Original author: Aiying compliance

Reprinted by: Luke, Mars Finance

The U.S. Treasury Department and the Internal Revenue Service recently issued an important new regulation (RIN 1545-BR39), which expanded the scope of application of existing tax laws and included DeFi front-end service providers in the definition of "brokers". These service providers, including any platform that interacts directly with users (such as Uniswap's front-end interface), are required to collect user transaction data starting in 2026 and submit information to the U.S. Internal Revenue Service (IRS) through Form 1099 starting in 2027, including users' total income, transaction details and taxpayer identity information.

We all know that Trump's political stage is never short of drama, and his attitude towards cryptocurrencies is no exception. From early criticisms of Bitcoin, calling it a 'scam based on air', to later attempts through NFT projects, launching the DeFi project WorldLibertyFinancial (WLF), he even boldly proposed incorporating Bitcoin into national strategic reserves (a forward-looking idea from successful historical strategic land purchases to Bitcoin reserves: (2025 Bitcoin Strategic Reserve Draft)). His actions reflect personal interests and imply the complex position of the crypto industry within the U.S. political system.

Although the new regulations are still one or two years away from taking effect, and there are significant disputes regarding the definition of 'broker', the old regulatory policies cannot be rigidly applied to crypto projects, so they may also be overturned. However, Aiying wants to discuss the historical inevitability of the introduction of these new regulations from several dimensions today, and how industry practitioners should make strategic choices.

Part One: The Logical Evolution from Traditional Colonialism to New Financial Colonialism

1.1 The Resource Logic of Traditional Colonialism

The core of traditional colonialism lies in resource plunder achieved through military force and territorial possession. The British controlled India's cotton and tea through the East India Company, and Spain plundered gold from Latin America; these are typical cases of wealth transfer achieved through direct possession of resources.

1.2 The Modern Model of Financial Colonialism

Modern colonialism centers around economic rules, achieving wealth transfer through capital flow and taxation control. The U.S. Foreign Account Tax Compliance Act (FATCA) is an important manifestation of this logic, requiring 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 realm, centered on utilizing technological means and rules to enforce global capital transparency, enabling the U.S. to gain more tax revenue while strengthening its control over the global economy.

Part Two: America's New Colonial Tools

2.1 Tax Rules: From FATCA to New DeFi Regulations

Tax rules are the foundation of the new colonial model in the U.S. FATCA mandates global financial institutions to disclose asset information of U.S. citizens, setting a precedent for the weaponization of taxation. The new DeFi tax regulations further extend this logic by requiring DeFi platforms to collect and report user transaction data, expanding U.S. control over the digital economy. With the implementation of these rules, the U.S. will obtain more precise data on capital flows globally, thereby enhancing its control over the global economy.

2.2 The Combination of Technology and the Dollar: The Dominance of Stablecoins

In the $200 billion stablecoin market, U.S. dollar stablecoins account for over 95%, with the underlying assets primarily being U.S. treasury bonds and dollar reserves. Dollar stablecoins represented by USDT and USDC, through their application in the global payment system, not only solidify the dollar's global position but also lock more international capital into the U.S. financial system. This is a new form of dollar hegemony in the digital economy era.

2.3 The Appeal of Financial Products: Bitcoin ETFs and Trust Products

Bitcoin ETFs and trust products launched by Wall Street giants like BlackRock have attracted significant international capital inflow into the U.S. market through legalization and institutionalization. These financial products not only provide greater enforcement space for U.S. tax rules but also further incorporate global investors into the U.S. economic ecosystem. The current market size is $100 billion.

2.4 Tokenization of Real Assets (RWA)

The tokenization of real assets is becoming an important trend in the DeFi space. According to Aiying, the scale of U.S. debt tokenization has reached $4 billion. This model enhances the liquidity of traditional assets through blockchain technology while creating new dominion for the U.S. in the global capital market. By controlling the RWA ecosystem, the U.S. can further promote the globalization of its treasury bonds.

Part Three: Economy and Finance - Deficit Pressure and Tax Fairness

3.1 The U.S. Deficit Crisis and Tax Loopholes

The federal deficit in the United States has never been as concerning as it is now. In FY2023, the deficit approached $1.7 trillion, exacerbated by post-pandemic fiscal stimulus and infrastructure investment. Meanwhile, the global market value of cryptocurrencies once surpassed $3 trillion, largely operating outside the tax system. This is clearly intolerable for a modern nation that relies on tax revenue.

Taxation is the cornerstone of national power. Historically, the U.S. has always sought to expand its tax base under deficit pressure. The hedge fund regulatory reform of the 1980s is a prime example of filling fiscal gaps by broadening the coverage of capital gains tax. Now, cryptocurrencies have become the latest target.

3.2 Defending Financial Sovereignty and the Dollar

But this is not just a tax issue. The rise of DeFi and stablecoins challenges the dominance of the dollar in the global payment system. While stablecoins are an extension of the dollar, creating a parallel 'private currency' system by anchoring to the dollar, they also bypass the control of the Federal Reserve and traditional banks. The U.S. government realizes that this decentralized form of currency may pose a long-term threat to its financial sovereignty.

Through tax regulation, the U.S. aims not only to acquire fiscal benefits but also to re-establish control over capital flows and defend the dollar's hegemony.

Part Four: Industry Perspective - Choices and Trade-offs of Practitioners

4.1 Assessment of the Importance of the U.S. Market

As a practitioner in the DeFi project, the first step is to rationally assess the strategic value of the U.S. market to the business. If the platform's main trading volume and user base come from the U.S. market, then exiting the U.S. may mean significant losses. However, if the U.S. market constitutes a low proportion, a complete exit becomes a viable option.

4.2 Three Major Response Strategies

Partial Compliance: A Compromise Path

  • Establish U.S. subsidiaries (like Uniswap.US) focused on meeting compliance needs for U.S. users.

  • Separate the protocol from the front end, reducing legal risks through DAO or other community management methods.

  • Introduce KYC mechanisms, reporting only necessary information for U.S. users.

Total Exit: Focusing on Global Markets

  • Implement geographical blocking, restricting U.S. users' access through IP limitations.

  • Concentrate resources on more cryptocurrency-friendly markets in Asia-Pacific, the Middle East, and Europe.

Complete Decentralization: Upholding Technology and Ideals

  • Abandon front-end services and fully shift the platform to protocol autonomy.

  • Develop trustless compliance tools (such as on-chain tax reporting systems) to technically bypass regulations.

Part Five: Deeper Reflections - The Future Game Between Regulation and Freedom

5.1 The Evolution of Legislation and Long-Term Trends

In the short term, the industry may delay the implementation of rules through litigation. But in the long run, the trend towards compliance is difficult to reverse. Regulation will force the DeFi industry to polarize: one end being fully compliant large platforms, and the other end being small decentralized projects that choose to operate secretly.

The United States may adjust its policies under global competitive pressure. If other countries (like Singapore and the UAE) adopt more lenient regulations on cryptocurrencies, the U.S. might relax certain restrictions to attract innovators.

5.2 Philosophical Reflections on Freedom and Control

The core of DeFi is freedom, while the core of government is control. This game has no endpoint. Perhaps the future crypto industry will exist in a form of 'compliant decentralization': where technological innovation coexists with regulatory compromise, and privacy protection alternates with transparency.

Aiying's Conclusion: The Inevitability of History and Industry Choices

This legislation is not an isolated event but a necessary result of the development of American political, economic, and cultural logic. For the DeFi industry, this poses challenges but also 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 crypto industry depends not only on technological advancements but also on how it finds its place between freedom and rules.

Regulatory Document: https://public-inspection.federalregister.gov/2024-30496.pdf