Blockchain Association Warns IRS That Proposed Tax Rule Change Could Crush U.S. DeFi Industry

The Blockchain Association has submitted a scathing 33-page comment to the U.S. Treasury and IRS, warning that the proposed redefinition of the word "broker" in a federal tax rule could have dire consequences for the decentralized finance (DeFi) industry in the United States. The proposed change expands the definition of "broker" to include any centralized crypto exchange or DeFi project facilitating the transfer of digital assets, subjecting them to the same reporting rules as traditional financial brokers.

The Blockchain Association argues that imposing such a standard on DeFi projects is impractical and could lead to severe privacy issues. The group asserts that DeFi's core principle is to create trustless financial systems by leveraging smart contracts and automation to prevent a project's creator from having control over or access to users' finances and information. Linking wallet addresses to personal identities, as proposed, would compromise user privacy, akin to publishing a lifetime of credit card transactions online.

The Blockchain Association contends that the proposed rule would force U.S.-based decentralized projects abroad or lead to their demise. Marisa Tashman Coppel, Senior Counsel at the Blockchain Association, highlighted on Twitter that the rule would create a "serious and permanent privacy issue" for users, and likened it to exposing each user's entire transaction history to the world.

The proposed IRS rule has been open for a 74-day public comment period, during which it received over 124,000 public comments. The Blockchain Association expressed concerns that the rule, if adopted, could crush the American DeFi industry. Coppel, cautiously optimistic about the proceedings, noted that IRS regulators appeared engaged and asked thoughtful questions during the public hearing. The IRS will decide on the adoption of the rule after the public comment period concludes.