White House supported the cancelation of a notorious Broker DeFi Rule adopted in December of 2024
On Mar. 4, the U.S. Senate released the Congressional Review Act to rescind a Biden-era regulation commonly known as the Broker DeFi Rule. This rule required decentralized finance platforms to share user data with the Internal Revenue Service.
The CRA is set to cancel Gross Proceeds Reporting by Brokers that Regularly Provide Services Effectuating Digital Assets Sales (or simply “Broker DeFi Rule”) was created by Sen. Ted Cruz and 13 cosponsors. The voting on the Rule cancellation was scheduled for Mar. 5, but it may occur later due to schedule conflicts.
According to Cruz’s Statement of Administration Policy, the rule expanded the definition of “broker” to include software that provides access to decentralized finance platforms, effectively placing the DeFi sector under IRS oversight.
The Broker DeFi Rule pushed the DeFi platforms to subject users to Know Your Customer politics, report gross proceeds from transactions and other actions on the platforms, and share involved taxpayers’ details with the agency. In CRA, the Broker DeFi Rule is described as a compliance burden imposed on the American DeFi companies. Another problem with the rule is the privacy concerns.
The rule was adopted in the final days of the Biden administration on December 30, 2024, and took effect on January 1, 2025. However, DeFi platforms were not expected to meet compliance obligations until 2027. Cruz and his co-sponsors urged the president to sign the CRA into law, arguing that it would foster innovation and economic growth rather than stifle it.
David Sacks, the White House crypto advisor, voiced support for the CRA on X.
Why is the Broker DeFi Rule problematic?
The crypto industry has opposed the Broker DeFi Rule from the start, arguing that it misunderstands how decentralized finance operates. The rule assumes that DeFi platforms function as intermediaries, like traditional brokers, rather than front-end services facilitating peer-to-peer transactions.
https://crypto.news/irs-targets-defi-blockchain-groups-challenge-new-broker-reporting-rule
The Broker DeFi Rule mistakenly suggests that DeFi platforms (like actual brokers) serve as intermediaries between their counterparts. The Rule authors seemingly don’t understand that decentralized finance platforms act as the front-end services facilitating peer-to-peer transactions, connecting the counterparts but not controlling them.
Kristin Smith of Blockchain Association called the rule unconstitutional as it violates the Administrative Procedure Act and exceeds the statutory authority of the IRS and the Treasury Department. The joint statement of the Association, DeFi Education Fund, and Texas Blockchain Council cites the Blockchain Association Head of Legal Marisa Coppel as saying, “Not only is this an infringement on the privacy rights of individuals using decentralized technology, it would push this entire, burgeoning technology offshore.”
The activists warned that this “midnight decision” of the Biden administration would cripple the DeFi sector, not only imposing a burden on entrepreneurs but posing an existential threat to the industry. No wonder the announcement of the White House support for the Broker DeFi Rule cancellation was met with much enthusiasm.
What’s the probability that the rule will be rescinded?
The Broker DeFi Rule does not align with the current administration’s pro-crypto stance. It contradicts the goal of keeping the cryptocurrency sector private and free from government surveillance. Given that the Trump administration has explicitly banned the development of central bank digital currencies, a vote to repeal the rule would be consistent with its policy direction.
More than that, during his presidential campaign in the summer of 2024, Trump promised tax relief for the crypto companies from the US. The Broker DeFi Rule effectively pushes the American DeFi platforms offshore because of the unlikely demand for collecting and sharing users’ personal information. Considering these facts, the rule has a great chance of being rescinded.
Additionally, the rule itself was submitted by the IRS, and Donald Trump expressed his willingness to abolish the IRS altogether. The respective Earl Carter proposal has already been created. However, it is too early to judge if something like this takes place. Nevertheless, that’s another argument in favor of the high probability of the success of the CRA introduced by Ted Cruz.
