Forward the Original Title ‘How Big Is Trump’s IRS Rule Reversal Crypto Win?’

It was also the first crypto bill ever signed by any US president. After years of regulatory uncertainty, the crypto industry finally has concrete evidence that Washington is listening.

The resolution passed with impressive bipartisan margins, 70-28 in the Senate and 292-132 in the House, signalling that crypto might finally be transcending political divisions.

This reversal is more than erasing a problematic tax rule; it’s the opening act in what might dictate how decentralised finance ecosystem evolves in the world’s largest economy.

In this week’s Wormhole, we take you through the origins of the DeFi broker rule, relevance of its reversal and, more importantly, how it will set the stage for an entirely new regulatory approach to crypto under Trump 2.0.

Secure your Bitcoin with Hardware Wallets

Trezor has transformed crypto security from a complex puzzle to a user-friendly playground, so you can be the boss of your financial future.

Securely store, manage, and protect your coins with Trezor hardware wallets, app & backup solutions.

Biden’s Parting Crypto ‘Gift’

On December 27, 2024, the Biden administration finalised a controversial IRS rule requiring “DeFi brokers” to collect and report user trading information – a parting crackdown at crypto innovation during the administration’s final weeks.

The rule expanded the 2021 Infrastructure Act’s definition of “broker” to include DeFi platforms, requiring them to issue Form 1099s to users and report transaction details to the IRS, effective January 1, 2027.

This left the industry experts shaken and pushed them to fight back.

Why? Three words: technically impossible compliance.

The Biden’s administration had specifically targeted “front-end service providers”. Think of MetaMask or the Uniswap website that millions use to swap tokens - intuitive interfaces that make decentralised protocols accessible to average users.

Under the rule, these front-ends would have been required to collect names, addresses, phone numbers, and transaction details - information they simply don’t have access to in a truly decentralised ecosystem.

When criticised for this disconnect, the IRS dismissed concerns with a bummer.

“Persons with technology expertise that operate trades or businesses relating to financial services should comply with the same rules as any other person operating financial services businesses.”

It showed one thing - a profound misunderstanding of how decentralised systems work. Industry leaders described it as an “unsquarable circle” – asking entities to collect information they fundamentally cannot access.

It meant the platforms had to either rebuild their protocols to collect information that violated their core principles of user privacy and decentralisation, or exit the US market entirely.

The Biden Treasury Department’s last-minute extension to DeFi was seen as executive overreach without congressional approval.

David Sacks, Trump’s AI and crypto czar, didn’t mince words, calling it a “midnight regulation” that “would stifle American innovation, raise privacy concerns, and impose an unprecedented compliance burden on American DeFi companies.”

@davidsacks47

The Turnaround

The reversal of the rule itself holds more relevance than just a minor technical adjustment to tax policy.

Under the Congressional Review Act (the tool lawmakers used to kill the rule), the IRS can’t issue a “substantially similar” regulation without new congressional authorisation. This does more than merely pausing the rule. It has created a breathing room for developers and entrepreneurs who can now build with greater certainty.

The resolution’s passage signals that crypto has finally achieved something it’s sought for years: significant political capital in Washington.

Want more good news? This is likely just the beginning. Treasury Secretary Scott Bessent has indicated plans, at the recent White House Digital Assets Summit, to “rescind and amend” related crypto tax rules.

Bipartisan and Industry Backing

The most significant aspect of the reversal was the bipartisan character of this victory.

When both Republicans and dozens of Democrats vote to overturn a Democratic administration’s rule, it reveals a shifting calculus on crypto’s political importance and that innovation in financial technology deserves space to grow.

This marks a substantial shift from the Gary Gensler era at the SEC, when Democratic leadership largely aligned with aggressive enforcement against crypto companies.

Even Senate Minority Leader Chuck Schumer broke with his party’s leadership to support the measure, a political calculation that speaks volumes about crypto’s growing electoral importance.

Industry groups that once struggled for recognition are now influential voices.

The Blockchain Association and DeFi Education Fund led aggressive lobbying campaigns that flipped enough Democratic votes to create veto-proof majorities. Their success demonstrates how rapidly crypto advocacy has matured, with sophisticated outreach efforts targeting key lawmakers on specific policy concerns rather than general blockchain education.

The Blockchain Association had promised “aggressive action” when the Biden administration introduced the rule. And action it did take.

Four months after filing a lawsuit, the Association now celebrated the reversal of the rule that promised to end the United States crypto industry.

@BlockchainAssn

Importantly, this victory came despite opposition from some influential Democrats who warned the resolution would enable tax evasion.

Representative Richard Neal (D-Massachusetts) had cautioned it could cost the government $4 billion in tax revenue. This revenue estimate, likely derived from potential unreported capital gains, will remain a point of contention as crypto advocates push for further regulatory relief.

Global Positioning

The resolution’s signing dramatically alters America’s competitive position in the global race for crypto dominance.

This contrast is stark. Just months ago, crypto companies were abandoning the US market due to regulatory uncertainty.

Read: Crypto Exodus to El Salvador 🇸🇻

Coinbase had prepared contingency plans to relocate offshore. Now, the Trump 2.0 administration’s poll campaign of positioning America as “the crypto capital of the world” seems to be working.

With global investment in DeFi exploding - about $90 billion currently locked in protocols according to DefiLlama - countries that create friendly regulatory environments stand to capture outsized economic benefits: high-skilled jobs, tax revenue from legitimate operations, and technological leadership.

@DeFiLlama

The resolution also sends a powerful message to countries like Hong Kong, UAE, and Japan, which had been positioning themselves as crypto-friendly alternatives to the US.

For global crypto entrepreneurs and investors, Thursday’s signing sends a clear message: America is open for business.

The Balancing Act

The resolution raises legitimate questions about the balance between innovation and tax compliance.

Critics, like Representative Lloyd Doggett (D-Texas), argued that killing the rule would create a loophole wealthy investors could exploit.

This concern isn’t entirely unfounded.

The decentralised nature of DeFi protocols means transactions occur without traditional intermediaries keeping records. While the blockchain itself is transparent, connecting wallet addresses to taxpayers remains challenging. Without some reporting mechanism, tax compliance relies largely on voluntary disclosure.

Some policy experts propose a middle path - creating optional compliance frameworks that offer regulatory clarity in exchange for certain disclosures. This “safe harbour” approach would allow DeFi protocols to operate legally while gradually introducing appropriate safeguards.

Token Dispatch View 🔍

Trump’s signing of this resolution is a breakthrough in tackling the fundamental tension that has plagued crypto regulation from day one: the collision between industrial-era regulatory frameworks and digital-native financial systems.

The victory here is more about Washington finally acknowledging that forcing decentralised systems into centralised regulatory boxes doesn’t work. Innovation requires appropriate guardrails, not retrofitted barriers.

This moment reveals something more profound about America’s regulatory philosophy. For decades, US financial regulation has followed a pattern: innovation happens, problems emerge, regulations respond. The DeFi broker rule attempted to regulate preemptively, before understanding the technology’s natural evolution. Its failure suggests America is returning to its traditional strengths — allowing innovation to flourish while addressing specific harms as they materialise.

Celebration should be tempered with pragmatism. The crypto industry faces a critical credibility test. Having secured regulatory breathing room, it must now deliver tangible benefits beyond trader profits. Can DeFi meaningfully improve financial access? Will it reduce costs for everyday transactions? Can it create more efficient markets that benefit the broader economy?

The bipartisan nature of this victory offers both opportunity and warning. While crypto has transcended partisan lines today, its support remains contingent on demonstrating real-world utility. If the industry fails to move beyond speculation toward solving actual problems, today’s allies could become tomorrow’s critics.

For global competitors who believed America had ceded leadership in digital asset innovation, this reversal is a wake-up call. The US retains an unmatched combination of capital markets, technical talent, and regulatory flexibility that — when pointed in the same direction — creates formidable competitive advantages.

The path forward remains challenging. SEC oversight of tokens, CFTC jurisdiction over derivatives, banking concerns about stablecoins — all these remain unresolved. But this resolution demonstrates that well-organised advocacy focused on specific, technical issues can succeed where broad ideological arguments often fail.

The window for innovation is open. Now, the industry will have to collaborate with regulators to create frameworks that protect consumers while enabling genuine innovation. Thursday’s signing suggests that, for the first time, both sides might be ready to have that conversation.

Disclaimer:

1. This article is reprinted from [Token Dispatch]. Forward the Original Title ‘How Big Is Trump’s IRS Rule Reversal Crypto Win?’. All copyrights belong to the original author [Token Dispatch and Prathik Desai]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. The Gate Learn team does translations of the article into other languages. Copying, distributing, or plagiarizing the translated articles is prohibited unless mentioned.