New Tax Regulations for DeFi: Reflections and Industry Decisions Behind America's New Financial Colonialism

The U.S. Department of the Treasury and the IRS recently issued an important new regulation that includes front-end service providers of DeFi in the definition of "broker." This means that starting in 2026, platforms that directly interact with users, including certain DEX front-end interfaces, will need to collect users' trading data and submit relevant information to the IRS starting in 2027.

Trump's changing attitude towards cryptocurrency has attracted attention. From earlier criticizing Bitcoin as a "scam" to later participating in NFT projects, launching DeFi projects, and even proposing to include Bitcoin in the national strategic reserves, these actions reflect the complex position of the crypto industry within the U.S. political system.

Although there is still some time before the new regulations take effect, and there are controversies regarding the definition of "broker", which may face challenges, it is necessary for us to explore the historical inevitability of the introduction of the new regulations and the strategic choices of industry practitioners.

The Evolution from Traditional Colonialism to New Financial Colonialism

Traditional colonial resource logic

Traditional colonialism primarily achieved resource plunder through military power and territorial possession. For example, Britain controlled cotton and tea in India through the East India Company, and Spain plundered gold from Latin America; both are typical cases of directly possessing resources to realize wealth transfer.

Modern Model of Financial Colonization

Modern colonialism is centered on economic rules, achieving wealth transfer through capital flow and tax control. The U.S. Foreign Account Tax Compliance Act (FATCA) requires global financial institutions to disclose asset information of U.S. citizens, forcing other countries to participate in U.S. tax governance. The new DeFi tax regulations are a continuation of this model in the digital asset space, aiming to utilize technological means and rules to enforce global capital transparency, enhancing U.S. control over the global economy.

America's New Colonial Tools

Taxation Rules: From FATCA to Decentralized Finance New Regulations

FATCA set a precedent for the weaponization of taxes, while the new tax regulations 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 capital flow data globally, enhancing its control over the global economy.

The combination of technology and the US dollar: the dominance of stablecoins

The US dollar stablecoin accounts for more than 95% of the $200 billion stablecoin market, with its underlying anchor assets primarily being US Treasury bonds and dollar reserves. This not only consolidates the global position of the US dollar but also locks more international capital into 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 ETFs 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 incorporate global investors into the US economic ecosystem. The current market size has reached $100 billion.

Real Asset Tokenization (RWA)

Tokenization of real assets has become an important trend in the field of Decentralized Finance. The scale of tokenization of U.S. Treasury bonds has reached $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 fiscal year 2023, the U.S. federal deficit approached $1.7 trillion, while the global market value of cryptocurrencies once surpassed $3 trillion, yet most of it remains outside the tax system. This is intolerable for modern states that rely on tax revenue for support. The U.S. has historically sought to expand its tax base under deficit pressure, and now cryptocurrencies have become the latest target.

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. Through tax regulation, the United States aims not only to gain financial benefits but also 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 in DeFi projects need to rationally assess the strategic value of the U.S. market for their business. If the majority of trading volume and user base comes from the U.S. market, an exit could mean significant losses. Conversely, if the share of the U.S. market is not high, a complete exit becomes a viable option.

Three major coping strategies

1. Partial Compliance: A Compromised Path

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

2. Complete Exit: Focus on Global Markets

   • Implement geographic blocking to restrict access for US users via IP.
   • Focus resources on markets that are more friendly to cryptocurrencies

3. Complete Decentralization: Adherence to Technology and Principles

   • Abandon front-end services and fully transition the platform to protocol autonomy.
   • Develop trustless compliance tools that technically circumvent regulation.

Deeper Thoughts: The Future Game Between 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 litigation. However, in the long run, the trend towards compliance is difficult to reverse. Regulation will lead to a polarization in the DeFi industry: on one end are large platforms that are fully compliant, and on the other end 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 on cryptocurrencies, the U.S. may ease certain restrictions to attract innovators.

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 endpoint. The future of the crypto industry may exist in the form of "compliant decentralization": a coexistence of technological innovation and regulatory compromise, with privacy protection and transparency advancing alternately.

Conclusion: The Inevitability of History and the Choices of the Industry

This bill is an inevitable result of the development of political, economic, and cultural logic in the United States. For the DeFi industry, this presents both challenges and opportunities for transformation. At this historical juncture, how to balance compliance and innovation, protect freedom while bearing responsibility, is a question that every practitioner must answer.

The future of the cryptocurrency industry depends not only on technological advancements but also on how it finds its place between freedom and regulation.