Key Insights
- The US Treasury and the IRS have proposed a new tax rule that would redefine the word “broker”.
- This rule would be a major pain in the neck for DeFi projects, which are designed to be trustless and permissionless.
- DeFi projects simply cannot comply with regulations that require them to collect and provide information about their users.
- The Blockchain Association has warned that this rule would kill DeFi in the US
- The IRS has received over 124,000 comments on the new proposal, which is open to 74 days of public comment that ends today.
DeFi in the US is about to come under serious attack, with just one word from the Internal Revenue Service (or IRS).
Here’s what’s getting the Blockchain Association so worked up:
How the IRS Could Wipe Out DeFi in the US With One Word
According to reports, the US Treasury, as well as the IRS have now proposed a new tax rule.
According to this rule, the word “broker” is about to have a new meaning. And before long, if nothing is done, there might be serious consequences for the De-Fi industry in the US.
So what is in this “Tax Rule”?
According to the US Treasury and the IRS, the word “broker” is about to include any company or entity that stands as a middleman between two people who want to transfer digital assets to one another.
By this definition, the crypto industry is one huge broker.
As such, “brokers” are obligated to provide information about their users, such as the amount sent, the identity of the senders, etc.
De-Fi literally means “Decentralized Finance”. And as such, the “broker” should not have any of these details required by the US Treasury.
Why This Rule Is A Pain In The Neck for DeFi
The Blockchain Association, in reaction to this new rule, has submitted a 33-page comment to the IRS.
According to the association’s comment, this rule will eventually kill DeFi.
DeFi projects are designed to be trustless and permissionless. This means that the details of the senders and receivers should not be recorded anywhere else except the blockchain, and neither should the amounts sent.
This means that De-Fi protocols rely only on smart contracts and automation to execute transactions. Because of this, DeFi service providers simply cannot comply with these regulations, even if they wanted to.
The Blockchain Association also warns that this rule would create a serious privacy problem that crypto users have to live with, as it would expose their entire transaction history to the public.
The blockchain association has also argued that doing this would be like posting customers’ social security numbers and credit card information online, which is unacceptable and dangerous.
Senior counsel to the Blockchain Association, Marisa Coppel, says that this rule would either drive DeFi projects out of the US or force them to shut down completely.
What the IRS Should Do Instead
The Blockchain Association instead asks the IRS to reconsider its definition of “broker” and exclude DeFi projects.
The IRS can adopt a more flexible approach to ensuring compliance.
This approach would recognize the diversity of the crypto ecosystem. The group also recommends that the IRS should engage with the crypto community to figure out a way forward.
And as such, the new proposal, while being open to 74 days of public comment that ends today, has received over 124,000 comments.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.
