The Historical Background and Industry Impact of New DeFi Tax Regulations

Recently, the U.S. Department of the Treasury and the IRS released a new regulation that expands the definition of "broker" to include front-end service providers of DeFi. This regulation requires relevant platforms to start collecting user transaction data from 2026 and to submit 1099 forms to the IRS starting in 2027, which must include total user earnings, transaction details, and taxpayer identification information.

Although the new regulations will not take effect for a while and the applicability of the definition of "broker" remains controversial, it is necessary for us to explore the historical background of this policy's introduction and its potential impact on the industry.

From Traditional Colonialism to New Financial Colonialism

Traditional Colonial Resource Logic

During the traditional colonial era, resource plunder was mainly achieved through military force and territorial possession. For example, Britain controlled cotton and tea in India through the East India Company, while Spain plundered gold from Latin America, directly possessing resources to achieve wealth transfer.

Modern Model of Financial Colonialism

Modern colonialism is centered around economic rules, achieving wealth transfer through capital flows and tax controls. The United States' Foreign Account Tax Compliance Act (FATCA) is an important embodiment of this logic, requiring global financial institutions to disclose the asset information of American citizens. The new tax rules for DeFi can be seen as a continuation of this model in the digital asset space, aiming to leverage technological means and regulations to enforce global capital transparency, increase tax revenue, and strengthen control over the global economy.

America's New Colonial Tool

Tax rules: From FATCA to Decentralized Finance new regulations

FATCA set a precedent for the weaponization of taxation, and the new tax rules for DeFi further expand the United States' control over the digital economy. By requiring DeFi platforms to collect and report user transaction data, the U.S. will gain more accurate information on global capital flows.

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

The application of the US dollar stablecoin in the global payment system not only consolidates the dollar's global position but also locks more international capital within the US financial system, becoming a new form of dollar hegemony in the digital economy era.

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 influx of international capital into the U.S. market, providing greater enforcement space for U.S. tax regulations and further incorporating global investors into the U.S. economic ecosystem.

Real Asset Tokenization (RWA)

Tokenization of real assets has become an important trend in the field of Decentralized Finance (DeFi), with the tokenization scale of U.S. Treasury bonds reaching $4 billion. This model enhances the liquidity of traditional assets through blockchain technology, while also creating new dominance for the U.S. in the global capital markets.

Economy and Finance: Deficit Pressure and Tax Equity

The US Deficit Crisis and Tax Loopholes

In the 2023 fiscal year, the U.S. federal deficit approached $1.7 trillion, while the global market value of cryptocurrencies once exceeded $3 trillion, yet most of it remains outside the tax system. This situation is intolerable for modern states that rely on tax revenues.

The Defense of Financial Sovereignty and the US Dollar

The rise of DeFi and stablecoins challenges the dominance of the US dollar in the global payment system. 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 hegemony of the dollar.

Industry Perspective: Choices and Trade-offs for Practitioners

Assessment of the Importance of the US Market

Practitioners of DeFi projects need to rationally assess the strategic value of the U.S. market for their business and weigh the potential losses that may arise from exiting the U.S. market.

Three Major Response Strategies

1. Partial compliance: Establish a subsidiary in the United States, separate the agreement from the front end, and introduce KYC mechanisms.
2. Complete exit: Implement geographical blocking, focusing on markets in Asia-Pacific, the Middle East, and Europe.
3. Completely Decentralized: Abandon front-end services and develop trustless compliance tools.

Deeper Thoughts: The Future Game of Regulation and Freedom

The evolution of the legislation and long-term trends

In the short term, the industry may delay the implementation of rules through litigation. In the long term, the trend towards compliance is difficult to reverse, which may lead to a polarization in the DeFi industry: large platforms that are fully compliant and small decentralized projects that choose to operate covertly.

Reflection on the Philosophy of Freedom and Control

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

Conclusion

The new tax regulations for DeFi reflect the inevitable result of the development of political, economic, and cultural logic in the United States. For the DeFi industry, this is both a challenge and an opportunity for transformation. Industry practitioners need to find a balance between compliance and innovation, freedom and responsibility. The future of the crypto industry depends not only on technological advancements but also on how to position itself between freedom and rules.