Companies can certainly be [broker-dealers], but software has not been designed for [broker-dealer] rules.”DeFi developers can and have been proactive in working with regulators, Chainalysis suggested, as was the case with certain protocols freezing funds after the disastrous $285 million KuCoin hack. Related: Timeline: How Bybit's lost Ethereum went through North Korea's washing machineCinneamhain Ventures partner and consultant Adam Cochran claimed that every protocol has certain pressure points regulators could press on if a protocol were used to commit a crime:Source: Adam CochranHowever, these specific instances do not make a comprehensive regulatory framework that both the industry and investor protection agencies can point to. In that regard, crypto analytics firm Chainalysis stated in 2020 that regulators may need to craft regulations for the DeFi space with decentralized reporting limitations in mind. Raman suggested that one possible solution could be zero-knowledge proofs, which allow users to confirm certain data without revealing it. He is optimistic about regulators’ ability to find a way to regulate the space while still maintaining user privacy: “I think we’ll see a positive sum environment where DeFi and compliance will coexist.”The long-awaited crypto regulatory framework Trump has already made a number of pro-crypto measures through executive orders and appointing pro-crypto individuals to head parts of his administration — the most recent being the establishment of a strategic Bitcoin reserve. Related: US Rep.
Marta Belcher, president of the Filecoin Foundation, said that blocking the rule was particularly important for user privacy. She told Cointelegraph it is “critical to protect people’s ability to transact directly with each other via open-source code (like smart contracts and decentralized exchanges) while remaining anonymous, in the same way that people can transact directly with each other using cash.”Privacy concerns were central to the crypto industry’s objections to the rule, with industry observers claiming that it was not fit for purpose and infringed on user privacy. Bill Hughes, senior counsel and director of global regulatory matters for Consensys Software wrote in December 2024, “Trading front ends would have to track and report on user activity — both US persons and non-US persons [...] And it applies to the sale of every single digital asset — including NFTs and even stablecoins.”The Blockchain Association, a major crypto industry lobby group, stated that the rule was “an infringement on the privacy rights of individuals using decentralized technology” that would push DeFi offshore.
On March 12, the House of Representatives voted to nullify a rule that required DeFi protocols to report gross proceeds from crypto sales, as well as info on taxpayers involved, to the Internal Revenue Service (IRS). The rule, which the IRS issued in December 2024 and wasn’t set to take effect until 2027, was regarded by major industry lobby groups as burdensome and beyond the agency’s authority. The White House has already signaled its support for the bill.
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Author / Journalist: Cointelegraph by Ailsa Sherrington
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