Will IRS Rules Force DeFi Platforms to Shut Down? Industry Reacts
- The IRSs proposed rule to classify DeFi front-ends as brokers could reshape the crypto landscape, demanding compliance or U.S. user restrictions.
- DeFi platforms face stringent tax reporting, potentially stifling decentralized innovation within U.S. borders.
- Industry-wide impacts include compliance hurdles and possible relocation of DeFi services overseas.
The IRSs latest proposal to classify decentralized finance (DeFi) platforms as brokers under the Infrastructure Investment & Jobs Act has sent ripples through the crypto community. This far-reaching rule targets all those that provide services enabling digital asset sales, imposing Know Your Customer requirements and robust tax reporting for U.S. users.
This development builds upon the legislative groundwork from 2021, when the already-vague language hinted at wallet providers, dApps, and NFT marketplaces under the broker label. Alex Thorn, head of research at Galaxy Digital, said compliance could make most DeFi operations impossible to maintain and urged policymakers to reconsider the regulations.
Strain on DeFi: Innovators at a Crossroads
The proposal suggests that any party in a position to modify its protocols and collect user data in connection with a particular transaction-which would include noncustodial wallets such as MetaMask, through which people indirectly perform token swaps-must do so. DeFi frontends, such as Uniswaps website, need to introduce KYC policies banning access for US users if the proposal becomes binding.
It doesnt help even decentralized applications ran by DAOs. What seems to be happening is the IRS harks back to broker classifications with upgradeable smart contracts-a compliance burden bound to make every reasonable blockchain project choke. Many of them have just blocked U.S. users or are relocating operations to more friendly regulatory environments.
Broader Implications and the Road Ahead
Crypto developers and platforms are at a crossroads: comply with strict U.S. regulations or move operations abroad. If the IRS were to adopt this approach as is, it would mean an American Great Firewall that would disconnect U.S. users from access to decentralized financial tools and, in effect, reshape the trajectory of the industry.
Comments on the proposal have been invited by the IRS through Oct. 30, and a public hearing is scheduled for Nov. 7, but the looming 2025 compliance deadline for tax reporting would seem to suggest preparation for an operational sea-change should, at the least, get under way.
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Read more: https://www.tronweekly.com/will-irs-rules-force-defi-to-shut-down/
Text source: TronWeekly
