The IRS is changing the rules of the game for #DeFi: reactions and possible consequences
On December 27, 2024, the US Internal Revenue Service (IRS) announced new rules that classify certain decentralized finance (DeFi) protocols as brokers. This decision has caused a wide resonance in the crypto industry, as now even decentralized platforms are required to collect data on user transactions and submit them to tax authorities.
What happened?
According to the new IRS rules, some DeFi protocols that previously operated without centralized control are now required to provide the tax service with user transaction data. The document specifies that the status of "broker" applies to platforms that facilitate the exchange of digital assets, including providing smart contracts for trading or lending.
In practice, this means that such platforms will be required to collect and transmit information about their users, including their identification details and transaction specifics.
The essence of the new rules
According to the changes, DeFi protocols that provide users with the ability to exchange, lend, or trade digital assets fall under the status of "broker." These platforms are now required to:
Comply with KYC (know your customer) rules.
Document user transactions.
Provide data to the IRS as part of tax reporting.
Critics argue that the new requirements contradict the core principles of decentralization — anonymity and autonomy.
Reaction of the crypto industry
Representatives of the crypto industry expressed serious concerns about the consequences of these rules. They believe that the introduction of new norms contradicts the very essence of decentralized finance, where anonymity and the lack of reliance on centralized structures are fundamental.
Christine Smith, executive director of the Blockchain Association, noted:
"These rules demonstrate a clear misunderstanding of the nature of DeFi. The IRS requirements are virtually impossible to fulfill for protocols that operate without centralized management."
Many DeFi developers believe that the IRS classification ignores the technical architecture of decentralized protocols.
How will this affect the industry?
1. Increased operational costs
DeFi protocols that wish to continue operating under the new requirements will face the need to develop complex systems for collecting user data. This will lead to increased costs for technical support and legal assistance.
2. Outflow of users
Users accustomed to anonymity in DeFi may migrate to protocols operating outside US jurisdiction or abandon the use of such platforms altogether.
3. Threat to innovation
Many startups and projects in the DeFi space are now forced to rethink their plans. This could slow down the industry's development and reduce its investment attractiveness.
Why is this important for users?
For ordinary DeFi users, the new rules may lead to complications in tax reporting. For example, if a user was involved in staking or providing liquidity on a platform, these actions may be classified as taxable events.
Previously, such operations often went unnoticed by regulators due to the complexity of tracking them. Now the IRS plans to obtain all necessary data from the protocols themselves.
Expert opinions
Digital asset tax expert Jason Polk commented:
"The IRS seems to be trying to close tax loopholes but does so with minimal consideration for technical realities. DeFi platforms find themselves in a highly complicated position."
On the other hand, some analysts believe that the new rules may contribute to greater legitimization of the industry. Peter Manning, an analyst at KPMG, stated:
"Despite the criticism, the implementation of reporting standards may attract institutional investors in the long term who prefer to operate within transparent legal frameworks."
Developers' position and protests
Despite criticism from users and analysts, some developers are already beginning to adapt to the new rules. However, a significant part of the industry is openly opposing.
The organization Coin Center, which advocates for the rights of participants in the crypto industry, filed an official objection to the new rules. The organization's statement reads:
"These requirements represent regulatory pressure that threatens the integrity and accessibility of decentralized financial platforms."
Which protocols have already fallen under classification?
Popular protocols such as Uniswap, Aave, and Compound may fall under the new rules. These platforms are actively used for exchanging cryptocurrencies, lending, and trading derivatives.
The future of DeFi under the new rules
The prospects for DeFi in the US are becoming uncertain. If the rules remain unchanged, then:
Some platforms may completely exit the American market.
Competition among international protocols that are not subject to US jurisdiction will intensify.
There may be a rise in popularity of completely anonymous protocols operating through decentralized autonomous organizations (DAOs).
Who already falls under the new rules?
The list of protocols that may fall under the new classification includes well-known platforms such as:
Uniswap #UNI — one of the largest decentralized exchanges.
#Aave — a platform for cryptocurrency lending.
Compound — a leader in decentralized asset management.
These projects are already facing the need to revise their operations in light of the new requirements.
Numbers and facts
At the time of the IRS announcement on December 27:
The total market capitalization of DeFi was around $45 billion.
The largest DeFi platforms provided liquidity of more than $15 billion.
According to the analytical company Chainalysis, over 70% of DeFi transactions occur through American users.
Protests and alternatives
Large crypto organizations such as Coin Center and the Blockchain Association have already filed official objections. They argue that the IRS is trying to apply outdated approaches to regulate modern technologies.
Stephen Lewis, technical director of Uniswap, stated:
"Imposing centralized requirements on decentralized protocols violates the fundamental principles of our work. We will fight to maintain autonomy."
The introduction of new IRS rules has been a turning point for the decentralized finance industry. On one hand, these measures aim to increase transparency and combat tax evasion. On the other hand, they pose significant challenges for DeFi protocols and their users.
Whether this regulation will promote further market development or, on the contrary, become a barrier to innovation will only be revealed with time. However, it is already clear that the crypto industry is ready to fight for its principles, defending freedom and decentralization.