Blockchain Association Urges Congress to Repeal IRS DeFi Broker Rule

• The Blockchain Association urges Congress to repeal an IRS rule that expands DeFi broker definitions and imposes strict reporting.
• Critics argue the rule forces software providers to collect user data, stifling U.S. innovation and driving DeFi projects offshore.
•  A congressional vote in March will decide if DeFi platforms must comply with tough IRS mandates or continue growing freely.

A new IRS rule that targets decentralized finance (DeFi) brokers is being pushed by the Blockchain Association to be repealed by U.S. lawmakers. The definition of a “broker” is broadened by this rule, which was completed in the last days of President Joe Biden’s administration, to include software companies that make DeFi protocols accessible. Like traditional financial brokers, decentralized exchanges are subject to stringent reporting obligations under the rules.

The Blockchain Association addressed congressional leaders on February 19, requesting support for the resolution S.J.Res. 3 introduced by Senator Ted Cruz. It seeks to nullify the rule before it comes into effect in 2027. The letter presented by 76 crypto organizations expresses concerns about the costs involved in compliance, privacy threats, and threats to innovations.

DeFi Regulation Faces Heavy Industry Opposition

The IRS announced on December 27, 2024, that nearly 875 DeFi brokers in the U.S. could be affected by the rule. The Blockchain Association strongly opposes the regulation , arguing that it unfairly impacts American crypto firms and undermines financial technology growth.

Besides, industry leaders argue that the rule is overreaching and forces software providers to collect personal data from millions of users. These companies do not take custody of assets, yet they would need to modify their operations drastically. Consequently, critics warn that such requirements could hinder DeFi development in the U.S. while driving innovation offshore.

Moreover, the association calls the rule a “midnight rulemaking” effort that bypasses Congress. They argue that lawmakers, not regulatory agencies, should decide on policies with broad economic implications. The letter insists that repealing the rule would preserve financial privacy, protect innovation, and support job growth in the sector.

Congressional Vote Expected in Early March

Senator Cruz’s measure must secure majority approval in both chambers of Congress to overturn the IRS rule. Lawmakers are expected to vote on the resolution by early March 2025. If the rule remains in place, it could impact DeFi platforms, forcing them to comply with stringent reporting mandates. However, if repealed, DeFi innovation in the U.S. could continue growing without excessive regulatory constraints.