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The crypto industry is pushing back against the U.S. Internal Revenue Service’s (IRS) proposed DeFi broker reporting requirements, arguing that the new rules could stifle innovation, threaten user privacy, and impose unrealistic compliance burdens. As regulators seek to tighten oversight of decentralized finance (DeFi), industry leaders are mobilizing to challenge what they view as overreach.
The IRS Proposal: A Game Changer for DeFi?
The IRS’s new rule aims to classify DeFi platforms, smart contracts, and even some non-custodial entities as “brokers,” requiring them to collect and report user transaction data. The move is part of a broader effort to close tax loopholes and enhance transparency in the crypto space. However, critics argue that DeFi’s decentralized nature makes compliance virtually impossible.
Industry Leaders Push Back
Crypto advocacy groups, legal experts, and major DeFi platforms are voicing strong opposition:
Coin Center & Blockchain Association – Calling the rule “unworkable,” they argue that DeFi protocols, which operate autonomously, lack the ability to collect user data like traditional financial institutions.
Coinbase & Other Exchanges – While centralized platforms already comply with tax reporting laws, they warn that extending these requirements to DeFi could drive innovation outside the U.S.
Lawmakers & Policy Advocates – Some pro-crypto legislators argue that imposing harsh regulations on DeFi could push developers and capital offshore, hurting America’s leadership in blockchain technology.
Key Concerns: Innovation, Privacy, and Feasibility
Industry critics highlight three major issues with the IRS proposal:
Decentralization & Feasibility – Many DeFi protocols are run by smart contracts, not centralized entities, making compliance technically impossible.
Privacy Risks – Mandatory transaction reporting could compromise user anonymity and expose sensitive financial data to government overreach.
Chilling Effect on Innovation – If enforced, the rules could push DeFi projects away from U.S. jurisdiction, reducing the country’s influence in the crypto space.
The crypto industry is expected to challenge the IRS rule through public comments, lobbying efforts, and potential legal battles. Some experts suggest that a more tailored regulatory approach—focusing on on-ramp/off-ramp compliance rather than DeFi protocols themselves—could strike a better balance between oversight and innovation.
With crypto advocates gearing up for a fight, the coming months will be crucial in determining the future of DeFi regulation in the U.S. Will the IRS back down, or will DeFi platforms be forced into a compliance nightmare?
