The decentralized finance (DeFi) industry is breathing a sigh of relief as Congress eases reporting obligations, but questions remain on how this sector will be regulated.
Privacy Concerns Over IRS Rule
The crypto industry was quick to celebrate the House's vote. Marta Belcher, president of the Filecoin Foundation, emphasized the importance of blocking the rule for user privacy. She stated, 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.'
How is DeFi Regulated?
The space has long grappled with user privacy demands and regulatory concerns over Anti-Money Laundering and Know Your Customer practices. Vivek Raman of Etherealize noted the core issue in cases where a network is created by many and not controlled by one entity, making it unclear who regulators can contact. Potential solutions include zero-knowledge proofs, which can allow users to verify certain data without revealing it.
The Long-awaited Crypto Regulatory Framework
President Trump has initiated several crypto-friendly measures, leading to the formation of a strategic Bitcoin reserve. However, the industry is eagerly waiting for a comprehensive legislative framework and stablecoin bills, which are expected to provide the necessary guidelines for the sector's sustainable growth.
The repeal of the IRS rule for DeFi alleviates one burden, but significant questions about future regulation linger. Industry leaders and government agencies continue to seek a balance between innovation and consumer protection.
