New cryptocurrency laws that have recently been suggested by the IRS and the U.S. Treasury might significantly alter the DeFi ecosystem. According to the suggestion, platforms that are frequently utilised in the DeFi domain, including Uniswap and MetaMask, might be categorised as “brokers.” This categorisation would entail the gathering of consumer information, which goes against the fundamental ideas of decentralisation.
Alarmingly, the proposed definition of a broker include even websites that work with blockchain wallets. Many consider the possible breadth of this to be an excess of regulatory authority because it might potentially cover blockchain explorers and tax software. The regulatory organisations’ inherent ignorance of blockchain technology, according to critics, is demonstrated by this, they claim.
This suggestion has wide-ranging effects. For instance, it may cause conventional financial brokerages to build walled gardens, undercutting the precise goal of what DeFi is trying to do. This may lead to a type of regulatory capture in which a centralised plutocracy gets control of the decentralised system again, undoing years of progress towards financial democratisation.
The measure also prompts worries about the possibility of tax avoidance. The IRS may have trouble collecting taxes if platforms alter their operations to avoid these rules or if users switch to platforms that don’t require reporting.
The industry is not against regulation in and of itself; rather, it seeks fair and knowledgeable regulatory frameworks that take into account the specifics of the technology. However, the current idea doesn’t seem to be well-informed or sensible. It might lead to the re-centralization of financial institutions and endanger innovation, undermining the goal of DeFi.
In summary, although regulation of some kind is absolutely important for the development of the crypto industry, the present plan put out by the U.S. Treasury and IRS may be more detrimental than beneficial.
