Congress Eases DeFi Reporting Obligations, Privacy Concerns Persist
Friday, March 14, 2025 12:00 AM
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The decentralized finance (DeFi) sector is experiencing a significant shift as the U.S. Congress has voted to nullify a controversial IRS rule that mandated DeFi protocols to report gross proceeds from crypto sales and taxpayer information. This rule, issued in December 2024 and set to take effect in 2027, was deemed burdensome by industry lobby groups and was seen as an overreach of the IRS’s authority. The bipartisan vote in the House of Representatives has garnered support from the White House, with President Donald Trump poised to sign the bill into law. However, the DeFi community remains concerned about finding a balance between user privacy and regulatory compliance moving forward.
Privacy issues were central to the objections raised by the crypto industry against the IRS rule. Advocates like Marta Belcher, president of the Filecoin Foundation, emphasized the importance of user anonymity in transactions, akin to cash dealings. The Blockchain Association also criticized the rule as an infringement on privacy rights, warning that it could push DeFi operations offshore. While the rule has been halted, there is still a lack of established privacy guidelines, which industry leaders like Vivek Raman argue are essential for the sector’s progression. He stressed the need for clear frameworks that allow for privacy while adhering to Know Your Customer and Anti-Money Laundering requirements.
As the crypto industry grapples with the dual demands of user privacy and regulatory oversight, the question of how to effectively regulate DeFi remains complex. The decentralized nature of these protocols complicates accountability, making it challenging for regulators to enforce traditional financial rules. Despite these hurdles, there is optimism that solutions such as zero-knowledge proofs could facilitate compliance without compromising user privacy. Meanwhile, the Senate Banking Committee’s recent approval of the GENIUS Act, a stablecoin bill, signals progress towards a more structured regulatory environment. However, comprehensive regulations for DeFi may still be a distant goal, as ongoing studies aim to assess the risks and benefits associated with these innovative financial systems.
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