Proposed “Broker Rule” in US Could Threaten DeFi, Warns Blockchain Association

A potentially pivotal decision for decentralized finance (DeFi) comes to the US.

  • The Blockchain Association expresses concern over the U.S. Treasury and IRS’s proposed redefinition of “broker” in tax rules, fearing it could severely impact DeFi in the U.S.
  • The Association argues that this change would place impractical standards on DeFi projects, potentially leading to their demise or relocation.
  • As the IRS concludes its public comment period on the rule, the industry watches closely, with cautious optimism about the outcome.

The U.S. Treasury and the Internal Revenue Service (IRS) are at a critical juncture with a proposed tax rule change that could have far-reaching effects on decentralized finance (DeFi) in the United States. The Blockchain Association, a prominent crypto lobbying group, has expressed significant concern over this development.

The focal point of the issue is the proposed redefinition of the term “broker” in federal tax rules. This change, if implemented, could place DeFi projects in the U.S. under the same reporting obligations as traditional bond and stock brokers. The Association warns that such a move could either obliterate these projects or force them to move offshore.

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DeFi’s Future in the Balance: The Blockchain Association’s Stance

In a detailed 33-page comment submitted to the IRS, the Blockchain Association emphasized the fundamental nature of DeFi projects. These projects rely on smart contracts and automation to create trustless financial systems, where the creators do not control or access users’ financial information.

The Association argues that linking wallet addresses to personal identities under the new rule would be a significant privacy violation, likening it to publishing a user’s entire credit card transaction history online.

The redefinition of “broker” would broaden its scope to include any centralized crypto exchange in the U.S. or any crypto project aiding in digital asset transfers. This framework would encompass almost every DeFi protocol, placing unrealistic reporting requirements on them, according to the Association.

Marisa Tashman Coppel, senior counsel at the Blockchain Association, stated on Twitter that this could lead to the termination or relocation of U.S.-based decentralized projects.

Navigating Regulatory Challenges for the Future of DeFi

The IRS’s proposed rule has been open for public comment for 74 days, attracting over 124,000 comments. A public hearing on the matter was recently held, where IRS officials engaged in a detailed discussion about decentralized tech, NFTs, and stablecoins.

Coppel, who participated in the hearing, noted that the IRS regulators asked insightful questions, indicating a serious consideration of the concerns raised. She expressed cautious optimism about the outcome of the proceedings.

The Blockchain Association’s stance reflects a broader apprehension within the crypto industry about regulatory moves that could stifle innovation. The outcome of this decision is seen as pivotal, not just for the American DeFi industry, but for the global perception of the U.S. as a hub for technological advancement in decentralized finance.

As the deadline for the IRS’s decision draws near, the industry awaits with bated breath, hoping for a resolution that balances regulatory oversight with the growth and development of decentralized financial systems.

The Blockchain Association’s efforts highlight the need for open dialogue and collaboration between regulators and industry players to foster a conducive environment for the evolution of DeFi and related technologies.

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