Key Highlights:

• The Blockchain Association, DeFi Education Fund, and Texas Blockchain Council sue the IRS, calling the rules unconstitutional.
• Industry leaders are banking on Trump’s upcoming administration to overturn these “anti-crypto” regulations.

Paradisers! Are the IRS’s new DeFi regulations a step toward fair taxation or a full-blown assault on innovation? The Blockchain Association isn’t waiting to find out, they’ve filed a lawsuit, and the stakes couldn’t be higher for crypto’s future.

IRS Targets DeFi Brokers with New Rules

The IRS has dropped a regulatory bombshell by classifying certain decentralized finance (DeFi) protocols as brokers. This move forces these platforms to collect and report Know Your Customer (KYC) information for digital asset transactions, a requirement that could affect as many as 875 DeFi platforms.

While the IRS argues this is necessary to ensure proper tax compliance, the crypto community sees it differently. Many argue that this mandate is a gross overreach, with potential security risks and privacy concerns for users. The backlash has been swift, with critics warning that the rules could stifle innovation and undermine the decentralized ethos of DeFi.

The Legal Fight Begins

In response, the Blockchain Association, joined by the DeFi Education Fund and Texas Blockchain Council, has taken legal action against the IRS. Kristin Smith, CEO of the Blockchain Association, expressed strong opposition to the rules, calling them a direct threat to innovation.

“We’re hopeful that Trump’s incoming pro-crypto administration will recognize the damage this could do and reverse these overreaching regulations,” Smith added.

Legal heavyweights like Jake Chervinsky, Chief Legal Officer at Variant, didn’t mince words, labeling the rules as “the dying gasp of the anti-crypto army.” He urged the courts or the new administration to overturn the regulations before they cause irreparable harm to the crypto ecosystem.

Crypto Community Stands United

The broader crypto community has also rallied against the IRS’s move. Miles Jennings, General Counsel at a16z Crypto, criticized the rules as a “fantastical expansion” of the term “effectuate transactions,” warning that this could open the door for the IRS to overregulate or outright ban DeFi platforms.

On social media, some users have suggested this as a last-ditch effort by the Biden administration to derail Trump’s ambitious crypto plans before he takes office in January.

The Trump Factor

With Trump’s pro-crypto administration set to take charge next month, all eyes are on whether his team will dismantle these rules. The former president has promised a crypto-friendly environment, and many in the industry are hopeful that this will lead to a rollback of what they see as anti-crypto policies.