In December 2024, before the Biden administration left office, the IRS introduced the DeFi broker rule, attempting to bring DeFi platforms under traditional financial regulation, which sparked strong opposition from the industry. In March 2025, both houses of Congress passed a resolution to repeal the rule, and President Trump signed it into law on April 10, marking a significant victory for the U.S. crypto industry. This article reviews the events and analyzes their impact on Web3 innovation, privacy protection, and the United States' leadership in digital assets.
Biden's "Last Strike": The Introduction of the DeFi Broker Rule
Do you remember Biden's last strike against the crypto industry before leaving office? In December 2024, before the end of the Biden administration, the IRS issued a rule that expanded the definition of "broker" to include decentralized finance (DeFi) platforms and wallet service providers. This meant that these platforms would need to collect and report user transaction information, similar to the requirements for traditional financial institutions. How strict were the requirements? Brokers were not only required to disclose detailed information about the date, type, amount, and gains of transactions, but also to provide comprehensive information about investors, including names, addresses, and identification. This meant that these platforms would have to conduct comprehensive KYC (Know Your Customer) processes on users, which was undoubtedly a significant blow to crypto, Web3, and DeFi.
Purpose and Controversy of the Rule
Why implement such stringent terms? It was primarily to enhance tax transparency, combat illegal activities, and ensure tax fairness and market order. However, this hasty regulation was not a remedy but rather a poison that would put the crypto industry in jeopardy. This led to a unified backlash from the crypto industry, which argued that DeFi platforms, as decentralized blockchain protocols, could not obtain user information and could not comply with these reporting requirements. Furthermore, if these regulations took effect, they could force innovation to move overseas, weakening the United States' leadership in the digital asset space.
Industry Victory: Repeal of the Rule
The final outcome was that both houses of Congress passed a resolution in March 2025 to repeal the DeFi broker rule. The House passed it with a vote of 292 to 132, and the Senate approved it with a vote of 70 to 27. With the support of the President, the resolution was officially signed on April 10, repealing the regulation and permanently prohibiting its reintroduction, marking the first cryptocurrency bill in U.S. history signed into law by a President. This was not only a significant victory for the crypto industry, protecting DeFi platforms from excessive regulation and preventing violations of user privacy, but it also ensured the United States' leading position in crypto innovation. It reflected a shift in the U.S. government's approach to crypto regulation, emphasizing the dual importance of balancing innovation and regulation.
Balancing Tax Compliance
Of course, some lawmakers pointed out that this move could lead to a loss of $4 billion in tax revenue for the government. Relying solely on users to report their taxes is clearly insufficient. The IRS mandates that anyone who earns profits from cryptocurrency transactions must report those earnings and pay taxes accordingly. Therefore, users need to proactively report their cryptocurrency transactions and earnings to the IRS during tax filings. Additionally, while decentralized exchanges cannot collect user data, centralized crypto exchanges (like Coinbase, Binance, etc.) typically collect transaction data and report it to the IRS, helping to ensure tax compliance. Moreover, blockchain analysis tools can track transaction flows on the blockchain, assisting tax authorities in identifying traders' behaviors and potential tax issues, so the repeal of the "DeFi broker rule" does not mean abandoning tax compliance.
Conclusion: The Right Path for Innovation and Regulation
For decades, U.S. financial regulation has followed a pattern: innovation occurs, problems arise, and regulation responds. The DeFi broker rule made a mistake by attempting to preemptively regulate before understanding the natural evolution of technology. Its failure also indicates that the U.S. is returning to its traditional strengths—allowing innovation to flourish while addressing specific issues as they arise. Forcing decentralized systems to conform to centralized regulatory frameworks is unworkable. Innovation requires appropriate guardrails, not excessive constraints.
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