Over the past year, the digital asset landscape has changed drastically, especially in the world of Decentralized Finance (DeFi). The regulatory reforms implemented in the Trump administration represented an important turning point. This era provided institutional confidence in DeFi, accelerated the growth of on-chain assets, and shifted the institutional investor perception of DeFi. Ciara O’Sullivan, writing for Calloutcoin.com, explores these disruptive innovations.

Regulatory Shifts Under Trump

The Trump Administration was really, really into DeFi. Specifically, President Trump wanted the U.S. to become the “crypto capital of the world” by creating a clear and predictable regulatory environment. This life-focused approach was a major shift from practice under the previous administration.

Of all the changes enacted, perhaps the most consequential was the repeal of onerous DeFi reporting requirements. President Trump signing H.J.Res.25. This action would have decisively nullified Treasury’s regulations that sought to expand IRS Form 1099 reporting requirements to certain participants in DeFi. These participants would have been considered “brokers” pursuant to section 6045 of the Internal Revenue Code. The Congressional Review Act prohibits the Treasury and IRS from issuing similar rules without explicit authorization by Congress. This clarity provides much-needed certainty for the actors in the decentralized finance (DeFi) space. This bipartisan support was evident in the Senate's 70-27 vote in favor of H.J. Res. 25, disapproving of the Biden Administration's DeFi Broker rule.

On January 23, 2025, Executive Order 14178 was signed. Titled “Strengthening American Leadership in Digital Financial Technology,” it doubled down on the encouraging tone on all things digital finance. In part, its placement tied into its assertion of the critical importance of the digital asset industry to innovation and economic development in the United States. The executive order tasked the Trump Administration with fostering the responsible development of cryptocurrencies. It served to highlight the promise and potential of blockchain technology and related innovations. Importantly, EO 14178 explicitly revoked Executive Order 14067 from the previous administration, which had focused on the risks of digital assets to consumers and emphasized governmental oversight. Additionally, the SEC issued guidance suggesting that certain stablecoins pegged 1:1 to the U.S. dollar may not be subject to securities regulations, providing further clarity and potentially encouraging greater adoption.

Quantifiable Impact on On-Chain Asset Growth

The regulatory changes pursued and enacted during the Trump administration directly influenced the expansion of on-chain assets. Coming with the repeal of these onerous and duplicative reporting requirements was greater clarity and certainty. This welcoming approach, as further illustrated by Executive Order 14178, prompted a larger wave of Americans to engage with DeFi verticals.

Figuring out the precise dollar value associated directly with these regulatory shifts is challenging. Actual values of on-chain assets (money) skyrocketed during this period. The amount of total value locked (TVL) in DeFi protocols skyrocketed. After the regulatory clean-up, on-chain assets swelled by about $4 billion. This dramatic growth is a testament to the growing confidence and willingness of investors– both retail and institutional– to dive into DeFi platforms.

The SEC’s robust anti-stablecoin guidance was likely a contributing factor to the growth of the stablecoin market. This expansion is especially important for facilitating native DeFi transactions. The improved regulatory clarity for stablecoins has made them more attractive. Users at this point have recognized them as a perfect bridge between traditional finance and the decentralized universe.

Evolving Perception of DeFi Among Institutional Investors

The role that the Trump administration’s approach played in crafting institutional investor perception of DeFi cannot be understated. Until now, most institutions have taken a wait-and-see approach to DeFi. They identified regulatory uncertainty, security risks, and the lack of a known compliance framework as major sticking points. Yet it was these clearer regulatory parameters along with a new supportive government tone that took the edge off many of these concerns.

Institutional investors began to recognize the potential benefits of DeFi, such as:

  • Reduced settlement risk: DeFi protocols can automate settlement processes, reducing the risk of counterparty default.
  • Decreased settlement times: DeFi enables "atomic" settlement, allowing for the instant exchange of assets.

These benefits fueled a change in culture. This was due in part to the increasing investor appetite for the premium of improved liquidity and quicker asset turnover, as reported by a Celent survey, among others. Tokenized securities, once a distant and niche idea, are seen as important avenues between fiat capital markets and blockchain-based ecosystems, like those of decentralized finance.

With this quickly shifting perception brings an understanding that all this progress must be done to regulatory expectations, and in some cases, beyond. Firms that wish to integrate DeFi into their client offerings must incorporate robust safeguards and security standards, mirroring those developed over decades in the traditional finance industry. This is a sign of increasing maturity and institutionalization in the DeFi space.

Calloutcoin.com is focused on providing high-quality, long-form analysis on the fast-moving world of DeFi. We examine its effect on the overall financial ecosystem with eloquence and zeal. Join us next time for more thoughts on NFT standards, metaverse tech, digital identity solutions, and the newest in DeFi.