New IRS Rules Require DeFi Operators to Standardize Reporting  

• New IRS rules require DeFi operators to report digital assets, including NFTs and stablecoins, ensuring standardized taxpayer compliance. 
• The revised framework aims to align DeFi brokers with traditional financial institutions, collecting and reporting user activity and cryptocurrency data. 
• Industry leaders and advocacy groups oppose the rules, citing privacy concerns and challenges for decentralized platforms to meet compliance standards. 

The U.S. Internal Revenue Service (IRS) unveiled finalized rules on December 27, requiring decentralized finance (DeFi) brokers to adhere to traditional securities reporting standards. These rules target “front-end” DeFi operators managing platforms like decentralized exchanges (DEXes) for users worldwide. By 2027, DeFi brokers must collect user activity data and report cryptocurrency proceeds. 

Expanded Scope Includes All Digital Assets 

The adjustment means that DeFi brokers are now required to provide details of the following assets: non-fungible tokens, or NFTs, and stablecoins. Aviva Aron-Dine, the acting assistant secretary for tax policy, pointed out that these rules are to establish consistent rules among taxpayers as well as to also avoid the dominance of some industries in financial reporting. 

The IRS and Treasury Department dismissed the lobbying that digital assets should not be under existing securities laws. They maintained that technical expertise in operating financial services does not justify separate regulatory treatment. Consequently, all entities providing financial services, including those in DeFi, must meet the same compliance standards.

Industry Opposition and Privacy Concerns 

Crypto industry advocates have expressed significant concerns, arguing that many DeFi protocols cannot comply with these stringent requirements. Critics fear that privacy could be eroded as platforms like Uniswap may be required to share sensitive Know Your Customer (KYC) data, such as user names and addresses, with authorities. 

Digital asset advocacy organizations, including The Blockchain Association, have vowed to oppose the IRS’s rules aggressively. These groups plan to engage in Congressional lobbying and may pursue litigation to delay or modify the regulations. Industry experts, such as Consensys attorney Bill Hughes, predict continued resistance to these policies, which many view as incompatible with decentralized systems. 

Timeline and Industry Reactions 

The rules, slated for implementation by January 1, 2027, were announced during the holiday season, a timing that some crypto leaders criticized as a strategic attempt to avoid immediate backlash. Despite this, industry leaders are prepared to mobilize against the regulations, highlighting the ongoing tension between innovation and regulatory oversight in the cryptocurrency space.