[SpicyLemonZest]

The basic example most others are built on is a locked smart contract, where none of the participants can control the funds until the smart contract is programmed to release them. Most crypto developers conceptualize this scenario as the smart contract having custody (you can only steal the money if you trick the smart contract into giving it to you), but the smart contract can't exactly report things to the IRS.

[sterlind]

How does the tax system work for financial instruments implemented by pen-and-paper contracts? Seems to me very similar to owning shares in Special Purpose Vehicles, with the (perhaps important) difference that a judge can't overrule the contract.. but they can still bind the owners right?

Part of me wonders if you could create a contractual "shim" that judges can read, which mirrors what the smart contract does and dictates behavior of the parties for matters outside the contract itself. Sort of like the template contracts used for mortgage-backed securities.

[SpicyLemonZest]

The difference is that the SPV is itself a legal entity responsible for keeping track of who owns it. (That's not to say it's a silver bullet, since SPVs can be and quite regularly are used to try and play accounting tricks to hide stuff from tax authorities.)