The IRS’s new regulations threaten the decentralized finance sector in crypto. How exactly?

The new regulations have sparked a wave of criticism among cryptocurrency fans on social media. Many legal experts believe that the IRS could thus exceed its authority and violate the constitutional rights of Americans. Accordingly, coin users expect that the new Congress, after the inauguration of President-elect Donald Trump, will promote more lenient regulations for the industry.

How Cryptocurrencies Are Regulated

According to Cointelegraph’s sources , the new rules do not directly apply to all DeFi applications and their level of decentralization, but tax reporting based on the actual income of their clients remains important.

That is, these requirements apply to platforms that facilitate digital asset transactions for clients, such as decentralized exchanges.

The definition in the IRS document includes platforms that act as intermediaries in conducting transactions. This includes groups of persons participating in these processes, “regardless of whether the group acts through a legal entity.”

Under the new rules, if a DeFi platform is involved in the exchange or sale of digital assets — even through smart contracts — and has sufficient control or influence over the transaction process, it can be classified as a broker.

And this will create a huge number of problems for developers of decentralized platforms like exchanges. Here is a retort on this matter.

These final rules will allow service providers to provide their clients with the same useful gross revenue information as custodial brokers.

The IRS says the new regulations “simply equate” DeFi with other traditional industries. After all, similar rules have been applied to brokers for more than 40 years.

The Treasury Department and the IRS disagree that these final rules reflect bias against the decentralized finance industry or that they will discourage legitimate consumers from using this technology.

The new rules will apply to digital asset sales beginning in 2027. Brokers must begin collecting and reporting the required data on digital asset transactions beginning in 2026. The IRS estimates that these rules will affect between 650 and 875 brokers and 2.6 million taxpayers.

The changes did not please many well-known representatives of the crypto community. Here is what Jake Chervinsky, General Counsel of Variant, had to say about it .

The IRS has finalized the second half of its rules for brokers, requiring most DeFi platforms to verify users’ identities starting in 2027. This illegal rule is the dying gasp of the anti-crypto army that is leaving power. It should be overturned either by the courts or a future presidential administration.

Paradigm Vice President Alexander Griev shared a similar opinion.

A new, pro-crypto Congress can and should repeal these measures through the CRA process next year.

The CRA, or Congressional Review Act, allows Congress to review and, in theory, reject regulations issued by multiple government agencies, including the U.S. tax authorities.

Meanwhile, the DeFi Education Fund and the Texas Blockchain Council have filed a lawsuit challenging the recently adopted IRS rules, said Marisa Koppel, chief legal officer at the Blockchain Association. Her comment is quoted by The Block .

This is not only a violation of the rights of individuals using decentralized technologies, but also the displacement of this entire rapidly developing technology to offshore.

The lawsuit argues that the nature of decentralized finance should exempt protocols from reporting requirements, and that the rule itself would be an overreach that could “effectively end the DeFi space.” The lawsuit includes the following lines.

DeFi, unlike traditional finance, does not rely on intermediaries like brokers. Instead, users hold their own digital assets and transact with each other directly using software. There are simply no brokers involved in a decentralized transaction.

Here we can only hope that the new US government under Donald Trump will take action against the initiative within the IRS. Support for the cryptocurrency industry was one of the pillars of Trump’s election campaign. In this regard, many coin holders expect that after the inauguration, he will begin to take the first steps to form a loyal set of rules for regulating the industry. At the very least, Paul Atkins at the head of the SEC turned out to be an excellent choice for the coin niche.