TLDR
- The IRS implemented a new “DeFi broke rule” at the end of 2024.
- This week, it was repealed by Congress.
- We called it. *flex*
At the end of the year, we reported on something pretty scary. It was a last minute piece of legislation passed before the new regime took over. It was colloquially called the “DeFi Broker Rule” and was being imposed by the IRS. The purpose was to extend strict tax reporting requirements to decentralized finance (DeFi) platforms, sparking widespread concern across the crypto community.
Fast forward to this week, Congress has officially rolled back this rule, sparking relief among individual crypto investors and businesses. Here’s what happened, why it matters, and what this means for you as someone involved in the world of decentralized finance.
What Was the “DeFi Broker Rule”?
Introduced at the very end of 2024, the DeFi Broker Rule sought to equate decentralized finance platforms with traditional securities brokers or centralized cryptocurrency exchanges.
Essentially, the IRS demanded that DeFi platforms collect detailed taxpayer information and file Form 1099-DA for anyone using their service. This would be based off the front end, aka the website, not the smart contract. So anyone running a DeFi platform would have to report on anyone who used the website and send them a 1099.
The catch? DeFi platforms, by design, are decentralized. They don’t have the ability to function like banks or centralized exchanges because their frameworks don’t allow them to act as third-party intermediaries.
The rule ignored this fundamental distinction and would have created operational chaos. The IRS estimated this rule would generate over 8 billion new forms annually for taxpayers to file and the agency to process.
It wasn’t just operational headaches that sparked backlash. Critics, including former IRS Commissioner Charles Rettig, warned that the rule lacked practicality and posed risks to both innovation and the competitiveness of U.S.-based crypto businesses.
He noted that this regulation would overwhelm the IRS without providing meaningful improvements to tax compliance or enforcement.
Why the Rule Received Backlash
The rule was problematic on multiple levels. For the crypto industry, the IRS, and for taxpayers. Here’s why opponents fought so hard against it:
1. Unfair Burden on DeFi Users
Approximately one in four Americans own cryptocurrency, which means this rule would have a broad impact. Not only would DeFi users face confusing and unreasonable new tax-reporting requirements, but they’d also be exposed to greater compliance challenges.
This could have discouraged people from engaging with decentralized platforms altogether, stifling individual participation in an industry built on accessibility and innovation.
2. Stifling American Innovation
From startups to established blockchain organizations, U.S.-based DeFi businesses would have faced compliance costs that would severely limit their operations. It’s a rule that was seemingly designed to punish innovation in an industry where the U.S. held a competitive edge (Until Biden took the White House and Gensler implemented regulation by enforcement.).
Worse still, only American platforms would be forced to comply, effectively handing an advantage to foreign companies exempt from these rules.
3. Privacy Concerns
Requiring the collection of sensitive taxpayer information raises privacy concerns. Many in the crypto space view decentralization as an avenue to financial autonomy. Forcing protocols to gather excessive data undermines these principles.
What Congress Did
On March 12, 2025, the U.S. House of Representatives passed H.J.Res.25, repealing the DeFi Broker Rule. The resolution was introduced by Representative Mike Carey with bipartisan support, reflecting concerns about the regulation’s far-reaching consequences.
The vote in the House was a big moment for the crypto community. 76 Democrats crossed party lines to join their Republican colleagues in reversing the rule. The outcome highlights broad recognition of the potential harm the regulation posed to crypto businesses and retail users.
During floor debates, several lawmakers spoke out. Jason Smith, Chairman of the Ways and Means Committee, described the rule as “unfair and unworkable”. He spoke about how these regulations placed disproportionate burdens on taxpayers engaging with decentralized platforms while offering little practical benefit to tax administration.
Why the Decision Is Important For Crypto Users
The repeal of the IRS DeFi Rule is undeniably a win for the crypto sector as a whole, but what does this mean for individual users? Here’s a quick breakdown:
1. Less Complicated Tax Reporting
When using decentralized finance platforms, you won’t have to worry about more extensive tax-reporting requirements. Under the repealed rule, even occasional crypto traders would have been forced into a mountain of paperwork. For now, those concerns are off the table.
2. Continued Innovation
The American crypto industry has an opportunity to reclaim its standing as a hub for innovation and development. The repeal keeps the barrier to entry lower for businesses and creators in the space, allowing them to continue building without facing insurmountable compliance costs.
3. A Clear Message on Privacy
For anyone wary of being required to share sensitive financial data without justification, the vote reinforces that privacy concerns in the crypto community are being heard.
Although this rule has been repealed, the larger conversation about crypto regulation is far from over. Staying informed about future proposals is critical to ensuring the policies put in place serve everyone in the digital asset landscape.
Another Step in the Right Direction
The repeal of the DeFi Broker Rule marks a turning point. It’s another check mark on the Dypto Crypto team’s 2025 crypto bingo card. Governments worldwide want to better regulate the industry while preserving innovation. It’s important for the US to get ahead of this if it wants to continue to be a pioneer in space and undo the harm of the previous regime.
For users, this is an intriguing moment. The rollback of this rule means there’s an opportunity to push for a more sensible approach to crypto regulation that reflects the unique nature of decentralized finance.
If you’re new to cryptocurrency, take this as a chance to educate yourself about the space. Understanding how these developments impact you as both an investor and a participant in this innovative financial ecosystem will make all the difference.
