The DeFi Gap: Why Decentralized Exchanges Escape CARF

CARF requires crypto service providers to report user transactions. But what about platforms that have no central operator? Decentralized exchanges like Uniswap operate through smart contracts with no company in charge—and that creates a regulatory gap.

Why DEXs Aren't Covered

CARF and DAC8 impose obligations on "Reporting Crypto-Asset Service Providers" (RCASPs). This includes exchanges, brokers, and custodians—entities that hold user funds or facilitate trades as a business.

Decentralized exchanges work differently:

• Trades execute through smart contracts on a blockchain
• Users connect their own wallets and trade directly
• There's no central entity holding funds or executing trades
• The "exchange" is just code running on Ethereum or another blockchain

You can't impose reporting requirements on a smart contract. There's no legal entity to receive the obligation, no employee to file reports, and no way to collect user tax information through an automated protocol.

What This Means in Practice

If you:

• Buy crypto on Coinbase: Reported under CARF
• Withdraw to your MetaMask wallet: Withdrawal reported
• Swap tokens on Uniswap: Not reported (no RCASP involved)
• Deposit back to Coinbase: Deposit recorded by Coinbase

Tax authorities can see when you move crypto to and from regulated platforms, but what happens in between—on DEXs—isn't automatically reported.

Does This Mean DeFi Is Tax-Free?

No. Tax obligations don't depend on whether transactions are reported. In most jurisdictions, taxable events (like selling crypto at a profit) create tax liability regardless of reporting. You're expected to track and report your own DeFi activity.

The lack of automatic reporting just means tax authorities have less visibility. It doesn't change what you owe.

Will This Change?

Possibly. Regulators are aware of the DeFi gap and are exploring options:

• Requiring wallet providers or front-ends to collect information
• On-chain analysis tools that can trace transactions
• New regulatory categories for DeFi participants

Any solution will face technical and legal challenges, but the current gap may not last forever.

The Practical Takeaway

DeFi transactions aren't directly captured by CARF, but:

• Your tax obligations remain
• Movements to/from regulated exchanges are tracked
• Blockchain transactions are permanent and traceable
• Tax authorities are developing better analysis tools