The Treasury and IRS have released final broker rules for digital asset providers, requiring DeFi protocols to implement Know-Your-Customer (KYC) procedures. The crypto community has criticized the rules, effective in 2027, as unlawful and beyond Treasury’s authority.
The regulations classify brokers handling digital assets for customers, including DeFi front-ends, as responsible for reporting sales, exchanges, and user activity. DeFi front-ends must also perform KYC processes. Digital asset brokers must comply by Jan. 1, 2025, while DeFi-specific obligations begin Jan. 1, 2027, due to system readiness issues. The IRS plans to issue further guidance for these entities.
The rules apply to all digital assets, including NFTs and stablecoins, despite industry calls for narrower definitions. DeFi front-ends must report activities from both U.S. and non-U.S. users.
Transition Period and Exclusions The regulations provide relief for brokers making good faith compliance efforts in 2025, with limited relief for certain transactions in 2026. Gross proceeds reporting begins Jan. 1, 2025, and cost-based reporting starts in 2026. Real estate professionals using digital assets in closings must comply by Jan. 1, 2026. Immediate reporting exclusions apply to transactions like wrapping, unwrapping, staking, and lending, with future IRS guidance expected.
Community Backlash Critics, including Consensys’ Bill Hughes, argue the rule exceeds Treasury’s authority and will likely face lawsuits. Variant Fund’s Jake Chervinsky labeled it the “dying gasp” of anti-crypto efforts, calling for it to be overturned by courts or the next administration. Alex Thorn of Galaxy Digital deemed the rule “extremely burdensome” and anticipated a Congressional Review Act evaluation.