In a landmark decision, the U.S. Congress has repealed the IRS’s controversial rule that classified decentralized finance (DeFi) platforms as brokers, thereby subjecting them to stringent tax reporting requirements. President Trump signed this repeal into law on April 10, 2025, marking a significant shift in the regulatory landscape for digital assets.
This move is a game-changer for the broader cryptocurrency ecosystem. By nullifying the rule, Congress has alleviated the compliance burden on DeFi platforms, which often operate without centralized control or access to user data. The decision underscores a growing recognition of the unique nature of decentralized technologies and a commitment to fostering innovation in the crypto space.
Background: The IRS DeFi Reporting Rule
The IRS rule in question stemmed from the Infrastructure Investment and Jobs Act of 2021, which expanded the definition of “broker” to include entities facilitating digital asset transactions. In December 2024, the IRS finalized regulations requiring DeFi platforms to collect and report user transaction data, including personal information, to the IRS using Form 1099-DA.
The intent behind the rule was to enhance tax compliance in the rapidly growing crypto market. However, the DeFi community raised significant concerns
- Technical Infeasibility: DeFi platforms often lack centralized control and do not have access to user identities, making compliance with reporting requirements technically challenging.
- Privacy Concerns: Mandating the collection of personal data was seen as a threat to user privacy and contrary to the principles of decentralization.
- Innovation Stifling: Critics argued that the rule would hinder innovation and push DeFi projects offshore, negatively impacting the U.S.’s position in the global crypto market.
The repeal of this rule reflects a balancing act between ensuring tax compliance and promoting technological innovation. While centralized exchanges remain subject to reporting obligations, DeFi platforms are now exempt, acknowledging their distinct operational models.
Legislative Repeal: The Congressional Review Act in Action
Understanding the Power of the Congressional Review Act (CRA)
To fully grasp how the IRS DeFi reporting rule was overturned, we need to understand the legal mechanism behind it—the Congressional Review Act (CRA). Enacted in 1996, the CRA gives Congress the authority to review and nullify regulations issued by federal agencies. Once an agency finalizes a rule, Congress has a 60-legislative-day window to introduce and pass a joint resolution of disapproval. If both chambers approve the resolution and the President signs it, the regulation is struck down and cannot be reissued in substantially the same form unless Congress authorizes it through new legislation.
This tool is rarely used, and even more rarely successful. But in 2025, Congress revived it in full force to counter what was seen as a regulatory overreach by the IRS—an overreach that many in the crypto world feared would cripple decentralized innovation in the United States.
Unprecedented Bipartisan Pushback
The most remarkable aspect of this repeal was the strong bipartisan support it garnered. In an age of political polarization, crypto policy proved to be a rare unifier. The Senate passed the disapproval resolution with a 70-27 vote—a clear message that the regulation had overstepped. Over in the House, the support was equally robust: 292 members voted in favor of repealing the IRS’s rule, with 76 Democrats joining their Republican counterparts.
This wasn’t just a Republican win. Lawmakers from both sides of the aisle expressed concerns about the IRS trying to fit a decentralized square peg into a centralized round hole. For many, it was less about being pro-crypto and more about protecting innovation, privacy rights, and fair governance in how regulations are applied.
President Trump Signs the Repeal into Law
The final step came on April 10, 2025, when President Trump signed the resolution, officially overturning the IRS’s DeFi reporting rule. This move not only blocked the enforcement of the broker rule but also set a precedent: the CRA was now on the table as a viable check against regulatory overreach in emerging tech sectors.
This was the first time in history that a tax-related regulation had been repealed via the CRA. More than just a legal maneuver, it symbolized a larger ideological battle: should the U.S. government treat decentralized financial systems the same way it treats traditional finance? Congress and the President answered with a clear “No.”
Implications for DeFi Platforms and Users
DeFi Platforms Off the Hook—For Now
With the rule now off the books, DeFi platforms are no longer under the IRS’s broker classification. This means they are not required to collect personal data or issue tax forms like the 1099-DA to users or the government. For projects run by code, not companies, this comes as a massive relief. It spares developers from the impossible task of implementing reporting systems they were never equipped to manage.
Imagine telling a vending machine to collect your Social Security number before dispensing chips. That’s the kind of impracticality the IRS rule introduced for DeFi protocols.
Reclaiming Privacy and Autonomy
At its core, DeFi was built on ideals like privacy, permissionless access, and user sovereignty. The now-defunct IRS rule threatened to erode those foundations by forcing platforms to harvest and report user data—often without even knowing who those users were.
With the rule repealed, users can once again participate in decentralized finance with a higher degree of privacy and autonomy. They aren’t subjected to blanket surveillance or forced disclosure of their financial activities, simply for using a smart contract.
This is not just a technical win; it’s a philosophical one. The repeal reinforces the idea that innovation doesn’t have to come at the cost of individual rights.
The Tax Compliance Dilemma Isn’t Over
However, while DeFi platforms no longer need to act as tax agents, the responsibility hasn’t vanished—it has simply shifted back to the user. Individuals are still expected to report capital gains, losses, and income earned via DeFi interactions.
This poses a major challenge. Without standardized reporting or third-party documentation, the burden of accurate tax reporting now lies entirely on the shoulders of users—many of whom lack the tools or understanding to navigate complex transactions across multiple chains, wallets, and tokens.
Moreover, the IRS is unlikely to retreat entirely. With billions in crypto-related revenue potentially going unreported, the agency is expected to explore alternative strategies—like blockchain forensics, wallet tracking, and partnerships with centralized on-ramps—to enforce compliance.
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Broader Impact on the Cryptocurrency Industry
A Clear Message: U.S. Leans Toward Innovation over Overregulation
The repeal of the IRS’s DeFi broker rule didn’t just lift a regulatory burden—it sent a thunderous message across the global crypto landscape: the United States is open for blockchain innovation. For years, developers and crypto entrepreneurs have operated in legal limbo, unsure if the rules would change overnight. This move offers much-needed clarity and encourages homegrown innovation rather than offshoring talent.
By overturning the rule, Congress signaled that lawmakers understand DeFi is fundamentally different from traditional finance and requires its own framework. Instead of trying to fit new tech into old laws, the U.S. is taking the first step toward modernizing its approach to financial innovation.
This also reflects a growing maturity in how Washington views crypto. The conversation is no longer about banning or blindly regulating but about creating guardrails that ensure safety without killing creativity. And for crypto-native companies and projects, that shift in attitude is priceless.
Setting a Precedent for Future Crypto Legislation
This isn’t just a one-off regulatory win—it sets a new tone for how crypto will be legislated in the future. With strong bipartisan support, the message is clear: if federal agencies attempt to sneak in overly broad or poorly crafted rules that don’t reflect the technical realities of decentralized platforms, they can and will be challenged.
Regulatory bodies like the SEC and CFTC are now on notice. They’ll need to work more collaboratively with both Congress and industry stakeholders. We may soon see more legislation tailored to Web3, AI-driven finance, and decentralized identity systems that reflect how these technologies actually operate rather than how regulators wish they did.
This precedent could pave the way for frameworks that better distinguish between centralized exchanges, DeFi protocols, NFT platforms, and DAO governance systems—areas previously lumped together in sweeping regulatory proposals.
Walking the Tightrope: Innovation vs. Compliance
While the repeal is a huge win for innovation, it doesn’t mean compliance is off the table. In fact, it highlights a growing need for smarter, not stricter, regulation. Lawmakers and agencies now face a tricky question: how do we ensure fair taxation and protect consumers without placing impossible burdens on projects built on lines of code and run by anonymous communities?
There’s no easy answer, but one thing is certain—dialogue is key. Projects, developers, and legal experts must be brought to the table to co-create solutions. Whether it’s through voluntary disclosure frameworks, cryptographic proofs of compliance, or self-regulatory bodies, there are creative ways to achieve tax transparency without dismantling decentralization.
International Perspectives: Comparing Global Approaches
Europe’s MiCA and the OECD’s CARF: A Structured Approach
While the U.S. just repealed a major tax rule for DeFi, regulators in other regions are moving in the opposite direction—toward structured, enforceable compliance. The European Union’s Markets in Crypto-Assets Regulation (MiCA), set to go live in 2025, includes specific provisions for crypto asset service providers (CASPs). While it largely focuses on centralized entities, DeFi may be drawn into its scope through future amendments.
Meanwhile, the OECD has launched the Crypto-Asset Reporting Framework (CARF), aiming to facilitate cross-border information exchange for tax purposes. CARF essentially treats crypto like traditional bank accounts in terms of compliance, even if the underlying systems are far more complex.
These frameworks show a global push toward accountability—but they also risk excluding the very decentralized systems they aim to regulate, unless tailored properly.
Regulatory Arbitrage: Innovation Finds the Path of Least Resistance
Let’s face it—when regulation gets too tight in one country, crypto projects don’t disappear. They migrate. This is called regulatory arbitrage, and it’s already happening. Projects shift operations to crypto-friendly jurisdictions like Switzerland (home to the “Crypto Valley” in Zug), Singapore, the UAE, and the Cayman Islands.
The U.S. repeal could reverse that trend, encouraging projects to stay, hire, and build domestically. But it also pressures other governments to loosen overly rigid frameworks or risk losing innovation to more progressive environments. Think of it as global competition—not just for capital, but for the minds building the future of finance.
On the flip side, regulatory arbitrage creates fragmentation and uncertainty for users, especially those accessing platforms across borders. This makes a strong case for international cooperation and consistent crypto tax standards.
What the U.S. Can Learn from Global Models
Despite its leadership in tech innovation, the U.S. can still learn from global regulatory models. The EU’s MiCA regulation emphasizes consumer protection, transparency, and token classification—all areas the U.S. has yet to clarify. Likewise, Japan has demonstrated effective oversight of crypto exchanges without stifling growth.
Rather than going it alone, the U.S. could benefit from participating in international forums like the Financial Action Task Force (FATF), which sets guidelines on anti-money laundering for crypto. Building consensus with allies will also help prevent malicious actors from exploiting regulatory loopholes in weaker jurisdictions.
Conclusion
the repeal of the IRS’s DeFi reporting rule marks a pivotal moment in the evolution of crypto regulation, signaling a shift toward more innovation-friendly policies that respect the decentralized nature of blockchain technologies. This move not only preserves user privacy and operational freedom for DeFi platforms but also sets the stage for smarter, more collaborative legislation in the future. As the global landscape adapts and competition for Web3 innovation intensifies, businesses must seize this regulatory clarity to build confidently. Blockchain App Factory provides advanced DeFi platform development services, helping projects launch secure, scalable, and regulation-ready decentralized finance solutions tailored for the future.
