DeFi Tax New Policy: Extension of American Financial Hegemony and Industry Response Strategies

The U.S. Department of the Treasury and the IRS recently issued an important new regulation that includes DeFi front-end service providers in the definition of "broker." This means that platforms, including the front-end interfaces of certain decentralized exchanges, will need to collect user transaction data starting in 2026, and begin submitting information to the IRS via 1099 forms in 2027, including total user earnings, transaction details, and taxpayer identification information.

Although there is still a year or two before the new regulations officially take effect, and the applicability of the definition of "broker" is under dispute and may face legal challenges, it is still necessary for us to delve into the historical background of this policy's introduction and its impact on the industry.

From Traditional Colonialism to Financial Hegemony: The Evolution of America's Global Strategy

Resource plundering to rule-making

In the traditional colonial era, nations achieved resource plunder through military force and territorial occupation. Modern financial colonialism, however, centers around economic rules, achieving wealth transfer through capital flow and tax control. The United States' Foreign Account Tax Compliance Act (FATCA) is a typical embodiment of this logic, requiring global financial institutions to disclose the asset information of American citizens. The new DeFi tax regulations can be seen as a continuation of this model in the digital asset space, aiming to leverage technology and rules to enforce global capital transparency and enhance America's control over the global economy.

America's new colonial tool

1. Tax rules: From FATCA to new DeFi regulations, the U.S. continues to expand its regulatory scope over global capital flows.

2. Dominance of Stablecoins: US dollar stablecoins account for over 95% of the $200 billion market, consolidating the global position of the US dollar.

3. Bitcoin ETFs and Trust Products: Attracting international capital into the US market through legalization and institutionalization.

4. Real Asset Tokenization (RWA): The tokenization scale of U.S. Treasury bonds has reached $4 billion, creating new global capital dominance for the United States.

Policy Choices Under Economic and Fiscal Pressure

Budget Deficit Crisis and Tax Revenue Demand

In the fiscal year 2023, the U.S. federal deficit approached $1.7 trillion, while the cryptocurrency market size once exceeded $3 trillion but largely remained outside the tax system. This situation is obviously intolerable for a modern nation that relies on tax revenue.

Defense of Financial Sovereignty

The rise of DeFi and stablecoins challenges the dominance of the US dollar in the global payment system. Through tax regulation, the United States not only aims to gain financial benefits but also attempts to re-establish control over capital flows and maintain dollar hegemony.

Strategic Choices for Industry Practitioners

Market Importance Assessment

Decentralized Finance projects need to rationally assess the strategic value of the U.S. market to their business. If the primary trading volume and user base come from the U.S., an exit could result in significant losses; conversely, a complete exit then becomes a viable option.

Three major coping strategies

1. Partial Compliance:

   • Establish a subsidiary in the United States
   • Separation of protocol and front-end
   • Introduce targeted KYC mechanisms

2. Complete Exit:

   • Implement geographic blocking
   • Focus on other friendly markets

3. Completely Decentralized:

   • Abandon front-end services and turn to protocol autonomy
   • Develop trustless compliance tools

Future Outlook: The Game Between Regulation and Freedom

In the short term, the industry may delay the implementation of regulations through litigation. In the long run, the trend towards compliance is difficult to reverse. The DeFi industry may become polarized: on one end are fully compliant large platforms, 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, the U.S. may relax certain restrictions to attract innovators.

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

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 a balance between freedom and regulation.