficit crisis and tax loopholes

In the fiscal year 2023, the U.S. federal deficit approached $1.7 trillion, while the global market value of the cryptocurrency market once surpassed $3 trillion, largely remaining outside the tax system. This is unacceptable for modern states that rely on tax revenues for support. Historically, the U.S. has always sought to expand the tax base under deficit pressure, such as the hedge fund regulatory reforms of the 1980s.

Defending Financial Sovereignty and the US Dollar

The rise of DeFi and stablecoins challenges the dominance of the US dollar in the global payment system. While stablecoins are an extension of the dollar, they also bypass the control of the Federal Reserve and traditional banks. Through tax regulation, the US not only intends to gain fiscal benefits but also seeks to re-establish control over capital flows and defend the hegemonic position of the dollar.

Industry Perspective: Choices and Trade-offs for Practitioners

Assessment of the Importance of the U.S. Market

Practitioners of DeFi projects need to rationally assess the strategic value of the U.S. market for their business. If the primary trading volume and user base come from the U.S., an exit could lead to significant losses. Conversely, if the U.S. market share is not high, a complete exit becomes a viable option.

Three Major Response Strategies

1. Partial Compliance: A Compromise Path

   • Establish a subsidiary in the United States focused on meeting the compliance needs of American users.
   • Separate the protocol from the front end and reduce legal risks through community management.
   • Introduce KYC mechanism, reporting necessary information only for US users.

2. Complete Exit: Focus on Global Markets

   • Implement geographical blocking to restrict access for users in the United States.
   • Focus resources on markets that are more friendly to cryptocurrencies.

3. Complete Decentralization: Adherence to Technology and Philosophy

   • Abandon front-end services and shift to protocol autonomy.
   • Develop trustless compliance tools that technically circumvent regulation.

Deeper Thoughts: The Future Game of Regulation and Freedom

The evolution of the bill and long-term trends

In the short term, the industry may delay the implementation of regulations through lawsuits. But in the long run, the trend towards compliance is difficult to reverse. Regulation will drive the DeFi industry to become polarized: on one end are large platforms that are fully compliant, while on the other are small decentralized projects that choose to operate in secrecy.

The United States may also adjust its policies under global competitive pressure. If other countries adopt more lenient regulations, the U.S. may relax certain restrictions to attract innovators.

Philosophical Reflection on Freedom and Control

The core of DeFi is freedom, while the core of government is control. This game has no end. The future of the crypto industry may exist in the form of "compliant decentralization": where technological innovation coexists with regulatory compromise, and privacy protection alternates with transparency.

Conclusion

This bill is an inevitable result of the development of political, economic, and cultural logic in the United States. For the DeFi industry, it is both a challenge and an opportunity for transformation. At this historical juncture, how to balance compliance and innovation, protect freedom and bear responsibility is a question that every practitioner must face.

The future of the cryptocurrency industry depends not only on technological advancements but also on how it finds a balance between freedom and regulation. Industry participants need to think carefully and make informed decisions to adapt to this ever-changing regulatory environment.