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Taylor
@skyron.eth
Thanks @caphillcrypto for the excellent summary of the DeFi broker regulations in your newsletter today. I only had a couple of minor nits to pick with your explanation of the rules. Details to follow:
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Taylor
@skyron.eth
First the definition of digital asset middleman in §1.6045-1(a)(21) is not quite as you have described it. It is a person who is responsible for providing an effectuating service, which includes a trading front-end service wherein the nature of the service is such that the service provider ordinarily would know or be in a position to know the nature of the transaction. Being in a position to know the identity of the party making the sale was dropped from the final regulations, because Treasury concluded that trading front-end service providers already have access to customer information and therefore can be presumed to know the identity of the party making the sale.
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Taylor
@skyron.eth
My second nit is with your statement that the broker definition excludes persons who are solely involved in providing validation services or unhosted wallets that only store keys. Treasury agreed with taxpayer comments that this creates a cliff effect that would disqualify a person from the exception if they were to provide even a de minimis amount of effectuating services. Therefore, the reference to “solely” was dropped from the final regulations, and (as you noted in your newsletter) two examples were added to §1.6045-1(b) to clarify that a validator or unhosted wallet provider that also provides trading front-end services is only considered a broker with respect to the trading front-end services and is not considered a broker with respect to validation or wallet services that otherwise qualify for the exception. In practice, these exception may be difficult to apply to real-world situations, particularly for unhosted wallet providers.
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