- DeFi protocols are shifting from rapid growth to a more sustainable, mature phase.
- The steady expansion of DeFi suggests room for growth before excessive optimism sets in.
- DeFi’s current growth trajectory reflects a shift away from the 2021 market frenzy.
The decentralized finance industry experienced a major transformation in its expansion pattern. The data provided by IntoTheBlock shows new DeFi protocols expanded rapidly in late 2021, yet the expansion stabilized to maintain an upward trend. The market transformation demonstrates the adoption of steady expansion over the previous rush of protocol creation. The significant expansion, particularly within established protocols, signals that DeFi is transitioning from its initial explosive growth phase into a period of continuous innovation.
The chart shows a significant growth for both existing and new protocols in the second half of 2021. However, the pace of new protocol development has slowed considerably, while the industry focus has shifted toward maintaining and strengthening existing platforms. The rising number of existing DeFi protocols combined with declining new platform launches serves as evidence that the market has become more stable in its development.
Congress Nullifies IRS Reporting Rule
The U.S. House of Representatives made a timely decision that benefits the DeFi sector by voting to eliminate the controversial IRS reporting rule which demanded DeFi protocols to deliver transaction information containing user data and crypto sale gross values. The industry strongly opposed the regulation before the Senate vote. DeFi advocates claimed that this mandate presented excessive regulatory obligations which violated user privacy since it needed platforms to perform in-depth data monitoring and report extensive user data.
This decision eases regulatory pressure on both developers and users, reducing concerns over excessive data monitoring. Although the bill to repeal the regulation has passed the House of Representatives, it still needs to go through another Senate vote before being sent to President Donald Trump, who is a firm supporter of this bill and would likely sign it. Several industry leaders endorse the decision because it sustains the private and self-governing features of decentralized finance systems.
Related: White House Supports CRA to Overturn DeFi Broker Rule
Industry’s Response and Future Regulation
The privacy advocates view the rule’s elimination as favorable, but they also point out that DeFi regulatory matters require a resolution. Industry experts, advocate for structured regulations that resolve opposing forces between privacy and Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. The challenge to implement regulatory controls on decentralized systems without central authority continues to be a critical matter and zero-knowledge proofs emerge as potential solutions to merge privacy protection with compliance standards.
