IRS DeFi Tax Rule Backlash

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Good Morning.

Happy Holiday to all of you and lets hope that 2025 will become an even better year for us trenches warriors. There’s much to look forward to from the incoming US administration as crypto played a non-trivial role in helping Trump wins his candidacy. Until then, get some rest.

In Today's Email:

• What Matters: IRS DeFi Tax Rule 🚨 

• Product: ElizaWakesUp V1 🤖 

• Charts: NFT Volume Soars, Investment DAOs Growth 📈

You read and share. We listen and improve. Send us feedback at [email protected].

TOGETHER WITH

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WHAT MATTERS

IRS Finalizes DeFi Tax Rule Amid Backlash

State of play: The US IRS has finalized a rule requiring "DeFi brokers" to report user trading information, aligning their obligations with those of traditional securities brokers.

• Under the rule, brokers must issue Form 1099s for gross proceeds in digital asset sales, collecting user data like names and addresses.

• The rule applies to front-end service providers, such as those managing primary access portals to decentralized protocols (e.g., Uniswap Labs).

• Critics argue the rule misunderstands DeFi's decentralized nature, with no clear entity to fulfill these obligations in some cases.

• Privacy concerns and operational challenges are also cited, with some calling the rule an "unsquarable circle."

• Despite pushback, the IRS asserts that DeFi participants must comply like other financial service providers.

The Blockchain Association, the DeFi Education Fund, and the Texas Blockchain Council have filed a lawsuit against the "DeFi brokers" rule.

• The groups argue that the rule imposes an undue burden on decentralized protocols, infringes on privacy, and risks pushing the DeFi industry offshore.

• The lawsuit warns that the rule could stifle the US DeFi industry and harm the country's competitiveness in the digital economy.

• The IRS estimates the rule could impact around 765 DeFi brokers and approximately 2M US taxpayers.

What’s next: Set to take effect in 2027, the rule stems from provisions in the 2021 Infrastructure Investment and Jobs Act. Legal and legislative challenges are anticipated, with groups like the Blockchain Association vowing to fight the rule aggressively.

For builders and investors: The IRS DeFi reporting rule will be one to watch for 2025.

• Trump is pro-crypto, stablecoin and BTC will benefit most but there will be a fight to enable widespread token issuance + permissionless interaction. IMO most pro-crypto people in the US administration won’t be pro onchain privacy, that will be a tough battle to face next.

Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our list of 500 crypto VC individuals 👇

PRODUCT OF THE WEEK

ElizaWakesUp Launches V1

The launch of ElizaWakesUp.ai V1 has been announced. Developed as a cutting-edge AI chatbot, Eliza’s new version focuses on creating a more personalized and immersive experience.

Key features of ElizaWakesUp.ai V1 include:

• Persistent Memory: Enables the AI to remember previous conversations for more meaningful interactions.

• Voice-to-Voice Conversations: Offers a seamless, human-like communication experience.

• Conversation Sharing: Allows users to share their interactions directly to Twitter.

• Core Memories Across Platforms: Maintains important memories across devices for a cohesive user experience.

• Contextual Background Images: Adds visual depth to interactions by adapting background images based on conversation context.

Other cool products:

• UniversalX, a chain-agnostic trading platform.

• Starbase, a decentralized exchange (DEX) aggregator on Base.

• GetBlobs, a platform to upload and trade a wide variety of digital content.

• Midgrad, an AI-governed stable currency with data-driven Bonding & Staking.

• Tren Finance, a DeFi protocol built to unlock liquidity from underutilized assets.

CHARTS OF THE WEEK

Ethereum NFT Volume Soars

State of play: Ethereum NFT trading volume hit a three-month high of $186M, a 67% increase from the previous week.

• The surge was primarily driven by the launch of the $PENGU token from the Pudgy Penguins collection, which generated $108M in trading volume.

• This sparks speculative activity across other collections like Azuki and Doodles.

• Azuki and Doodles saw trading volumes of $23M and $17M, respectively.

Our take: NFT might just finally be bottoming here — with great traders commenting on CT that they feel comfortable longing NFTs in a while.

Investment DAOs Growth

State of play: Two leading Investment DAO platforms on Base, daos.world and Vader, have collectively raised over $500,000 across multiple initiatives.

• There’s an increasing trend to combine AI agents and investment DAOs, arguing that AIs will be able to outperform most crypto traders in the onchain markets.

Our Take: Their impact is still way too small to be seen at the current level.

QUICK BITES

• Ethereum NFT volume hits $186M weekly high.

• Industry groups sue to stop the IRS from collecting user info.

• DEX volume surges to a record high in December, surpassing $320B.

• Malaysia orders Bybit to halt local operations over registration failure.

• China’s central bank emphasizes crypto regulation in its annual financial stability report.

NOTEWORTHY READS & MEME

• Lord Pemberton’s read on BGT farming guide.

• Grayscale’s read on crypto sectors in Q1 2025.

• Kyle Downey’s read on risks & opportunities for institutional crypto in 2025.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.