Coinbase, a16z Join Blockchain Association In Calling For Repeal of “DeFi-Killing” IRS Broker Rule

The Blockchain Association and 75 of its member companies called on Congressional leaders to revoke a rule recently passed by the Internal Revenue Service (IRS) that it said could drive U.S. decentralized finance (DeFi) projects offshore.

In a letter to the leaders of both houses and both parties, the Blockchain Association argued that Congress should revoke the DeFi broker rule, which extends the definition of “broker” to include software that enables users to access DeFi protocols.

“Under the rule, software companies that never take custody or control of users' assets will be required to radically rebuild their services in order to unnecessarily collect and then report to the government the personal identifying information and transaction details of potentially tens of millions of American users,” the Blockchain Association’s letter said.

This massive rewrite of DeFi software and potentially force protocols to create intermediaries to gather and report this massive amount of data, the Blockchain Association said in an X thread.

Blockchain Association Kristin Smith noted that the group filed a lawsuit to block the rule earlier this month. That would take far more time than a Congressional resolution revoking what the group called “midnight rulemaking.”

DeFi killer

Allowing the rule to stand would do more than put an impossible burden on DeFi projects, according to the Blockchain Association.

“This misguided rulemaking threatens to extinguish American leadership in DeFi and undermine our nation’s competitive edge in financial technology innovation,” the letter said.

Explaining that the rule only applies to DeFi companies and projects in the U.S., it added, “companies that offer the very same services to Americans from overseas will not have to comply with the rule at all. This unique burden on American companies alone could cripple DeFi innovation in this country altogether.”

All that said, Ron Hammond, the Blockchain Association’s senior director of government relations and institutional engagement, said in an email he was confident the rule would be repealed with bipartisan support, noting that it had that “back when it held up the Infrastructure bill in 2021.”

Calling regulatory overreach by the Biden Administration a big part of the problem, Hammond said, “we’re moving beyond the education phase and into the thoughtful policymaking phase, ensuring there are smart guardrails established for industry that bolster innovation while protecting consumers. And many traditional finance and bank CEOs admit DeFi and tokenization are promising for the future of finance. So it is safe to say sentiment is changing given President Trump's commitment to make the United States the crypto capital of the world.”