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The Blockchain Association led a coalition of 75 cryptocurrency industry signatories in a letter urging Congress to repeal a controversial Internal Revenue Service (IRS) rule that could significantly impact decentralized finance (DeFi) operations.
The rule in question, which was instituted between Christmas and New Year’s Eve, seeks to impose information-reporting requirements on DeFi brokers similar to those faced by traditional securities brokers and exchanges.
The letter, which has garnered support from prominent companies like Coinbase (NASDAQ:COIN), a16z, Paradigm, Kraken, Uniswap, and Anchorage Digital, argues that the DeFi broker rule represents regulatory overreach. It states that the rule not only misunderstands the technology it aims to regulate but also disregards the original intent of Congress.
The signatories assert that the rule places an unfair burden on U.S. companies, as it would not apply to foreign firms serving U.S. customers, potentially stifling domestic DeFi innovation.
Senator Ted Cruz, a Republican from Texas, introduced a resolution last week under the Congressional Review Act (CRA) to overturn the rule. The CRA allows Congress to reverse recently approved federal regulations, and the industry’s letter supports Cruz’s resolution, highlighting it as a definitive way to roll back the rule before it becomes effective.
The CRA has been used in the past as a means to eliminate regulations, but it carries the consequence that any reversed topic cannot be reintroduced in a similar manner. This limitation was a point of contention when Congress attempted to repeal the Securities and Exchange Commission’s crypto accounting policy, Staff Accounting Bulletin No. 121. Although both chambers approved the repeal, it was ultimately vetoed by President Joe Biden.
For the CRA resolution to proceed, it requires majority approval in both chambers of Congress and then the signature of the President. With the 2024 elections bringing more pro-crypto lawmakers to Capitol Hill, the industry sees a window of opportunity, even as Congress faces other urgent issues such as the federal budget.
In addition to the Blockchain Association’s efforts, other crypto organizations are expressing their support for the repeal of the rule. A spokesperson from the DeFi Education Fund expressed enthusiasm for the growing opposition to the rule, which they described as "unworkable" and "unconstitutional," and emphasized the organization’s commitment to preventing its implementation.
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