The historical inevitability behind the new tax regulations of Decentralized Finance: Reflections on the new financial colonization of the United States and the decision-making ideas of industry practitioners.

The Foreign Account Tax Compliance Act (FATCA) in the United States is an important manifestation of this logic, which requires global Financial Institutions to disclose the asset information of U.S. citizens, forcing other countries to participate in U.S. tax governance. The new tax regulations in DeFi are an extension of this model in the field of digital assets, and its core lies in using technological means and rules to force global capital transparency.

Author: Aiying Pony

*Regulatory Documents:

The U.S. Department of the Treasury and the Internal Revenue Service recently issued an important new rule (RIN 1545-BR39), expanding the scope of existing tax laws to include front-end service providers of DeFi in the definition of “brokers”. These service providers, including any platforms that interact directly with users (such as the front-end interface of Uniswap), are required to start collecting user transaction data from 2026, and from 2027, submit information to the Internal Revenue Service (IRS) through Form 1099, including users’ total earnings, transaction details, and taxpayer identity information.

We all know that Trump's political scene is never short of drama, and his attitude towards cryptocurrencies is even more so. From his early criticism of Bitcoin, calling it an "air-based scam", to his later attempts at NFT projects, the issuance of the Defi project WorldLibertyFinancial (WLF), and his bold proposal to include Bitcoin in the national strategic reserve "From the Successful Strategic Land Purchase in the United States to the Bitcoin Reserve: The Forward-Looking Vision of the 2025 Bitcoin Strategic Reserve Draft", his actions reflect the drive of personal interests, It is also a metaphor for the complex position of the crypto industry in the American political system.

Although the new regulations will not take effect for another year or two, and there is quite a controversy over the definition of 'broker,' after all, the old regulatory policies cannot be rigidly applied to crypto projects, so they may be overturned. However, Aiying wants to discuss with everyone today the historical inevitability of the new regulations and how industry practitioners should make strategic choices from several dimensions.

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

1.1 The Resource Logic of Traditional Colonization

The core of the traditional colonial era was to achieve resource plunder through military force and territorial occupation. The British controlled cotton and tea in India through the East India Company, while Spain plundered gold from Latin America. These are typical cases of wealth transfer achieved through direct possession of resources.

**1.2 Modern Models of Financial Colonization

Modern colonialism centers on economic rules, achieving wealth transfer through capital flows and tax control. The Foreign Account Tax Compliance Act (FATCA) in the United States is an important embodiment of this logic, requiring global financial institutions to disclose the asset information of American citizens, forcing other countries to participate in US tax governance. The new DeFi tax regulations are a continuation of this model in the digital asset field, with the core being the use of technological means and rules to force global capital transparency, enabling the US to obtain more tax revenue and strengthen its control over the global economy.

Part II: America's New Colonial Tool

2.1 Tax Rules: From FATCA to DeFi Regulations

Tax rules are the foundation of the new colonial model in the United States. FATCA mandates global Financial Institutions to disclose the asset information of US 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 users' transaction data, expanding US control over the digital economy. With the implementation of these rules, the United States will obtain more precise capital flow data worldwide, further enhancing its control over the global economy.

2.2 The Combination of Technology and the US Dollar: The Dominant Position of Stablecoins

In the $200 billion stablecoin market, the US dollar stablecoin accounts for over 95%, with its underlying assets mainly consisting of US Treasury bonds and US dollar reserves. Represented by USDT and USDC, the US dollar stablecoins not only strengthen the global dominance of the US dollar through their application in the global payment system, but also lock more international capital into the US financial system. This represents a new form of US dollar hegemony in the digital economy era.

2.3 Attractiveness of Financial Products: Bitcoin ETFs and Trust Products

Bitcoin ETFs and trust products launched by Wall Street giants like BlackRock have attracted a large influx of international capital into the US market through legalization and institutionalization. These financial products not only provide greater enforcement space for US tax rules, but also further integrate global investors into the US economic ecosystem. The current market size is 100 billion US dollars.

2.4 Tokenization of Real-World Assets (RWA)

The tokenization of real assets is becoming an important trend in the DeFi field. According to Aiying, the tokenization of US government bonds has reached a scale of 4 billion US dollars. This model enhances the liquidity of traditional assets through blockchain technology and also creates new dominance for the United States in the global capital market. By controlling the ecosystem of RWA, the United States can further promote the global circulation of government bonds.

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

2.1 US Deficit Crisis and Tax Loopholes

The US federal deficit has never been as worrisome as it is now. In the 2023 fiscal year, the deficit is close to $1.7 trillion, and the fiscal stimulus and infrastructure investments after the pandemic have further exacerbated this burden. Meanwhile, the global market capitalization of the cryptocurrency market has surpassed $30 trillion, but most of it is outside the tax system. This is clearly unacceptable for a modern country that relies on tax support.

Taxation is the cornerstone of state power. Historically, the U.S. has always sought to expand its tax base under deficit pressure. **The hedge fund regulatory reform of the 80s of the 20th century was a good example of filling the fiscal gap by expanding the coverage of the capital gains tax. And now, cryptocurrencies are the latest target. **

2.2 Financial sovereignty and the defense of the US dollar

But it's not just a matter of taxes. The rise of DeFi and stablecoins has challenged the dominance of the US dollar in the global payment system. Although stablecoins are an extension of the US dollar, by anchoring the US dollar, creating a parallel system of "private money", but also bypassing the control of the Federal Reserve and traditional banks. The U.S. government is aware that this decentralized form of money could pose a long-term threat to its financial sovereignty.

Through tax regulation, the United States not only intends to gain financial benefits, but also seeks to re-establish control over capital flows and defend the hegemonic status of the US dollar.

Part 4: Industry Perspective - Practitioner's Choices and Trade-offs

3.1 Evaluation of the Importance of the US Market

As a practitioner of DeFi projects, the first step is to rationally evaluate the strategic value of the U.S. market to the business. If the platform's main trading volume and user base comes from the US market, then exiting the US can mean huge losses. And if the U.S. market doesn't have a high share, a complete exit becomes a viable option.

3.2 Three major coping strategies

Partial Compliance: The Path to Compromise

Set up a U.S. subsidiary (e.g., Uniswap.US) to focus on meeting the compliance needs of U.S. users.
Separate the protocol from the frontend to reduce legal risks through DAO or other community-based management methods.
Introducing KYC mechanism, reporting necessary information only for US users.

Complete Exit: Focus on the Global Market

Implement geoblocking to restrict access for US users based on IP.
Concentrate resources on markets that are more friendly to cryptocurrencies, such as Asia-Pacific, Middle East, Europe, etc.

Fully decentralized: the persistence of technology and ideas

Abandon front-end services and fully transition the platform to protocol autonomy.
Develop trustless compliance tools (e.g., on-chain tax reporting systems) to technically circumvent regulation.

Part 5: Deeper Reflections: The Future Game of Regulation and Freedom

4.1 Evolution and Long-term Trends of the Law

In the short term, the industry may delay rule implementation through litigation. But in the long run, the trend towards Compliance is difficult to reverse. Regulation will drive the DeFi industry to become polarized: one end will be large platforms that are fully Compliance, and the other end will be small decentralized projects that choose to operate in secrecy.

The United States may also adjust its policies under global competitive pressure. If other countries, such as Singapore and the UAE, adopt more relaxed regulations on cryptocurrencies, the United States may relax certain restrictions to attract innovators.

4.2 Philosophical Reflections on Freedom and Control

The core of DeFi is freedom, while the core of the government is control. This game has no end. Perhaps the future of the encryption industry will exist in a form of 'decentralization with compliance': technological innovation coexisting with regulatory compromise, privacy protection alternating with transparency.

Aiying Conclusion: The Inevitability of History and the Industry's Choice

This bill is not an isolated incident, but a natural result of the development of American political, economic, and cultural logic. For the DeFi industry, this is both a challenge and an opportunity for transformation. At this historical node, how to balance Compliance and innovation, protect freedom and bear responsibility, is a question that every practitioner must answer.

The future of the crypto industry depends not only on the advancement of technology, but also on how it finds its place between freedom and rules.