A study from the University of Texas and the National University of Singapore reveals that tax-sensitive DeFi borrowers reduced their trading activity by 24.5% after the November 2021 US Infrastructure Act, prolonging collateral exposure. On the Venus protocol of BNB Smart Chain, stablecoin borrowings declined by an additional 23%, with researchers estimating that US borrowers deferred an average of $3,357 in capital gains taxes annually, representing about 17% of their trading portfolios. The analysis shows that a 1% increase in tax-induced illiquidity is associated with an 11.2% rise in defaulted accounts and a 39.6% increase in defaulted loan value. Smart contract collateral rules cannot observe borrowers’ tax incentives, exposing lending pools to credit risk that automated mechanisms can neither detect nor anticipate.
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