U.S. President Trump signed a resolution last Thursday to abolish the controversial IRS DeFi broker rule, marking his first crypto victory. This is also the first crypto-related bill signed by a U.S. president. After years of regulatory uncertainty, the crypto industry finally has concrete evidence that Washington is listening.
The resolution passed with impressive bipartisan support, with the Senate voting 70-28 and the House voting 292-132, indicating that cryptocurrencies may have finally transcended political divisions.
This reversal is not just about canceling 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 will help you understand the origins of the DeFi broker rule, the significance of its abolition, and more critically, how it will lay the groundwork for a new crypto regulatory approach under the Trump 2.0 government.
Biden's Farewell '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 - a final blow to crypto innovation before the government transition.
The rule expanded the definition of "broker" in the 2021 Infrastructure Act, incorporating DeFi platforms and requiring them to issue 1099 forms to users and report transaction details to the IRS, originally set to take effect on January 1, 2027.
This shocked industry experts and prompted them to fight back.
Why? Seven words: technically impossible to comply.
The Biden administration specifically targeted "front-end service providers". Think MetaMask or Uniswap websites, used by millions to exchange tokens - these intuitive interfaces allow ordinary users to access decentralized protocols.
According to the rule, these front-ends need to collect names, addresses, phone numbers, and transaction details - which they simply cannot obtain in a truly decentralized ecosystem.
When faced with this contradictory criticism, the IRS responded with a dismissive statement:
"Persons with technical expertise engaged in trade or business related to financial services should comply with the same rules as those operating financial service businesses."
This exposed a profound misunderstanding of how decentralized systems operate. Industry leaders described it as an "irreconcilable contradiction" - requiring entities to collect information they fundamentally cannot access.
This means platforms would either have to rebuild protocols to collect information that violates user privacy and core decentralization principles, or completely exit the U.S. market.
The Biden Treasury's last-minute expansion of the rule to DeFi was seen as an administrative overreach without congressional approval.
Trump's AI and crypto affairs lead, David Sacks, bluntly called it a "midnight regulation", stating it would "stifle U.S. innovation, raise privacy concerns, and impose unprecedented compliance burdens on U.S. DeFi companies."
Turning Point
The abolition of this rule is far more significant than a minor tax policy adjustment.
Under the Congressional Review Act used to repeal the rule, the IRS cannot issue "substantially similar" regulations without new congressional authorization. This not only paused the rule but created breathing space for developers and entrepreneurs to develop with more confidence.
The resolution's passage indicates that the crypto industry's long-pursued goal of gaining significant political capital in Washington has finally been realized.
Want to hear more good news? This might just be the beginning. Treasury Secretary Scott Bessent recently stated at the White House Digital Assets Summit plans to "rescind and modify" related crypto tax rules.
Bipartisan and Industry Support
The most important characteristic of this reversal is its bipartisan victory nature.
When Republicans and dozens of Democrats voted together to overturn a Democratic government rule, it revealed the changing political significance of cryptocurrencies and the need for financial technology innovation to have growth space.
This marks a significant shift from the SEC era under Gary Gensler, when Democratic leadership largely supported aggressive enforcement actions against crypto companies.
Even Senate Minority Leader Chuck Schumer broke with party leadership to support the measure, a political consideration that fully illustrates the growing electoral importance of cryptocurrencies.
Industry groups that were once difficult to recognize have now become influential voices.
The Blockchain Association and DeFi Education Fund led an active lobbying effort, successfully reversing the Democratic vote and ultimately obtaining a majority sufficient to override a veto. Their success demonstrates that crypto advocacy has rapidly matured, with highly sophisticated outreach to key legislators focusing on specific policy issues rather than broad blockchain education.
When the Biden administration introduced the rule, the Blockchain Association promised to take "radical action". They indeed fulfilled their promise.
Four months after filing a lawsuit, the association now celebrates the abolition of this rule that threatened to end the US crypto industry.
Importantly, this victory was achieved despite opposition from some influential Democrats who believed the resolution could encourage tax evasion.
Massachusetts Democratic Representative Richard Neal had warned that this could lead to $4 billion in lost government tax revenue. This income is estimated to potentially come from unreported capital gains, which will remain a point of contention as crypto advocates push for further regulatory relaxation.
Global Positioning
The resolution's signing dramatically changed the United States' position in the global crypto dominance competition.
The contrast is stark. Just months ago, crypto companies were abandoning the US market due to regulatory uncertainty.
Coinbase had prepared contingency plans to move overseas. Now, the campaign promise of a Trump 2.0 government positioning the US as the "world's crypto capital" seems to be taking effect.
As global investment in DeFi surges - with approximately $9 billion currently locked in protocols according to defillama - countries creating crypto-friendly regulatory environments will gain significant economic benefits: high-skill employment opportunities, tax revenues from legal operations, and technological leadership.
The resolution also sent a powerful signal to regions and countries like Hong Kong, the UAE, and Japan positioned as crypto-friendly alternatives.
For global crypto entrepreneurs and investors, Thursday's signing delivered a clear message: the US is open for business.
Path of Balance
The resolution raised legitimate questions about balancing innovation with tax compliance.
Critics, like Texas Democratic Representative Lloyd Doggett, argue that repealing the rule will create exploitable loopholes for wealthy investors.
These concerns are not entirely unfounded.
The decentralized nature of DeFi protocols means transactions occur without traditional intermediary records. While the blockchain itself is transparent, linking wallet addresses to taxpayers remains challenging. Without some reporting mechanism, tax compliance largely depends on voluntary disclosure.
Some policy experts have proposed compromise solutions - establishing optional compliance frameworks that exchange certain disclosures 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 breakthrough in addressing the core contradiction of crypto regulation that has troubled the industry from day one: the collision between industrial-era regulatory frameworks and digital-native financial systems.
This victory demonstrates that Washington finally acknowledges that forcing decentralized systems to adapt to centralized regulatory frameworks doesn't work. Innovation needs appropriate guardrails, not retrofitted barriers.
This moment reveals deeper aspects of US regulatory philosophy. For decades, US financial regulation has followed a pattern: innovation occurs, problems emerge, regulation responds. The DeFi broker rule attempted pre-emptive regulation before understanding technology's natural evolution. Its failure indicates the US 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 credibility test. After gaining regulatory breathing room, it must now provide tangible benefits beyond trader profits. Can DeFi significantly improve financial accessibility? Will it reduce daily transaction costs? Can it create more efficient markets benefiting broader economic participation?
The bipartisan nature of this victory is both an opportunity and a warning. While crypto has today transcended partisan lines, its support depends on demonstrating real-world utility. If the industry cannot move beyond speculation and solve actual problems, today's allies might become tomorrow's critics.
For global competitors who thought the US had abandoned digital asset innovation leadership, this reversal is a wake-up call. The US possesses unparalleled capital markets, technological talent, and regulatory flexibility - when these factors align, they create powerful competitive advantages.
Challenges remain ahead. SEC token regulation, CFTC jurisdiction over derivatives, bank concerns about stablecoins - these issues remain unresolved. But this resolution shows that focused, well-organized advocacy targeting specific technical issues can succeed where broad ideological arguments often fail.
The innovation window has opened. Now, the industry needs to collaborate with regulators to establish frameworks that both protect consumers and drive genuine innovation. Thursday's signing suggests both sides might finally be prepared for such a dialogue.
