Crypto Industry Mobilizes Against IRS DeFi Broker Reporting Requirement

The Blockchain Association, alongside 75 member companies, has called on Congress to repeal the Internal Revenue Service’s new rule that classifies DeFi software as brokers.

In a Wednesday letter to lawmakers, the industry coalition urged support for Senator Ted Cruz’s Congressional Review Act resolution to overturn what they describe as an “anti-crypto innovation” rule.

The rule, finalized in Biden administration’s last days, expands the definition of a “broker” to include software providers facilitating access to DeFi protocols.

The Blockchain Association argues that this rule is an overreach as it misclassifies technology infrastructure as financial intermediaries. As a result, these entities face stringent reporting requirements.

1/ It’s time for Congress to repeal the DeFi-killing broker rule, passed in the final days of the Biden administration – here’s what we’re doing about it and why this rule is so harmful.

🧵

— Blockchain Association (@BlockchainAssn) February 19, 2025

New IRS Rule Could Push DeFi Innovation Offshore, Industry Says

The rule requires DeFi software providers to collect and report extensive user data. This applies even to those that never take custody of users’ assets. Industry leaders warn that this obligation poses serious privacy risks. It would also increase the government’s paperwork burden by one-third, based on the agency’s own estimates.

The rule places a heavier burden on US-based DeFi companies. Meanwhile, foreign firms offering similar services to Americans remain unaffected. The Blockchain Association warns that this creates a competitive disadvantage. They argue it could stifle domestic innovation and push DeFi development offshore.

“Policy decisions with such severe consequences should be made by Congress deliberately – not accidentally through ill-conceived midnight rulemaking,” the letter states.

DeFi Could Drive US Tech Leadership—If Regulations Allow

The Congressional Review Act (CRA) allows lawmakers to repeal agency rules. This applies when rules exceed authority or conflict with legislative intent. Industry leaders support Cruz’s resolution to prevent regulatory overreach. They believe it could protect the US’ leadership in financial technology.

The letter highlights the economic benefits of DeFi. It emphasizes its potential to create jobs, expand financial inclusion and drive technological leadership. Industry advocates warn that without supportive regulations, the US could lose its position as a global leader in digital assets.

In December, the Blockchain Association, along with the Texas Blockchain Council, filed a lawsuit against the IRS challenging its new regulations. As regulatory pressure mounts, the industry is turning to Congress, urging lawmakers to adopt policies that support innovation rather than hinder it.