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IRS DeFi Broker Rule Sparks Backlash: Crypto Experts Weigh In

IRS DeFi Broker Rule Sparks Backlash: Crypto Experts Weigh In

Cryptotale2024/12/28 00:11
By: Nynu V Jamal
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IRS DeFi Broker Rule Sparks Backlash: Crypto Experts Weigh In image 0
  • The IRS classified front-end protocols facilitating digital asset transactions as brokers, sparking criticism.
  • John Deaton called the tax ruling awful and un-American, adding that it is detrimental to DeFi.
  • Uniswap CLO Officer Katherine Minarik expressed doubts about the ruling’s durability, citing potential challenges.

The DeFi regulations finalized by the Biden administration and the Internal Revenue Service (IRS) has sparked widespread criticism. The crypto industry is pushing back against regulations that classified certain DeFi protocols as brokers, urging the incoming Congress to repeal the new rules. Industry experts and leaders question the ruling’s potential impact, assessing that it disrupts the growth of the DeFi ecosystem. Pro-XRP lawyer John Deaton slammed the decision, calling it “awful and un-American.”

The IRS has introduced new regulations that classify front-end protocols facilitating digital asset transactions as brokers, impacting up to 875 DeFi platforms. This ruling requires these platforms to adhere to the same reporting requirements as traditional brokers. As per the new regulations brokers report gross proceeds and issue Form 1099 to customers, effectively mandating the collection of user data, including names and addresses.

Addressing the IRS regulation titled, “Gross Proceeds Reporting by Brokers that Regularly Provide Services Effectuating Digital Asset Sales”, Deaton stated,

“The IRS regulation…is an attack on DeFi protocols because it imposes broker-like reporting requirements on decentralized platforms that lack centralized control. In sum, DeFi protocols are autonomous, permissionless smart contracts without intermediaries capable of collecting or reporting user information.”

Further, Deaton compared the regulation to Senator Elizabeth Warren’s Banker’s Ban on Bitcoin Bill. He added that the Senator’s proposal has banned individuals from holding their own Bitcoin by imposing unrealistic and impossible-to-meet requirements. Deaton also posited that such enforcement actions against DeFi would stifle innovation, causing developers and projects to relocate overseas.

Meanwhile, the Blockchain Association, DeFi Education Fund, and Texas Blockchain Council jointly filed a lawsuit challenging the IRS’ broker rulemaking. The lawsuit claimed that the ruling “risks crippling the U.S. digital asset sector.” Blockchain Association CEO Kristin Smith stated that the platforms would continue putting effort into ensuring the future of crypto and DeFi.

Uniswap’s Chief Legal Officer Katherine Minarik expressed doubts about the ruling’s durability, citing potential challenges. She also highlighted the necessity of introducing clear boundaries for regulating technology beyond the crypto industry. CEO Hayden Adams also raised his voice against the ruling, calling for Congressional actions under the Review Act.

 “This unlawful rule is the dying gasp of the anti-crypto army on its way out of power, commented Jake Chervinsky, chief legal officer at venture capital firm Variant. At the same time, Alexander Grieve, Paradigm executive draws the Congress’s attention to the matter, urging them to nullify the ruling the next year. 

The post IRS DeFi Broker Rule Sparks Backlash: Crypto Experts Weigh In appeared first on CryptoTale.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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