DeFi Remains Outside the Regulatory Cross‑hairs – For Now
While European tax rules, U.S. market‑structure legislation and AML initiatives tighten their grip on crypto intermediaries, decentralized finance (DeFi) continues to sit in a regulatory gray zone. The situation is fluid, however, as authorities explore new ways to bring the sector under oversight.
EU’s DAC‑8 Framework Leaves DeFi Untouched – At Least Temporarily
The European Union’s latest crypto‑tax reporting directive, DAC‑8, is being rolled out in tandem with the OECD’s Crypto‑Asset Reporting Framework (CARF). The rules are deliberately aimed at “enforceable targets” – entities such as custodians, exchanges and other on‑ramps that can be identified and compelled to submit standardized activity data.
According to Colby Mangels, Taxbit’s global head of government solutions and a former OECD adviser, the EU’s approach is pragmatic: it first captures the “visible” parts of the market. “DeFi protocols, by design, lack a central point of control, which makes them difficult to fit into the current reporting model,” he explains.
Nevertheless, Mangels warns that the exemption may not survive indefinitely. Tax authorities are increasingly borrowing anti‑money‑laundering (AML) language to define accountability across the crypto ecosystem, and regulators are watching whether DeFi platforms could be re‑characterised as virtual‑asset service providers (VASPs). Should that happen, they would fall under the same reporting obligations as traditional intermediaries.
U.S. Lawmakers Tackle DeFi in the Digital Commodity Intermediaries Act
In Washington, the long‑awaited Digital Commodity Intermediaries Act (DCIA) is entering a crucial markup stage. The bill is intended to clarify the split of regulatory authority between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
DeFi has emerged as a flashpoint in the debate. Several senators are preparing amendments that would either broaden the definition of “commodity intermediary” to capture DeFi protocols or, conversely, carve out limited exemptions. Lawmakers and industry groups alike caution that overly expansive language could stifle innovation, while insufficient oversight may leave systemic risks unchecked. The outcome will likely set a precedent for how the United States treats non‑custodial, trust‑less finance infrastructure.
Regional Moves Signal Growing Institutional Interest in DeFi
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Japan’s Bitcoin‑DeFi Bridge – Animoca Brands Japan and Rootstock Labs announced a partnership to deliver Bitcoin‑native DeFi tools to Japanese corporations for treasury management. By localising Rootstock’s merged‑mining solution, which anchors smart‑contract execution to Bitcoin’s proof‑of‑work, the collaboration aims to give companies a way to earn yield on BTC holdings beyond simple custody. The move reflects a broader trend among Japanese firms to treat Bitcoin as a balance‑sheet asset and to explore on‑chain financial services.
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DePIN’s Quiet Expansion – A joint “State of DePIN 2025” report from Messari and Escape Velocity reveals that decentralized physical‑infrastructure networks have reached an estimated $10 billion market size, generating roughly $72 million in on‑chain revenue last year. Despite a severe token‑price slump—most DePIN tokens sit 90 % below their peaks—revenue streams from bandwidth, compute, energy and sensor data remain robust. The report argues that DePIN is gravitating toward an “infrastructure‑as‑a‑service” model where real‑world usage, rather than speculative token value, drives sustainability.
- Bitcoin Rollup Revives Block‑Space Debate – Citrea’s launch of a Bitcoin zero‑knowledge rollup, featuring BTC‑backed lending, structured products and a native USD‑stablecoin (ctUSD), has reignited discussions about how much transaction‑level complexity the Bitcoin base layer should accommodate. By anchoring proofs and data availability to Bitcoin, Citrea hopes to mobilise “economically idle” BTC into active DeFi liquidity, with a projected $50 million in early‑stage funds. Critics argue that such usage could strain block space, raising questions about the long‑term scalability of Bitcoin as a DeFi hub.
Market Snapshot
Data from Cointelegraph Markets Pro and TradingView show that the majority of the 100 largest cryptocurrencies finished the week in negative territory. The Yei Finance (CLO) token recorded the steepest decline—down more than 58 % over seven days—followed closely by Seeker (SKR) with a 55 % drop. Total Value Locked (TVL) across DeFi platforms, according to DeFiLlama, continues to wobble but remains above $40 billion, underscoring the sector’s resilience despite price pressure.
Analysis
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Regulatory Focus on Intermediaries First – Both the EU and the U.S. are prioritising entities that can be readily identified and compelled to comply. This “top‑down” approach allows regulators to capture a substantial portion of crypto activity while buying time to understand the complexities of DeFi.
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AML as a Bridge to DeFi Oversight – As tax frameworks hit their limits, AML legislation offers a complementary pathway. By expanding the definition of VASPs to include protocol‑level actors, authorities could create a de‑facto reporting regime for DeFi without waiting for bespoke legislation.
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Institutional Adoption May Trigger New Scrutiny – The Animoca‑Rootstock partnership and Citrea’s Bitcoin‑rollup illustrate that mainstream institutions are beginning to interact with DeFi protocols. Greater institutional exposure typically invites regulatory attention, suggesting that the current carve‑out could narrow faster than anticipated.
- Revenue‑Driven Models Offer a Path to Legitimacy – The DePIN sector’s shift toward usage‑based revenue demonstrates an emerging narrative: sustainability through real‑world services rather than token speculation. This model could be more palatable to regulators, who often cite consumer protection and market stability concerns.
Key Takeaways
- DeFi enjoys a temporary regulatory exemption in the EU’s DAC‑8 and U.S. DCIA drafts, but both jurisdictions are actively exploring ways to bring the sector under AML and reporting regimes.
- Institutional interest is rising, with Japan’s corporate treasury use‑cases and Bitcoin‑rollup initiatives signaling broader acceptance of DeFi tools.
- Revenue‑focused DePIN projects illustrate a maturing ecosystem that may be more resilient to market downturns and regulatory pressure.
- Market sentiment remains bearish, as most top‑cap tokens and several DeFi assets posted double‑digit weekly declines.
- Future compliance obligations are likely: protocols that develop identifiable on‑ramps, custodial services or token‑gateways could become subject to CARF reporting or U.S. VASP classifications.
The coming months will be critical in determining whether DeFi remains a regulatory outlier or becomes the next frontier of crypto oversight. Stakeholders should monitor legislative amendments, AML policy updates, and the evolving commercial use‑cases that could reshape the sector’s risk profile.
Source: https://cointelegraph.com/news/defi-stays-outside-rules-regulators-tighten-finance-redefined?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
