RIP DeFi? IRS New Crypto Broker Reporting Rules

TLDR

• The IRS released a new set of rules directly aimed at the crypto industry.
• DeFi projects will be required to add KYC to their front ends and report all transactions and addresses to the IRS.
• The IRS is already being sued for the move by the crypto industry.

The cryptocurrency world just got a new set of rules from the IRS. Under this new structure, starting in 2027, cryptocurrency brokers (yes, even decentralized exchanges) will have to report detailed information about digital asset transactions. 

These new rules are designed to bring crypto trading under the same tax scrutiny as other financial industries. But what does that mean for you and your DeFi adventures? Here’s the lowdown. 

The Basics of the New IRS Rules 

First, what’s changing? The IRS has issued final regulations requiring brokers—including decentralized finance (DeFi) platforms that meet certain criteria—to report digital asset transactions. Here’s the official press release.

• What’s included? These rules cover cryptocurrencies, NFTs, and other digital assets. Brokers will need to disclose gross proceeds from sales and provide information about taxpayers involved in the transactions. Basically, DeFi protocols will have to KYC their front ends (websites, not smart contracts), record all transactions, and report the transactions and addresses to the IRS.
• Who’s impacted? If you’ve been using a DeFi platform that facilitates crypto transactions and exercises significant control or influence over the transaction process, it might now fall under the IRS’s definition of a “broker.” The IRS estimates that between 650 and 900 DeFi brokers will be affected, impacting up to 2.6 million taxpayers. 
• When does this happen? The rules officially kick in for transactions starting in 2027, giving brokers until 2026 to collect and report the necessary data. 

Decentralized? Not Anymore… 

These new rules could still apply even if you’re using decentralized exchanges or platforms run through smart contracts. Platforms that facilitate transactions—even without a legal entity—may now qualify as brokers under the IRS’s expanded definition. 

According to the IRS, this regulation “merely treats” DeFi like every other industry. But for crypto users, this could feel like a shift in ethos. After all, isn’t the whole point of decentralized finance to avoid centralized control and oversight? 

The Blockchain Association Pushes Back 

Not everyone is thrilled with these new rules. And by that, we mean no one. Unsurprisingly, the Blockchain Association and the Texas Blockchain Council are suing the IRS, claiming the regulations are unconstitutional. 

Here’s their argument in a nutshell:

• The rules violate the Administrative Procedure Act, which governs how federal agencies can create regulations. 
• They place unreasonable compliance burdens on developers creating front-end trading platforms. 
• They could “cripple” the digital asset industry in the U.S., pushing innovation offshore. 

Dypto’s Take

There is no way, given recent court rulings, that this sticks. It’s a clear overstep. Here are our thoughts on the matter:

• This is the outgoing administration’s last-ditch effort to add some extra paperwork for the incoming administration, which shows a serious lack of class and grace.
• In the event the lawsuit fails, the new administration will nuke it. But that’ll take some legal work, some drama, and a few other things crypto holders probably don’t want to deal with.
• At the end of the day, it’s a “nothing burger”. 
• Aside from flipping the bird to the incoming administration, there is also a jab at Coinbase and Kraken. Kraken recently released its own DeFi chain, and Coinbase’s Base has done very well over the last year. If this rule were to happen, it would do a lot of damage. But honestly, it probably wouldn’t affect any other DeFi chains, as the majority of them aren’t US-based and can throw up a geo-blocker just to make the Feds happy, which of course, is easily maneuvered around by using any VPN service. 

While we highly doubt this will turn into anything, we’ll keep an eye on it and break down information as it’s released. Don’t worry. Dypto Crypto will always keep you in the loop.

For now, don’t freak out guys. Don’t take realized losses. Don’t panic sell. Stay the course.