The decentralized finance industry (DEFI) sighs a repair while the congress softens the reports of reporting, but questions remain on the way in which the legislators will regulate DEFI.
On March 12, the House of Representatives voted to cancel a rule that required the DEFI protocols to report the gross product of Crypto sales, as well as information on the taxpayers involved, to the Rété Service internal (IRS).
The rule, which the IRS issued in December 2024 and should not take effect before 2027, was considered by the main groups of industry lobbies as heavy and beyond the agency authority.
The White House has already reported its support for the bill. President Donald Trump is ready to sign when he reaches his office. But observers DEFI notes that industry has not yet found a balance between privacy and regulations.
Bipartisan votes on the repeal of the rule. Source: DEFI Education Fund
Confidentiality concerns about the IRS DEFI rule
The cryptography industry was quick to rent the vote in the House. MARTA BELCHER, president of the FILECOIN Foundation, said that blocking the rule was particularly important for user confidentiality.
She told Cointtelegraph that it is “essential to protect the ability of people to transform directly with each other via an open-source code (such as intelligent contracts and decentralized exchanges) while remaining anonymous, in the same way that people can transform directly by using money.”
Confidentiality problems were at the heart of the objections of the cryptographic industry to the rule, the industry observers claiming that it was not suitable for use and brought users’ privacy.
Bill Hughes, senior lawyer and director of global regulatory questions for consensys software wrote in December 2024: “Front trading should follow and report on user activity – American and non -American people (…) and this applies to the sale of each digital asset – including NFT and even stablecoins.”
The Blockchain Association, a large lobby group of cryptographic industry, said that the rule was “an offense to the rights to the confidentiality of individuals using decentralized technology” which would grow offshore.
Although the rule has been arrested for the moment, there is still no fixed directives in terms of confidentiality – something that the CEO of Etheréalize Vivek Raman said that the industry should go ahead.
“There must be clear executives for confidentiality based on blockchain while maintaining (knowing your customer / anti-silver-flashing needs),” he told Cointtelegraph.
Raman said that certain customer transactions and data will have to be private, “and we need advice on what confidentiality can look like.”
How do you register Defi?
Cryptographic space has long juggled on user privacy requests and regulators’ anti-whipping and knowing your concerns with your customers.
A problem lies in the technology itself – if a network is created by many and controlled by any entity, which can contact the government?
According to Raman, “it is difficult for a decentralized protocol which is controlled by anyone to issue 1099 or assume broker’s responsibilities! Companies can certainly be (brokers), but software has not been designed for the rules (broker). »»
DEFI developers can and have been proactive in work with regulators, suggested the chain channel, as was the case with certain funds freezing protocols after Kucoin’s disastrous hack of $ 285 million.
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The partner and consultant of Cinneamhain Ventures, Adam Cochran, said that each protocol had certain pressure points that regulators could support if a protocol was used to commit a crime:
Source: Adam Cochran
However, these specific cases do not make a complete regulatory framework that industry and investor protection agencies may indicate.
In this regard, the cabinet of the cryptographic analysis company said in 2020 that regulators may need to create regulations for the DEFI space with decentralized reporting limits.
Raman suggested that a possible solution could be evidence of zero knowledge, which allow users to confirm certain data without revealing them.
It is optimistic about the capacity of regulators to find a way to regulate space while maintaining the confidentiality of users: “I think we will see an environment of a positive amount where DEFI and compliance will coexist.”
The long -awaited cryptography regulation framework
Trump has already taken a number of pro-Crypto measures through decrees and appoint pro-Crypto individuals to direct parts of his administration-the most recent being the creation of a Bitcoin strategic reserve.
In relation: US rep. Byron Donalds to present Bill Codifying Trump’s Bitcoin reserve
The Pro-Crypto mandate of important financial regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have abandoned a certain number of cases of large-scale application against cryptographic companies.
Although notable, the great fish that cryptographic industry is waiting for is the regulatory framework of Crypto and the stablecoin invoices circulating at the Congress, which would give the industry the guards he claims that he must prosper.
On March 13, the Senate banking committee approved the law on engineering, the bill on stables, putting it a little closer to a vote on the Senate soil.
The Crypto framework bill, made 21, was presented for the first time during the 2024 legislative session, finally failing in the Senate. However, in February, the president of the Chamber of Financial Services Committee, French Hill, said that he provided that the bill could adopt this session with “modest changes”.
But even if Fit 21 was adopted soon, the regulations of DEFI could be distant. The bill would exclude DEFI from dry and CFTC surveillance, but it would also establish a working group to search for 12 key areas related to DEFI.
This study will seek to understand the risks and benefits of DEFI and ultimately will do regulatory recommendations.
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