The Web3 economy is growing at an exponential rate. Decentralized applications, decentralized autonomous organizations (DAOs), non-fungible tokens (NFTs), and play-to-earn gaming are just some examples of disruptive blockchain-based models empowering creators, users, and organizations.

However, with innovation comes complexity. As more value flows through open and permissionless Web3 networks like Ethereum, compliance with regulations around accounting and taxation is becoming increasingly difficult. Web3 businesses like DAOs and crypto companies need tools to keep themselves and their users compliant as the space professionalizes.

According to Alchemy, a leading blockchain developer platform powering billions in transactions for Web3 companies, on-chain activity is accelerating across layer 1 and layer 2 networks:

• Ethereum has averaged 1.2 million daily active users, processing $44 billion in on-chain volume.
• Emerging layer 1 blockchain Avalanche has seen substantial growth, now averaging 36,000 daily transactions.
• Ethereum scaling solution Optimism handles $500 million in daily transactions, while Arbitrum handles $250 million.

With the growth in Web3 activity, accounting for crypto gains and losses is becoming a common pain point for users and businesses alike. The pseudonymous and decentralized nature of blockchain transactions creates additional compliance challenges.

For example, required tax forms like 1099s must be issued to US users who experience crypto gains from using certain DAO platforms and earning yield from lending protocols. Without proper identity validation, DAOs cannot remain compliant as they scale.

Similarly, Web3 companies need to track transactions across multiple blockchains and wallets to properly report crypto gains and losses on their business tax returns. This requires deep blockchain data integrations.

As the Web3 economy grows, there is a clear need to simplify crypto tax compliance for users and businesses building this open economy.

Simplifying Tax Compliance in Web3

Fortunately, there are innovative solutions emerging like Fyn to help users and businesses handle crypto taxes properly as the Web3 economy scales:

For DAOs and Crypto Platforms

• Validate U.S. users - Seamlessly integrate identity validation like KYC to confirm which users require 1099 tax forms. This reduces legal risk and manual overhead for DAOs.
• Generate and e-file 1099 forms - Automatically generate 1099 tax forms for U.S. users and e-file them with the IRS on the DAO's behalf. This ensures full compliance.
• Deliver 1099s to users - Seamlessly deliver required 1099-MISC and 1099-K forms to users for their records and tax prep. This improves user experience.

For Web3 Businesses

• Sync wallets and chains - Connect to any wallet and blockchain to automatically track business crypto transactions across multiple platforms.
• Calculate gains/losses - Generate accurate capital gains/losses reports by applying blockchain transaction data to configurable accounting methods like FIFO and HIFO.
• Generate business tax forms - Use calculated gains/losses to auto-populate required business returns like 1065, 1120-S, 1040 Schedules C/D.
• E-file business returns - E-file generated business returns directly with the IRS to save time and ensure compliance.

By leveraging solutions like Fyn, DAOs and Web3 businesses can fully automate crypto tax compliance, both for their business and their users. This gives them peace of mind to focus on accelerating Web3 adoption rather than getting bogged down by manual accounting overhead.

As blockchain technology re-architects how value is created, exchanged, and owned without centralized intermediaries, the need for reinventing traditional compliance processes is inevitable. Tax automation solutions empower the Web3 economy to continue growing sustainably by bridging the gap between decentralized innovation and regulated traditional finance. Simplifying crypto taxes paves the way for mass adoption.

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