Main Points ：
- Repeal of Broker Rule: On July 10, 2025, the U.S. Treasury and IRS formally struck the crypto “broker” reporting requirement from the Code of Federal Regulations.
- Origins of the Rule: First introduced under the Infrastructure Investment and Jobs Act in November 2021 to expand “broker” definitions to DeFi protocols.
- Industry Pushback: DeFi developers and advocates criticized the rule as unenforceable for automated, noncustodial platforms.
- Congressional Action: Senator Ted Cruz led a Congressional Review Act resolution in January 2025; Congress voted to nullify in March, signed by former President Trump in April.
- Impact on DeFi: The repeal preserves DeFi anonymity and may spur innovation in decentralized trading and lending.
- Next Steps: Stakeholders anticipate updated guidance on tax compliance for DeFi users and potential legislative proposals.
1. Background: Introduction of the Crypto Broker Rule
In November 2021, Congress passed the Infrastructure Investment and Jobs Act, which for the first time sought to treat certain participants in cryptocurrency networks as “brokers” under U.S. tax law. The Department of the Treasury and IRS then proposed regulations requiring those “brokers” to collect and report customer names, addresses, and transaction details—much as traditional securities brokers do. The aim was to close an “information gap” between taxpayers and the IRS by ensuring crypto transactions were fully visible for tax enforcement. However, as DeFi platforms operate via automated smart contracts without centralized intermediaries, imposing such strict reporting obligations was immediately called into question by industry stakeholders.
2. Theoretical and Practical Challenges
DeFi protocols, by design, execute entirely through code deployed on public blockchains. There is no single entity owning private keys or controlling customer data. Critics argued that expecting a smart contract to know and relay customer identities and addresses is practically—and legally—impossible. For example, decentralized exchange (DEX) contracts hold no personal data; users connect via pseudonymous wallet addresses. Implementing the broker rule would have required inserting identity checks into protocols, undermining decentralization and privacy goals. Moreover, enforcement mechanisms for smart contracts in open-source code are untested, leading to calls for the rule to be rescinded.
3. Legislative Reversal via CRA
In January 2025, Senator Ted Cruz introduced a Congressional Review Act resolution to overturn the IRS rule. By March, both chambers of Congress approved the resolution, and on April 22, 2025, former President Donald Trump signed it, marking his first crypto-related legislative action since leaving office. Treasury Secretary Janet Yellen and IRS Commissioner Danny Werfel announced in a joint statement on July 10, 2025, that the broker reporting requirement had lost legal effect and would be removed from the Code of Federal Regulations, reverting to previous definitions that do not encompass DeFi platforms.
4. Implications for the DeFi Ecosystem
The official repeal signals a major victory for the DeFi community. Key impacts include:
- Privacy Preservation: Users can continue interacting with automated protocols without identity checks.
- Innovation Boost: Protocol developers face fewer regulatory hurdles when deploying new financial primitives.
- On-Chain Data Integrity: Reporting remains possible through on-chain public data, but without forced KYC burdens.
- Tax Compliance: While the broker rule is gone, users still have reporting obligations; the IRS may issue guidance on self-reporting capital gains from DeFi activity.
Many DeFi platforms are expected to update their documentation and developer toolkits, clarifying best practices for voluntary tax reporting (e.g., exporting transaction histories from on-chain explorers or wallet software).
5. Recent Trends and Broader Context
Beyond the broker rule, the DeFi sector has seen several pivotal developments in mid-2025:
- Stablecoin Regulation: The SEC is considering new guidelines for algorithmic stablecoins to address liquidity risks.
- Institutional Adoption: Major banks are piloting custodial staking services for Ethereum’s proof-of-stake ecosystem.
- Decentralized Identity (DID): Projects like Ceramic and Sovrin are advancing self-sovereign identity solutions that could offer optional KYC integrations without central intermediaries.
These trends reflect a maturing industry balancing regulatory compliance with the ethos of decentralization.
Conclusion
The formal repeal of the DeFi crypto broker rule on July 10, 2025, marks a turning point for decentralized finance in the United States. By removing an impractical reporting requirement, regulators have acknowledged the unique architecture of DeFi protocols and preserved the space for innovation. Moving forward, industry participants and the IRS will need to collaborate on practical tax-compliance frameworks that respect both transparency and user privacy. As DeFi continues to evolve, stakeholders should monitor new guidance on stablecoins, institutional custody, and decentralized identity to stay ahead in this rapidly changing landscape.
