The regulatory scrutiny on encryption asset taxation is tightening, and the DeFi industry is facing new challenges.

Recently, the Internal Revenue Service (IRS) of the United States released final regulations on the reporting of digital asset sales and transactions, marking a renewed upgrade in the U.S. tax regulation of encryption assets. This move has sparked widespread attention and discussion in the industry.

According to the new regulations, starting from January 1, 2025, all brokers holding clients' digital assets must use the brand new 1099-DA form to report the core information of each transaction to the IRS in detail. It is worth noting that DeFi front-end service providers are also recognized as encryption asset brokers and are required to fulfill corresponding tax reporting obligations.

In response, the regulatory head of a well-known venture capital firm publicly stated that this new regulation poses a direct threat to the vision of Decentralized Finance (DeFi) development and may hinder the future of DeFi innovation in the United States. The company has expressed support for relevant agencies to file lawsuits, accusing the IRS and the Department of Treasury of exceeding their statutory authority, violating the Administrative Procedure Act, and even contradicting the spirit of the Constitution.

Looking back at the history of the United States' tax regulation of encryption assets, its evolution path is quite clear. From defining cryptocurrency as property in 2014, to the signing of the Infrastructure Investment and Jobs Act in 2021, and now the latest regulations issued by the IRS, the United States' tax regulation of encryption assets has entered an unprecedented strict phase.

The new regulations require brokers to provide detailed disclosures of transaction dates, types, amounts, as well as comprehensive information about investors, including names, addresses, Social Security numbers, etc. This not only increases the operating costs and compliance difficulties for brokers but also presents new challenges for the entire industry.

From the perspective of anti-money laundering, counter-terrorism financing, and anti-tax evasion, it is indeed necessary to enhance the transparency of encryption assets. However, this regulation has a particularly significant impact on the DeFi sector. DeFi platforms may need to alter their decentralized and anonymous characteristics, increasing the implementation of KYC policies, which will undoubtedly affect users' trading habits and privacy protection.

In addition, the new regulations may have a far-reaching impact on the entire encryption industry. Small or startup brokers may exit the market due to the inability to bear compliance costs, exacerbating industry reshuffling. At the same time, the controversies surrounding privacy, data security, and constitutional rights triggered by the new regulations, as well as their potential suppression of industry innovation, are all worth paying attention to.

Despite the new regulations aiming to enhance tax transparency, combat illegal activities, and ensure tax fairness and market order, the rapid pace of their implementation has raised concerns in the industry. Finding a balance between encouraging innovation and strengthening regulation has become an urgent issue that needs to be addressed.

It is worth mentioning that, considering certain political factors, there may still be variables before the regulation officially takes effect. In any case, the regulatory pressure faced by the encryption industry is constantly increasing, which may be a growing pain that the industry must undergo. Despite the challenges ahead, the resilience and innovation demonstrated by the encryption industry in the past still keep people's confidence in its future.