The United States requires DeFi to have KYC and pay taxes, and the cryptocurrency industry strongly protests

Author: Lianke Tianxia link

Today, the United States Internal Revenue Service (IRS) issued a new Tax reporting rules require certain decentralized finance (DeFi) brokers to collect user transaction information and provide customers with 1099 tax forms (used to report income from non-employee compensation). The controversial regulation sparked a backlash from the cryptocurrency industry, especially amid rising privacy and compliance concerns.

According to the new regulations, DeFi brokers that conduct digital asset transactions with customers must report their total proceeds from digital asset sales and collect users’ personal information, including names and addresses. This requirement is similar to the reporting obligations of traditional securities brokers, meaning that DeFi platforms face tremendous pressure in terms of compliance.

"DeFi brokers" defined by the IRS mainly refer to front-end service providers that directly interact with users for transactions, such as decentralized exchanges (DEX) ). The regulations apply to entities that allow users to access the main website of a DeFi protocol, not the developer or operator of the DeFi protocol.

It is reported that this policy of the IRS is expected to take effect on or after January 1, 2027, which may affect 2.6 million taxpayers and 875 DeFi brokers. business impact. This means that a wide range of users and platforms will be affected by this compliance requirement.

As soon as the new regulations were released, opposition from the cryptocurrency industry immediately sounded. Many industry experts and legal advisors point out that cryptocurrencies are fundamentally different from traditional assets, and that DeFi operates very differently from traditional finance, especially in terms of establishing information collection and reporting mechanisms, and the technical and compliance challenges faced by DeFi service providers. Much larger than traditional financial institutions.

At the same time, privacy is the most concerning issue for many opponents. It is generally said that this new regulation will seriously infringe on users' privacy rights and increase the risk of user information leakage. Among them, Bill Hughes, director of global regulatory affairs at Metamask parent company Consensys, even said that the industry may file a lawsuit against the rule, arguing that it exceeds the power of the Treasury Department and violates the Administrative Procedure Act. He also noted that Trump's Congress may review the rule and veto it.

Additionally, many participants believe that this rule represents a fantastic expansion of the term "transaction fulfillment" and means that the IRS may have the ability to ban certain DeFi Activity. It may eventually lead to the closure of some small DeFi platforms, thus affecting the healthy development of the entire market. This illegal rule is the “death struggle” of the Biden administration’s anti-encryption forces as they lose power and must be overturned by the courts or a future administration.

As opposition grows, some lawmakers are calling on Congress to take action to block implementation of the new rule. Alexander Grieve, a vice president at venture capital firm Paradigm, said that members of Congress who support cryptocurrencies should use the Congressional Review Process (CRA) next year to eliminate these regulations, which is often used to overturn certain actions of federal agencies.

And some analysts believe that Trump's return may change the current policy direction. Trump had a relatively relaxed attitude towards cryptocurrencies during his term in office, supporting innovation and development. If he is re-elected, the current compliance pressure and regulatory requirements may be re-examined, which will affect the development of the DeFi industry.

In short, the new IRS regulations have posed new challenges to the DeFi industry. Although opposition voices in the industry are rising one after another, in the future political and legislative environment , there is still uncertainty whether this policy can be implemented. Meanwhile, industry players are banking on future legislative changes and even the return of the Trump administration to prevent the policy from being implemented. As the new regulations come into effect in 2027, how the future of the encryption industry will evolve deserves our close attention.