Is the Biden administration's final blow to the DeFi industry, or is there still room for maneuver?

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) officially released new tax regulations for brokers in the Decentralized Finance (DeFi) sector this week, requiring reporting of total digital asset transaction proceeds from 2027 onwards. Despite the finalization of the new regulations, their future implementation is not set in stone. (Background: “Michael Saylor: Trump really wants to build BTC reserves! Has met with the new government team multiple times”) The U.S. Department of the Treasury and the IRS issued the final regulations on Friday (27), which will require ‘Decentralized Finance brokers’ to report the total proceeds from digital asset sales from January 1, 2027, in order to strengthen tax compliance and narrow the tax gap. The new regulations clearly define the scope of brokers, covering various types of service providers in cryptocurrency transactions, with a special focus on refining the tax information reporting obligations for participants in Decentralized Finance. Decentralized Finance Broker New Regulations: Obligations, Scope, and Exceptions Analysis Broker Information Reporting Obligations According to KOL @Phyrex_Ni, all Decentralized Finance brokers will need to submit information reports to the IRS (such as Form 1099-B) in the future, including the following information: Total transaction income: The total proceeds from digital asset transactions. Information of the parties involved in the transaction: including basic information such as identity and Address. Transaction details: Record the asset transfer price and the underlying cost. Expansion of Broker Scope The new regulations clearly define the definition of brokers, encompassing individuals and organizations serving in digital asset transactions, including but not limited to: Transaction matching service providers. Market makers. Order matching service providers. Enterprises providing custody or custodial services, especially in Decentralized Finance, intermediaries participating in digital asset transactions, such as major entry websites or protocol front-end service providers involved in digital asset transfers, will also be considered as brokers. Exception Clauses The following categories are not within the scope of broker reporting obligations: Participants solely responsible for verifying transactions (such as validators). Suppliers providing hardware or software management of digital assets’ Private Key. Other participants who do not directly facilitate transactions or are not aware of transaction details. The news of the new regulations has sparked widespread criticism within the encryption industry, and the specification of ‘Decentralized Finance requiring KYC’ has been deemed absurd internally. In fact, Alex Thorn, the research director of Galaxy Digital, pointed out last year that the Decentralized Finance industry may face three options in the future: Decentralized Finance services and applications can choose to comply with the IRS’s reporting requirements. First: Accept broker identity; Second: Attempt to prevent U.S. users from using their services; Third: Abandon upgrades to Smart Contracts and income generation. Decentralized Finance applications that do not provide front-end websites, do not support contract upgrades, and do not charge consideration from the disposal of digital assets (i.e., do not charge fees) may be exempt from being considered as brokers. In other words, extremely decentralized applications may be unable to obtain relevant information and therefore cannot meet the broker’s reporting requirements. Despite the finalization of the new regulations, their future implementation is not set in stone. According to the process, the new regulations may face congressional review, especially after the inauguration of new congressional members, who have the power to reconsider and veto. Successful cases in the past include this year’s congressional vote to veto the SAB 121 rule on digital asset accounting treatment. Consensys lawyer Bill Hughes criticized the timing of the new regulations’ release on platform X and explained: First, a lawsuit will be filed, alleging that the regulations exceed the authority of the Treasury Department and violate the Administrative Procedure Act. Subsequently, the regulations may undergo congressional review, where Congress can veto the regulations, as was the case with the vote on SAB 121 this year. The outgoing government is not leaving quietly, and this struggle continues.