The Treasury is COMING For Crypto!! End of DeFi in the US?!

Defy could soon be banned in the United States this is because of tax Regulations proposed by the treasury Department which could require D5 Protocols to collect kyc on all their Users obviously it'll be impossible for Them to comply with these regulations And if that wasn't bad enough these Regulations Target crypto wallets stable Coins and nfts too Today we're going to tell you where These tax regulations came from which Crypto niches they could affect and what They could mean for the crypto Market When they come into Force Back in the summer of 2021 U.S Politicians began the approval process For the now Infamous infrastructure bill Buried in the 2700 pages of the 1.2 Trillion dollar spending package was a Series of Provisions for the crypto Industry one of which related to the Definition of broker now for context a Broker is any person or company who Facilitates transactions between buyers And sellers of any asset the Infrastructure Bill proposed expanding The definition of broker to include Crypto Brokers like exchanges which Makes sense However the wording of this provision Was problematic according to the Provision a crypto broker was quote any Person who for consideration is

Responsible for regularly providing any Service effectuating transfers of Digital assets on behalf of another Person note that a person can also mean A company as companies are persons in The US the more you know Anyways the reason why this provision Was so problematic was because many Elements of the crypto industry Technically process transactions on Behalf of others even though they're not Intermediaries per se These include cryptocurrency Miners Validators And even decentralized Applications and protocols naturally the Crypto industry and pro-crypto Politicians tried to clarify the wording So that none of these crypto niches Would be forced to comply with the irs's Tax reporting rules for reference these Rules require Brokers to collect kyc on Their users and collect info on Transactions worth more than ten Thousand dollars now this is easy for Centralized entities like crypto Exchanges to do but technically Impossible for decentralized entities Like Miners validators dapps and D5 Protocols to do as such it was feared That the Practical effect of the Problematic provision would be that Crypto would be banned in the United States Rather than clarify the proposed

Definition of broker the treasury Department reportedly promised that it Wouldn't go after cryptocurrency Miners And validators as part of its finalized Tax rules however it did not promise That it would not go after the other Crypto niches like dapps and D5 Protocols logically this led to concerns That the purpose of the broker provision Was to destroy dapps and defy Unfortunately these concerns went Unheard and the broker proposal remained The same the infrastructure bill was Signed into law by President Biden in November 2021 as is often the case in Crypto the infrastructure bill was all But forgotten until last week when the Treasury Department unveiled a proposal For its finalized crypto tax rules the Nearly 300 Page document contains Numerous Provisions that could affect Dapps defy nfts and even some crypto Wallets Now it's important to underscore that These are the proposed crypto tax rules Not finalized rules it's possible that These rules will be changed after the Treasury receives comments about the Proposal the comment period will run Until the end of October this year Now whatever rules the treasury approves At that time will go into force in 2026 To reflect crypto transactions that took Place in 2025. this means that all these

So-called crypto Brokers will have to Comply from 2025 onwards those who fail To comply could find themselves banned In the United States Now this begs the question of how Exactly the treasury's finalized crypto Tax rule proposal defines the term Broker well the answer is that the Definition is the same as in the Infrastructure bill but includes an Additional clause So any person who processes crypto Transactions on behalf of others is a Broker quote provided the nature of the Person's service arrangement with Customers is such that the person Ordinarily would know or be in a Position to know the identity of the Party that makes the sale and the nature Of the transaction potentially giving Rise to gross proceeds This confirms that cryptocurrency Miners Validators and most crypto wallet Providers are not Brokers that's because None would ordinarily know or be in the Position to know who they are processing Transactions for As I mentioned a few moments ago however Some crypto wallets could be Brokers as Noted in The Proposal quote some Providers of unhosted wallets also Provide their unhosted wallet users with Online platform Services which may Include links or other mechanisms for

Direct access to third-party services That allow users to buy and sell digital Assets held in their unhosted wallets Translation any personal crypto wallet That offers access to a crypto to Fiat Ramp offers any kind of swapping feature Or allows you to connect to dapps and D5 Protocols is a broker this is terrifying Because it means that most browser and Mobile wallets could soon be required to Collect kyc in the US yet another reason To keep most of your crypto on a cold Wallet such as a hardware wallet and do Note that we have discounts on the best Ones on our deals page the link will Will be in the description anyway Chilling aside what's even more Terrifying is that the treasury's Finalized crypto tax rules could even Apply to more centralized Cryptocurrencies namely layer twos That's because the proposal notes that Anyone who can modify the parameters of A crypto project or protocol are able to Collect kyc for tax purposes as pointed Out on Twitter or rather X by a crypto Sleuth named spreak the treasury's Wording around this ability to modify Parameters means that quote anything With a multi-sig wallet is a broker and Is required to add kyc consider that Most ethereum layer twos are controlled By multi-sig wallets and indeed one of The largest cryptocurrencies of all is

Also reportedly controlled by an admin Key held by one entity you'll have to Dyor about that one anywho if spreak is Right about anything with a multi-sig Wallet being a broker then it's possible If not likely that lightning Network Wallet providers will be required to Collect kyc this depends on whether Lightning Network wallet providers are Running their own channels which are Made with multi-six it also means any Dapps or D5 protocols whose governance Tokens are held by a handful of whales Will also be required to collect kyc From their users now this could be the Most terrifying possibility of all since According to a report by Chain analysis One percent of governance holders have 90 of the voting power in dows Now another crypto Niche that could be Profoundly impacted by the treasury's Proposed crypto tax rules is stable Coins of course the treasury considers a Stablecoin to be a digital asset meaning That it's subject to the same reporting Rules as regular cryptos and of course Stablecoin issuers are considered Brokers the question then is whether Stablecoin issuers will be required to Collect kyc from stablecoin holders or Just those who mint and redeem their Stable coins for Fiat if you watched our Recent video about the feds warning to Banks you'll know the new defense Bill

Includes a provision to kyc stablecoin Holders can you guess who's behind that Provision Now the good news is that the defense Bill still hasn't been passed and there Are two versions of the bill in play one Of which apparently doesn't have the kyc Provision the bad news is that this is a Similar situation to what happened with The infrastructure bill and the outcome Could likewise be similar anyway Speculation aside the treasury specifies In its proposed crypto tax rules that Stable coins do not fall under the Definition of cash funnily enough this Conflicts with recent comments made by Fed chairman Jerome Powell about the Central Bank seeing stable coins as a Form of money This is significant because if stable Coins are digital Assets in the eyes of U.S authorities then it means that it's Entities like the SEC that should Regulate them conversely if stable coins Are a form of money in the eyes of U.S Authorities then it means that it's Entities like the FED that should Regulate them it appears that the Treasury is aligned with the SEC when it Comes to stable coins but also appears Open to siding with the fed that's Because at the end of its proposed Crypto tax rules the treasury asks Whether it's appropriate for stable

Coins to be classified as digital assets And if there are special subsets This opens the door to stable coins Being classified as cash or even Something else which could theoretically Protect them from these problematic Crypto tax rules this makes sense when You consider that the treasury manages The U.S government's finances and is Always looking for Bond buyers FYI most Stable coins in circulation are backed By U.S government debt this means that When you buy a stablecoin you are Effectively subsidizing the US Government spending this is something That the US government obviously likes Particularly the treasury the FED not so Much it doesn't like currency Competition even so this doesn't mean That the treasury is a fan of stable Coins per se as pointed out by crypto Analyst Alexander grieve on X the Treasury includes stablecoin Transactions under the definition of Sale this means that stablecoin Transactions are even subject to IRS Reporting now this doesn't make much Sense because stable coins are stable Well for the most part this means that You're very unlikely to have a capital Gain or loss when moving stable coins Around from Alexander's perspective this Is the treasury's way of signaling its Preference for a US dollar cbdc rather

Than company issued stable coins but That's not the only thing the treasury Is pushing in its proposed crypto tax Rules it explicitly states that it and The IRS hope that the crypto broker Definition will quote ultimately require Operators of some platforms generally Referred to as decentralized exchanges To collect customer information and Report sales information about their Customers if those operators otherwise Qualify as brokers in other words the Treasury is explicitly targeting defy And it highlights the aforementioned Fact that hiding behind a dow won't Protect D5 protocols from scrutiny quote Even in structures where governance Tokens may be widely distributed Individuals or groups of token holders Can have the ability to maintain Practical control now for what it's Worth the treasury admits that it Doesn't know what maintaining practical Control means in the context of dows and Is open to comments about where that Threshold should be it also asks whether The aforementioned use of private Keys Multisigs has any bearing on practical Control now make no mistake whatever the Treasury decides on these issues will Quickly find its way to other countries Besides the US that's because the Treasury has been working closely with The financial action task force or fat F

On the latter's so-called crypto Recommendations and even cites them in Its proposed rules if you watched our Recent video about the fat F's travel Rule you'll know that many of the crypto Rules the treasury has proposed in the Past magically found their way into the Fat F's crypto recommendations even in Cases where the proposed rules didn't Become law in the U.S One such rule is the requirement to Provide detailed information about Crypto transactions between crypto Wallets and exchanges something that was Proposed but not implemented in the US The treasury also wants to lower the IRS Tax reporting threshold from three Thousand dollars to two hundred and Fifty dollars if this sounds like a Slippery slope well you're correct The purpose of the fat f is to gradually Make it more difficult to engage in Crypto activities that don't require an Intermediary and to label all Non-intermediated crypto activities as High risk again these orders seem to be Coming from the treasury on that note Among the questions the treasury asks is Whether it's possible for non-custodial Wallets to help track the prices and Times at which coins and tokens in the Wallet were sent to or received from Brokers This is overkill considering that this

Information has been collected by the Brokers already The treasury also asks whether it's more Appropriate to analyze wallets from a Wallet perspective or from a crypto Address basis this sounds like the Treasury is considering labeling any Wallets that have interacted with Certain crypto addresses as Brokers Regardless of their control or Functionality and as it so happens the Treasury recently sanctioned two of Tornado Cash's developers after a Federal judge ruled that the sanctions On the Privacy protocol were Justified Notably the judge confirmed that tornado Cash is classified as an organization Setting a precedent for similar actions By the treasury this is scarier than you Might think because tornado cash was Completely permissionless its developers Had destroyed the private keys in May of 2020. not only that but the Privacy Protocol had a built-in compliance tool That would allow users to prove the Origin of their funds if asked to do so By authorities Anyhow the other crypto Niche the Treasury Targets in its proposed crypto Tax rules is non-fungible tokens or nfts As you might have guessed the treasury Considers nft marketplaces to be Brokers Too so you can expect to see kyc on the Likes of openc if these rules pass as

They're currently proposed this is Actually somewhat unprecedented if You've been keeping up with our coverage Of crypto regulations you'll know that Nfts have often been omitted even by the Likes of the fat F the treasury's change In tone could therefore foreshadow a Similar change in tone at the fat F and Elsewhere speaking of which the SEC Recently issued its first nft related Enforcement action now this is Surprising because the SEC had Previously approved tokenized art Offerings Now it looks like nfts of all kinds Could be Securities so this begs the Question of why U.S authorities have Taken such a sudden u-turn on nfts well The treasury reveals the answer in its Proposed crypto tax rules quote given That nfts are popular Investments the Buying and selling of nfts raised Tax Administration concerns similar to the Concerns associated with other types of Digital assets that the physical Analogues of nfts do not The treasury also adds that nfts are Much easier to move and trade than fine Art and are also capable of evolving to Become more than just Collectibles for Instance some nfts could someday be used As a means of payment There are already some protocols that Allow you to use nfts as collateral for

Loans Fortunately the treasury doesn't seem to Be interested in going after the Creators of nft collections quote an Artist in the business of creating and Selling nfts that represent interests in The artist's work is not affecting the Sale of digital assets on behalf of Purchases provided that artist is not Otherwise a dealer in digital assets Unfortunately it seems that the treasury Could still go after the creators of nft Collections if they maintain control of The collection using governance tokens Or a multi-sig Now this isn't explicitly stated in the Proposed tax rules but it would be Consistent with the rules the treasury Has for other digital assets oddly Enough the treasury didn't ask any Questions about nfts now this could be Evidence that nfts will continue to Evade regulatory scrutiny relative to Other crypto niches it could also mean That the treasury doesn't care that much About nfts right now not all that Surprising given the state of the market So then what does all this mean for the Crypto Market well the answer depends on Which crypto Niche we're talking about Defy and anything remotely related to Defy could be banned in the US at least If platforms are unable to collect kyc Information for tax purposes and as

We've seen with the fatf's travel rule Complying with the treasury's tax Requirements isn't going to be cheap Even if every single D5 protocol decides It wants to comply very few will be able To afford this compliance the result Would be consolidation which we could See regardless of compliance levels The Silver Lining is that truly Decentralized D5 protocols should be Relatively unaffected come to think of It the treasury inadvertently provided a Definition for crypto decentralization In its broker definition If a crypto project or protocol can be Compelled to require kyc from its users Then it's centralized now if you think About it this decentralization threshold Isn't that high and most crypto projects And D5 protocols could meet the Treasury's implicit definition of Decentralization if they wanted to this Would protect them from regulatory Scrutiny at least from U.S tax Authorities like the IRS The thing is that most crypto projects And D5 protocols don't currently meet These criteria most could in fact be Compelled to require kyc from their Users including most cryptocurrency Wallets it's certainly going to be Interesting to see how crypto wallets Will react to these rules if they're Passed as proposed recall that providing

Access to any services including crypto To Fiat on and off ramps cross-chain Swaps and even connectivity to dapps and D5 protocols could result in a wallet Being designated as a broker now this is A huge problem because these services Are some of the biggest Revenue sources For wallets this could result in Consolidation among crypto wallets and Restrict innovation in the crypto wallet Niche this is another huge problem Because crypto wallets are how people Interact with the crypto ecosystem This already poor user experience will Be made worse or be unable to improve Because of these rules never mind the Possibility that crypto wallets which Choose to be Brokers so that they can Earn more revenues could eventually Achieve a monopoly over all crypto Wallets all of these wallets would Require kyc to use and crypto privacy Would be dead along with Financial Freedom As for stable coins and nfts meanwhile What the treasury wants to do with these Niches remains unclear you'll recall That there seems to be a bit of a Regulatory turf war going on between the Fed and Regulators like the SEC nfts Also seem to be too nascent to craft any Concrete guidance around at least for Now until the treasury's attitude Towards these niches is fleshed out they

Will remain lumped in with other crypto Assets subject to the same reporting Requirements if you transfer more than Ten thousand dollars worth of stable Coins or an nft worth more than 10K to Or from an exchange that info will be Shared with the IRS Now this is the part where I'd say that These regulations would be just in the US and that these crypto niches could Thrive elsewhere but I'm afraid I can't Say the same in this case as I mentioned Earlier U.S authorities seem to have Significant influence over organizations Like the fat F that set regulatory Standards lo and behold the G20 another U.S Affiliated organization will soon be Meeting to discuss Global crypto Regulations that they will Implement in Each of their respective jurisdictions With the fat f as Enforcer you can find Out what crypto regulations they're Planning using the link in the Description And that's all for today's video folks So if you found it helpful help us out By Smashing that like button if you want To make sure you keep getting more Helpful crypto content subscribe to the Channel and ping that notification Bell And if you want to help others in their Crypto Journey share this video with Them now if you're huddling until the Regulatory flood blows over make sure

You're accumulating on an affordable Crypto exchange and storing your crypto In a secure Hardware wallet the coin Bureau deals page happens to have up to Forty thousand dollars of bonuses on the Best crypto exchanges and the biggest Discounts on the best hardware wallets The link will be in the description Thank you all for watching and I'll see You next time so till then crypto Friends [Music]


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