Crypto Firms Rally Behind Ted Cruz to Block IRS DeFi Broker Rule

The Blockchain Association, a prominent trade group representing 76 cryptocurrency firms, has launched a campaign urging Congress to repeal the Internal Revenue Service’s (IRS) controversial decentralized finance (DeFi) broker rule. The rule, which was finalized during the final days of the Biden administration, has sparked concerns within the crypto industry for its potential to stifle innovation and impose undue regulatory burdens on blockchain firms.

On February 19, the Blockchain Association sent a letter to key congressional leaders, including Senate Majority Leader John Thune, Senate Minority Leader Chuck Schumer, House Speaker Mike Johnson, and House Minority Leader Hakeem Jeffries, advocating for the repeal of the IRS regulation. The letter, signed by several major crypto companies such as 0x Labs, a16z Crypto (Andreessen Horowitz’s crypto division), Aptos Labs, Crypto.com, Grayscale, Dapper Labs, and Ava Labs, called on lawmakers to support Senator Ted Cruz’s Congressional Review Act (CRA) resolution, S.J.Res. 3, which seeks to undo the DeFi broker rule.

What is the DeFi Broker Rule?

The IRS's DeFi broker rule expands the definition of a "broker" under U.S. law to include software providers that facilitate access to decentralized finance protocols. Set to be implemented in 2027, the rule would impose the same reporting requirements on decentralized exchanges (DEXs) as those required for traditional brokers. These requirements include the collection and reporting of users' personal information and transaction details, a move that has raised alarms in the crypto community.

The IRS has estimated that the rule could affect up to 875 DeFi brokers in the United States, a significant portion of the growing decentralized finance industry. However, industry experts argue that this rule could have far-reaching consequences for the sector.

Industry Pushback and Concerns

In its letter, the Blockchain Association argues that the IRS DeFi broker rule is both unjustified and counterproductive, warning that it could severely limit innovation in the U.S. crypto space. The trade group asserts that the rule would impose burdensome compliance requirements on software providers, even those who do not hold or control user assets. These firms would be forced to redesign their services to comply with the new reporting obligations, which could involve collecting sensitive personal data from millions of users.

The Blockchain Association further contends that the rule unfairly targets U.S.-based crypto companies, putting them at a disadvantage compared to their global counterparts. This, they argue, could "cripple DeFi innovation" in the U.S. and undermine the country’s competitiveness in the rapidly evolving financial technology (fintech) sector.

"The rule requires software companies that have never taken custody of user assets to collect and report personal identifying information and transaction details, potentially affecting tens of millions of American users," the Blockchain Association’s letter states.

A Call for Congressional Action

The Blockchain Association is urging Congress to take action and vote in favor of Cruz’s CRA resolution. The group emphasizes that decisions with such far-reaching implications should be made by elected lawmakers rather than through regulatory actions that may have been rushed through in the final days of the previous administration.

According to the Blockchain Association, repealing the rule would help preserve the U.S.'s role as a global leader in digital asset innovation, fostering economic growth, job creation, and financial inclusion. The letter urges Congress to support policies that encourage DeFi innovation rather than stifle it through overly burdensome regulations.

Looking Ahead

As the debate over the DeFi broker rule continues, the crypto industry remains concerned about the potential impact of regulatory overreach. While the rule is not set to be implemented until 2027, the crypto community is already mobilizing to protect the future of decentralized finance and ensure that the U.S. remains a competitive hub for fintech innovation.

With major industry players rallying behind Ted Cruz’s resolution, the outcome of this legislative push could have significant implications for the future of crypto regulation and the broader DeFi ecosystem in the United States.