IRS Rule Dies, But Crypto Remains on the Treasury’s Radar: What You Need to Know
- What Was the IRS Rule TD 10021?
- How Did the Rule Get Overturned?
- What Was the Impact of the Rule Before Its Repeal?
- Is Crypto Still Under Treasury Scrutiny?
- What Does This Mean for DeFi’s Future?
- How Are Markets Reacting?
- Can DeFi Generate Passive Income Safely?
- What’s Next for Crypto Regulation?
The controversial IRS rule TD 10021, which aimed to treat DeFi platforms like traditional brokers, has been repealed by Congress and signed off by former President Trump. Despite this, the Treasury Department continues to monitor crypto activities, particularly those linked to illegal finance. This article dives into the rise and fall of the rule, its implications for DeFi, and what the future holds for crypto regulation.
What Was the IRS Rule TD 10021?
TD 10021, also known as RIN 1545-BR39, was introduced under Section 6045 of the tax code and supported by the 2021 Infrastructure Investment and Jobs Act. Approved in December 2024, it sought to classify DeFi protocols as brokers, requiring them to report user transactions—despite lacking custody of funds or user data. The rule was set to go live in 2025, with full enforcement planned for 2026. Critics argued it was unworkable for decentralized platforms, which often operate without user logins or wallet control. For example, platforms like Uniswap or MetaMask couldn’t comply with reporting requirements for data they didn’t possess. Miller Whitehouse-Levine, CEO of the DeFi Education Fund, summed it up: "You can’t report data you don’t have."
How Did the Rule Get Overturned?
Opposition to TD 10021 was swift and vocal. Developers, privacy advocates, and industry groups like Coin Center and the Blockchain Association warned it would stifle U.S. innovation. Even wallet providers with no custody over funds were swept into its broad language. By early 2025, Congress invoked the Congressional Review Act to repeal the rule entirely. The Senate passed the measure 70–28, followed by the House, and TRUMP signed it into law on April 11. The message was clear: DeFi shouldn’t be treated like traditional brokerages. The Treasury’s recent filing confirms this, limiting broker reporting requirements to custodial exchanges like Coinbase and Binance.
What Was the Impact of the Rule Before Its Repeal?
TD 10021 introduced FORM 1099-DA, which demanded detailed crypto transaction data—quantities, wallet addresses, and identities—from brokers. While feasible for centralized exchanges, applying it to DeFi was chaotic. Token aggregators (e.g., 1inch) and wallet interfaces (e.g., Rainbow) faced compliance burdens despite having no control over user funds. Critics called it a privacy overreach, akin to "asking a library to report every book borrowed," as one analyst noted. The rule’s ambiguity also risked pushing developers overseas, with projects like Ethereum’s L2 networks exploring jurisdictions with clearer guidelines.
Is Crypto Still Under Treasury Scrutiny?
Absolutely. Under Secretary Scott Bessent, the Treasury has aggressively targeted illicit crypto activity. In 2023–2024, it sanctioned Iranian shadow banking networks and North Korean-linked hackers laundering stolen crypto (e.g., the $625 million Ronin Bridge hack). These actions signal that while domestic DeFi gets relief, the Treasury remains vigilant against financial crime. For instance, Tornado Cash, a privacy tool, faced sanctions in 2022 for alleged money laundering ties—a move debated for its broad impact on neutral tech.
What Does This Mean for DeFi’s Future?
The repeal is a win for DeFi autonomy, but challenges linger. The SEC still views many tokens as securities, and global standards (like the EU’s MiCA) could influence U.S. policy. Meanwhile, platforms like BTCC (a crypto exchange) must balance compliance with innovation. "The key is nuanced regulation," says a BTCC analyst. "Blanket rules ignore DeFi’s unique architecture." Projects like MakerDAO and Aave now face fewer reporting hurdles but must still navigate anti-money laundering (AML) laws.
How Are Markets Reacting?
Crypto markets shrugged off the news, with bitcoin holding steady at $60K–$65K post-repeal. However, mining stocks like Bit Mining (down 98% since 2015) reflect sector volatility. Data from TradingView shows DeFi tokens (UNI, SUSHI) gained modestly, suggesting investor relief. "The repeal removes a cloud over DeFi," notes CoinGlass, "but macro risks remain."
Can DeFi Generate Passive Income Safely?
Yes, but due diligence is key. Yield farming on platforms like Compound or staking ethereum (post-Merge) offers returns, but smart contract risks persist. For example, the 2022 Terra collapse wiped out $40B overnight. Diversifying across stablecoin pools (e.g., USDC on Aave) or using audited protocols like Lido can mitigate risks. Always verify APYs on DefiLlama and avoid "too good to be true" schemes.
What’s Next for Crypto Regulation?
Expect piecemeal approaches. The Treasury may refine AML rules for mixers, while Congress debates stablecoin bills. Gary Gensler’s SEC continues targeting unregistered securities, as seen in the Coinbase lawsuit. Internationally, the FATF’s "Travel Rule" pushes for cross-border crypto tracking. For now, DeFi enjoys a reprieve—but the regulatory dance is far from over.
