a16z Crypto Supports Legal Challenge Against IRS's DeFi Regulations

Michele Korver, head of regulation at venture capital fund a16z Crypto, voiced support for a coalition of pro-crypto organizations suing the Internal Revenue Service (IRS) and U.S. Treasury over their new decentralized finance (DeFi) regulations, which critics argue threaten the industry's future.

Korver made the announcement in a post on X on Dec. 29, emphasizing a16z's belief that DeFi has the potential to make financial services and the digital economy “accessible, efficient, interoperable, dependable, and consumer-focused.”

The lawsuit, filed on Dec. 27 by the Blockchain Association, DeFi Education Fund, and Texas Blockchain Council, challenges the IRS and U.S. Treasury’s rules to classify DeFi platforms as ‘brokers.’ This regulation would force DeFi platforms to comply with stringent reporting and Know Your Customer (KYC) requirements.

The legal challenge highlights the growing acceptance of DeFi as a transformative force in the financial sector. It also emphasizes increasing support from advocates across industries, who are urging for clearer, more supportive policies to protect DeFi’s potential while addressing regulatory concerns.

Korver, echoing the sentiments of many other critics, argued that the new IRS and Treasury regulations overstep legal boundaries, violate the Administrative Procedure Act, and jeopardize the future of DeFi innovation in the United States.

“DeFi builders should feel confident that industry attorneys are working hard to protect this technology,” she said. “We will keep fighting on all fronts - in the courts, and with the help of Congress and the incoming executive branch.”

DeFi Industry vs. IRS

Marisa Tashman Coppel, head of legal at the Blockchain Association, discussed the lawsuit in a post on X on Dec. 28, noting that DeFi enables users to participate in a more equitable financial system. “But the government is now forcing intermediaries where none exist, creating more risk and more opportunity for inequity,” Coppel said.

According to legal intelligence platform JD Supra, the IRS and Treasury’s regulations suggest that DeFi providers are in a "position to know" the nature of transactions, which could result in gross proceeds from the sale of digital assets. In contrast, the plaintiffs argue that these reporting rules place unnecessary burdens on DeFi platforms, hinder innovation, and impede the growth of DeFi.

Texas Blockchain Council President Lee Bratcher said in a post on X that the new IRS broker rule places unrealistic demands on the digital asset ecosystem. He further warned that this regulatory overreach could drive key developments overseas, ultimately putting the U.S.'s competitiveness in the digital economy at risk.

Similarly, the DeFi Education Fund called the regulations “yet another attempt by the outgoing administration to undermine the crypto industry and DeFi innovations in the United States.”

The IRS and Treasury’s final regulations apply to sales of digital assets on and after January 1, 2027.