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Congress repealed the IRS broker rule, but can it regulate DeFi?

The decentralized finance (DeFi) industry is breathing a sigh of relief as Congress relaxes reporting obligations, but questions remain about how lawmakers will regulate DeFi.

On March 12, the House of Representatives voted to nullify a rule that required DeFi protocols to report gross proceeds from crypto sales, as well as info on taxpayers involved, to the Internal Revenue Service (IRS). 

The rule, which the IRS issued in December 2024 and wasn’t set to take effect until 2027, was regarded by major industry lobby groups as burdensome and beyond the agency’s authority. 

The White House has already signaled its support for the bill. President Donald Trump is ready to sign when it reaches his desk. But DeFi observers note that the industry has yet to strike a balance between privacy and regulation. 

Congress repealed the IRS broker rule, but can it regulate DeFi?

Bipartisan vote on repealing the rule. Source: DeFi Education Fund

Privacy concerns over IRS DeFi rule

The crypto industry was quick to laud the vote in the House. Marta Belcher, president of the Filecoin Foundation, said that blocking the rule was particularly important for user privacy. 

She told Cointelegraph 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, in the same way that people can transact directly with each other using cash.”

Privacy concerns were central to the crypto industry’s objections to the rule, with industry observers claiming that it was not fit for purpose and infringed on user privacy. 

Bill Hughes, senior counsel and director of global regulatory matters for Consensys Software wrote in December 2024, “Trading front ends would have to track and report on user activity — both US persons and non-US persons […] And it applies to the sale of every single digital asset — including NFTs and even stablecoins.”

The Blockchain Association, a major crypto industry lobby group, stated that the rule was “an infringement on the privacy rights of individuals using decentralized technology” that would push DeFi offshore.

While the rule has been stopped for now, there still aren’t fixed privacy guidelines in place — something Etherealize CEO Vivek Raman said the industry needs to move forward. 

“There needs to be clear frameworks for blockchain-based privacy while maintaining [Know Your Customer/Anti-Money Laundering] requirements,” he told Cointelegraph.

Raman stated that some transactions and customer data will need to remain private, “and we need guidance on what privacy can look like.”

How do you regulate DeFi?

The crypto space has long juggled user privacy demands and regulators’ Anti-Money Laundering and Know Your Customer concerns. 

One problem lies in the technology itself — if a network is created by many and controlled by no single entity, who can the government contact? 

Per Raman, “It’s hard for a decentralized protocol that is controlled by nobody to issue 1099s or fulfill broker-dealer responsibilities! Companies can certainly be [broker-dealers], but software has not been designed for [broker-dealer] rules.”

DeFi developers can and have been proactive in working with regulators, Chainalysis suggested, as was the case with certain protocols freezing funds after the disastrous $285 million KuCoin hack. 

Related: Timeline: How Bybit’s lost Ethereum went through North Korea’s washing machine

Cinneamhain Ventures partner and consultant Adam Cochran claimed that every protocol has certain pressure points regulators could press on if a protocol were used to commit a crime:

Law, Congress, Privacy, US Government, Donald Trump, Features, Policy

Source: Adam Cochran

However, these specific instances do not make a comprehensive regulatory framework that both the industry and investor protection agencies can point to. 

In that regard, crypto analytics firm Chainalysis stated in 2020 that regulators may need to craft regulations for the DeFi space with decentralized reporting limitations in mind. 

Raman suggested that one possible solution could be zero-knowledge proofs, which allow users to confirm certain data without revealing it. 

He is optimistic about regulators’ ability to find a way to regulate the space while still maintaining user privacy: “I think we’ll see a positive sum environment where DeFi and compliance will coexist.”

The long-awaited crypto regulatory framework 

Trump has already made a number of pro-crypto measures through executive orders and appointing pro-crypto individuals to head parts of his administration — the most recent being the establishment of a strategic Bitcoin reserve. 

Related: US Rep. Byron Donalds to introduce bill codifying Trump’s Bitcoin reserve

The pro-crypto tenure of important financial regulators like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) has dropped a number of high-profile enforcement cases against crypto firms.

Congress repealed the IRS broker rule, but can it regulate DeFi?

While notable, the big fish that the crypto industry is waiting for is the crypto regulatory framework and stablecoin bills circulating in Congress, which would give the industry the guardrails it claims it needs to thrive. 

On March 13, the Senate Banking Committee approved the GENIUS Act, the stablecoin bill, putting it one step closer to a vote on the Senate floor. 

The crypto framework bill, FIT 21, was first introduced in the 2024 legislative session, ultimately failing in the Senate. However, in February, House Financial Services Committee Chair French Hill said that he anticipated the bill could pass in this session with “modest changes.”

But even if FIT 21 were passed soon, regulations for DeFi could be far off. The bill would exclude DeFi from SEC and CFTC oversight, but it would also establish a working group to research 12 key areas related to DeFi.

This study will seek to understand the risks and benefits of DeFi and will ultimately make regulatory recommendations. 

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3iQ’s Canadian Solana ETF selects Figment as staking provider

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3iQ’s Canadian Solana ETF selects Figment as staking provider

3iQ’s Canadian Solana ETF selects Figment as staking provider

Blockchain infrastructure provider Figment has been selected as the staking provider for 3iQ’s newly approved Solana exchange-traded fund (ETF), underscoring Canada’s continued efforts toward adoption of digital asset financial products.

Figment will enable institutional staking for the 3iQ Solana (SOL) Staking ETF, which launches on the Toronto Stock Exchange on April 16 under the ticker SOLQ, the companies said in a statement. In addition to 3iQ, Figment provides staking infrastructure solutions to more than 700 clients. 

The Ontario Securities Commission (OSC), a provincial regulator, green-lighted 3iQ’s SOL fund on April 14. The approval was also extended to other fund managers seeking to offer SOL ETFs, including Purpose, Evolve and CI.

As Bloomberg ETF analyst Eric Balchunas reported at the time, the funds are permitted to stake a portion of their SOL holdings through TD Bank, Canada’s second-largest financial institution by assets. 

3iQ’s Canadian Solana ETF selects Figment as staking provider

Source: Eric Balchunas

3iQ estimates that its SOL fund will provide yields of between 6% and 8%, according to its website

Related: Solana, XRP ETFs may attract billions in new investment — JPMorgan

3iQ leads Canadian crypto ETFs as US regulators drag their feet

As US regulators continue to consider various crypto-related fund offerings, Canada has been leading the curve in adoption going back to 2021. That was the year that 3iQ debuted its spot Bitcoin (BTC) ETF, which crossed $1 billion in net assets almost immediately. 

It would take nearly three more years before spot Bitcoin ETFs were approved in the United States. Like their Canadian counterparts, the US ETFs saw overwhelming success in their first year, generating more than $38 billion in net inflows.

In October 2023, 3iQ launched an ETF tied to Ether (ETH), giving investors direct access to the smart contract platform. Unlike the Ether ETFs that US regulators approved the following year, 3iQ’s fund offers staking rewards. 

As Cointelegraph recently reported, US regulators may be on the cusp of approving staking rewards after they authorized exchanges to list options contracts tied to ETH.

3iQ’s Canadian Solana ETF selects Figment as staking provider

Source: James Seyffart

Related: SEC delays staking decision for Grayscale ETH ETFs

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Ethena Labs exits German market following agreement with BaFin

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Ethena Labs exits German market following agreement with BaFin

Ethena Labs exits German market following agreement with BaFin

Synthetic stablecoin developer Ethena Labs is winding down its German operations less than a month after regulators identified “deficiencies” in its dollar-pegged USDe (USDE) stablecoin, signaling heightened scrutiny around crypto assets in Europe’s largest economy.

Ethena Labs reached an agreement with Germany’s Federal Financial Supervisory Authority, also known as BaFin, to cease all operations of its local subsidiary, Ethena GmbH, according to an April 15 announcement.

Germany, European Union, Stablecoin, MiCA

Source: Ethena Labs

As such, Ethena Labs “will no longer be pursuing MiCAR authorization in Germany,” the company said, referring to the Markets in Crypto-Assets Regulation.

The company reiterated that Ethena’s German subsidiary has not conducted any mint or redeem activity for USDe since March 21, the day BaFin halted the stablecoin’s activities. As Cointelegraph reported at the time, the German regulator identified compliance failures and potential securities law violations tied to USDe.

“All whitelisted mint and redeem users previously interacting with Ethena GmbH have at their request been onboarded with Ethena (BVI) Limited instead and have no ongoing relationship with Ethena GmbH whatsoever,” the company said.  

Unlike popular stablecoins USDt (USDT) and USDC (USDC), Ethena’s USDe maintains its dollar peg through an automated delta-hedging strategy that includes a combination of spot holdings, onchain custody and liquidity buffers.  

USDe is the fourth-largest stablecoin with a total circulating value of $4.9 billion, according to CoinMarketCap.

Germany, European Union, Stablecoin, MiCA

The $233-billion stablecoin market is dominated by USDT and USDC. Source: CoinMarketCap

Related: Northern Marianas vetoes bill for Tinian to launch its own USD stablecoin

MiCA tightens the noose around stablecoin usage

MiCA is a comprehensive framework for cryptocurrency usage across the European Union, enforcing strict compliance standards and consumer protections.

To meet the new requirements, stablecoin issuers must have adequate reserves backing their tokens, ensure reserve assets are segregated from users’ assets and fulfill regular reporting obligations.

As of February, 10 stablecoin issuers have been approved under MiCA, including Circle, Crypto.com, Societe Generale and Membrane Finance.

Patrick Hansen, Circle’s senior director of EU strategy and policy, told Cointelegraph that a total of 10 euro-pegged stablecoins and five US dollar-pegged stablecoins have been approved so far.

However, notably absent from the list is USDt issuer Tether, which has decided not to pursue MiCA registration at this time.

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Crypto’s debanking problem persists despite new regulations

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Crypto’s debanking problem persists despite new regulations

Crypto’s debanking problem persists despite new regulations

The crypto industry’s inability to access banking services still concerns many industry observers despite recent policy victories.

In past years, financial services firms and banks concerned about fiduciary risk, reporting liabilities and reputational risk often would refuse to offer service to crypto firms — i.e., “debanking” them. 

Legislative efforts in the United States and Australia are attempting to remove these barriers for the crypto industry. In the former, legislators repealed guidelines that made it difficult for banks to custody crypto assets, as well as those stating that crypto carried “reputational risk” for banks. In the latter, the Labor Party has introduced a bill to create a legal framework for crypto, giving banks the clarity they need to interact with the crypto industry.

Despite these tangible efforts, some crypto industry observers say that the crypto’s debanking problem is far from over. 

Crypto’s debanking problem persists despite new regulations

US crypto execs say debanking is still an issue 

The crypto industry has long decried “Operation Chokepoint 2.0,” its nickname for a suite of policies that they claim constrained the crypto industry from growing under the administration of former President Joe Biden. Among these were measures making it more difficult for crypto firms to access banking services. 

The early days of the second administration of President Donald Trump have seen many of these repealed or changed. One of the first was the repeal of Staff Accounting Bulletin 121, which required banks offering custody for customers’ cryptocurrencies to list them as liabilities on their balance sheets — this made it very difficult for banks to justify offering such services.

The administration also appointed a new head of the Office of the Comptroller of the Currency (OCC), Rodney Hood. Dennis Porter, CEO of the Bitcoin-focused policy organization Satoshi Action, told Cointelegraph that under Hood’s tenure, the OCC has already said banks can offer crypto-related services like custody, stablecoin reserves and blockchain participation.

Related: Atkins becomes next SEC chair: What’s next for the crypto industry

“This opens the door for broader adoption of digital asset technology and custodial services by traditional financial institutions, signaling a major shift in how banks engage with crypto,” he said.

Despite these victories, Caitlin Long, founder and CEO of Custodia Bank, said on March 21 that debanking is likely to remain a problem for crypto firms into 2026.

Long said the non-partisan board of governors of the Federal Reserve is “still controlled by Democrats,” alluding to Democrats’ more skeptical stance on crypto. Long claimed that “there are two crypto-friendly banks under examination by the Fed right now, and an army of examiners was sent into these banks, including the examiners from Washington, a literal army just smothering the banks.”

Long noted that Trump won’t be able to appoint a new Fed governor until January, meaning that, while other agencies may be more crypto-friendly, there are still roadblocks. 

Australia’s Labor Party to create crypto framework

Stand With Crypto, the “grassroots” crypto advocacy organization started by Coinbase that has spread to the US, UK, Canada and Australia, said that “in Australia, debanking is quietly shutting out innovators and entrepreneurs — particularly in the crypto and blockchain space.”

In a post on X, the organization claimed that debanking results in “reputational damage, loss of revenue, increased operational costs, and inability to launch or sustain services.” It also claimed that it forces some companies to move offshore. 

In response to these concerns, the ruling center-left Labor Party in Australia has proposed a new set of laws for the cryptocurrency industry. The changes to current financial services law seek to tackle the issue of debanking in the country’s cryptocurrency industry.

Crypto’s debanking problem persists despite new regulations

Australia’s Treasury says its new crypto regulations have four priorities. Source: Australian Department of the Treasury

Edward Carroll, head of global markets and corporate finance at MHC Digital Group — an Australian crypto platform — told Cointelegraph that in Australia, debanking decisions were “not the result of regulatory directives.”

“Rather, they appear to stem from a more general sense of risk aversion due to the current lack of a clear regulatory framework.”

Related: US gov’t actions give clue about upcoming crypto regulation

Carroll was optimistic about the Labor Party’s proactive stance. The major political parties were “showing a shift in sentiment and a shared commitment to establishing formal crypto regulation.” 

“We are hopeful that this will give banks the confidence to reengage with crypto businesses that meet compliance standards,” he said.

Canada unlikely to relieve crypto firms

In Canada, “debanking remains a serious and ongoing challenge for the Canadian crypto industry,” according to Morva Rohani, executive director of the Canadian Web3 Council.

“While some firms have successfully established relationships with banking partners, many continue to face account closures or denials with little explanation or recourse,” she told Cointelegraph. 

While debanking actions aren’t explicit, financial institutions’ interpretation of Anti-Money Laundering and Know Your Customer regulations “creates a risk-averse environment where banks weigh compliance and reputational concerns against the relatively low revenue potential of crypto clients.”

The end result, per Rohani, is a systemic debanking problem for the digital assets industry.

But unlike in the US and Australia, the Canadian crypto industry may not find relief anytime soon. Prime Minister Mark Carney, whose more crypto-skeptic Liberal Party is surging in the polls ahead of the April 28 snap elections, is himself a crypto-skeptic.

Crypto’s debanking problem persists despite new regulations

Polls show Carney firmly in the lead. Source: Ipsos

Carney has stated that the future of money lies more in a “central bank stablecoin,” otherwise referred to as a central bank digital currency.

Rohani said that “no comprehensive legislative solution has been implemented” with regard to debanking. “A more structured approach, including mandated disclosure of reasons for account termination and regulatory oversight, is needed,” she said.

Critics claim crypto is “hijacking” the debanking issue

There is another side to the debanking debate, which claims that crypto’s debanking “problem” is a non-issue or a vehicle for crypto firms to get what they want in terms of regulation. 

Molly White, the author of Web3 Is Going Just Great and the “Citation Needed” newsletter, has noted that, in the US at least, crypto firms have claimed to be victims of debanking while lauding Trump’s efforts to end protections for debanking at the same time.

In a Feb. 14 post, White stated that the crypto industry had “hijacked” the discussion around debanking, which contains legitimate concerns regarding access to financial services — particularly regarding discrimination due to race, religious identity or industry affiliation. 

She claims the crypto industry has used debanking as a means to deflect legitimate regulatory inquiries into crypto companies’ compliance efforts. 

Further of note is the fact that Coinbase CEO Brian Armstrong has applauded the efforts of the Department of Government Efficiency (DOGE), with Elon Musk at the helm, to dismantle the Consumer Financial Protection Bureau (CFPB).

One of the CFPB’s responsibilities is to investigate claims of debanking. But when DOGE instructed the agency to halt all work, Armstrong said it was “100% the right call,” in addition to making dubious claims about the agency’s constitutionality. 

Crypto’s debanking problem persists despite new regulations

In the meantime

Whether the industry’s debanking concerns stem from legitimate discrimination or an attempt at regulatory capture, crypto firms are developing solutions in the interim. 

Porter said that, as an alternative to banking services, “many crypto companies have leaned on stablecoins as a primary tool for managing finances,” while others have worked with “smaller regional banks or specialized trust companies open to digital assets.”

Rohani said that this kind of “patchwork of relationships” can increase operational costs and risks and are “not sustainable long-term solutions for growth or to build a competitive, regulated industry.”

Porter concluded that the banking workarounds could actually strengthen the industry’s position, stating that they may “continue evolving into fully integrated relationships with traditional financial institutions, further cementing crypto’s place in mainstream finance.”

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