Senate Repeals Biden's IRS DeFi Reporting Rule

The US Senate has passed a resolution to repeal a rule proposed by the Biden administration that would have required decentralized finance (DeFi) protocols to report to the Internal Revenue Service (IRS). This resolution is now on its way to President Donald Trump's desk for final approval. The rule, known as the IRS DeFi broker rule, aimed to extend existing IRS reporting requirements to the crypto space, mandating DeFi platforms to report user transactions similar to traditional brokerage firms.

On March 26, the Senate voted 70-28 to repeal this rule, following an earlier vote in March that also passed the House. The resolution was sent back to the Senate for a final vote before being forwarded to the President. The White House’s AI and crypto czar, David Sacks, has indicated that Trump supports the repeal of this rule.

This move represents a significant victory for the DeFi community, which has long advocated for regulatory clarity and a light-touch approach to oversight. The community has argued that the IRS DeFi broker rule would have stifled innovation by imposing increased compliance costs and regulatory uncertainty, potentially deterring platforms from operating in the US. Supporters of the resolution also pointed out the difficulty in enforcing the rule, given the decentralized nature of DeFi platforms, which lack a central authority for compliance.

The passage of the resolution underscores the growing influence of the DeFi community in Washington. In recent years, the community has become more organized and vocal, successfully lobbying lawmakers to adopt a more favorable stance towards the industry. This victory is likely to embolden the community to push for further regulatory reforms, such as clarifying the legal status of DeFi platforms and creating a regulatory sandbox for emerging technologies.

The resolution's passage is also expected to have broader implications for the cryptocurrency industry. The DeFi space has emerged as one of the most dynamic and innovative sectors, driving growth and adoption through the development of new financial products and services. The repeal of the rule is likely to encourage further innovation in the DeFi space, as platforms will operate without the threat of onerous regulatory requirements. This, in turn, is expected to benefit the broader cryptocurrency industry, as the DeFi space has become a key driver of growth and adoption.

However, the resolution's passage is not without its critics. Some lawmakers and regulators have argued that the DeFi space is rife with illicit activity and that the IRS DeFi broker rule was necessary to prevent tax evasion and other criminal activities. They have also expressed concerns that the resolution's passage could undermine the IRS's ability to collect taxes from cryptocurrency users, as platforms would no longer be required to report user transactions. These concerns are likely to be addressed in the coming months as lawmakers and regulators continue to navigate the challenges posed by the DeFi space.