Historical inevitability and industry choice: Interpretation of the new US DeFi tax rules

The U.S. Treasury Department and the Internal Revenue Service recently issued an important new regulation (RIN 1545-BR39), which expanded the scope of application of existing tax laws and included DeFi front-end service providers in the definition of "brokers".

The U.S. Treasury Department and the Internal Revenue Service recently issued a new regulation (RIN 1545-BR39), expanding the definition of "brokers" under existing tax laws to include DeFi front-end service providers. These service providers, such as Uniswap's front-end interface, which directly interacts with users, will be required to collect user transaction data starting in 2026 and report the information to the U.S. Internal Revenue Service (IRS) through Form 1099 starting in 2027, including users' total income, transaction details and taxpayer identity information.

This new regulation is part of a broader effort by the U.S. government to increase tax compliance in the digital asset space. In recent years, the rapid growth of DeFi protocols and the use of decentralized exchanges have made it more challenging for the IRS to track capital gains and other taxable events. The new regulation aims to address this issue by expanding the reporting requirements to DeFi front-end service providers.

However, the definition of "broker" in the new regulation is still quite broad, and it is unclear how it will be applied to different types of DeFi protocols. Some industry participants have expressed concern that the regulation could be overly burdensome and may stifle innovation in the DeFi space.

Despite these concerns, the new regulation is likely to have a significant impact on the DeFi industry. DeFi protocols and front-end service providers will need to carefully assess their operations and determine how to comply with the new reporting requirements. Those who fail to comply could face penalties from the IRS.

Here is a summary of the key provisions of the new regulation:

DeFi front-end service providers are now considered "brokers" under existing tax laws.

These service providers will be required to collect user transaction data starting in 2026.

The data will be reported to the IRS through Form 1099 starting in 2027.

The reported information will include users' total income, transaction details and taxpayer identity information.

Those who fail to comply with the new regulation could face penalties from the IRS.