Decentralized Finance and Its Impact on Tax Compliance: Opportunities, Risks, and Regulatory Challenges

Abstract

Abstract The global financial markets are being changed by DeFi's ability to remove central actors to facilitate peer-to-peer transactions. DeFi promotes efficiency, globalization, and economic inclusion, and at the same time, it has raised tax compliance. This study attempts to bridge the gaps by analyzing available scholarly and policy-oriented research, along with recent regulatory initiatives. The study concludes that the tax compliance challenges posed by DeFi's Decentralization, Shrouded Identity, and Composability Features are serious and can overcome the traditional tax reporting mechanisms. The study also suggests the broad directions of gaps in the literature to be addressed in policy-driven and empirical studies in the future. Keywords: DeFi, Blockchain, Tax Compliance, Fintech