In a notable development for the decentralized finance (DeFi) sector, the United States Senate has passed a resolution aimed at reducing the Internal Revenue Service’s (IRS) regulatory oversight. This resolution, introduced by Senator Ted Cruz, received bipartisan support with a vote of 70-27 on March 4, under the Congressional Review Act (CRA). This action indicates a growing legislative agreement on the necessity to alleviate regulatory burdens that could hinder innovation in the rapidly evolving DeFi landscape.
IRS Proposed Rule and Industry Response
The IRS had proposed a rule that would categorize DeFi trading front-end services as “brokers,” which would impose traditional financial intermediary obligations such as transaction reporting and know-your-customer (KYC) checks. Critics of this rule argued that it jeopardized the decentralized nature of DeFi platforms, potentially forcing them to shut down or relocate to avoid compliance.
This rule, finalized in December 2024, was scheduled to take effect on January 1, 2027, leading to significant backlash from industry stakeholders. In response, the Blockchain Association, along with the DeFi Education Fund and the Texas Blockchain Council, filed a lawsuit against the IRS’s broker rule.
Legal Challenges and Industry Support
The CEO of the Blockchain Association highlighted that the expanded definition of “broker” imposed unconstitutional compliance requirements that could stifle innovation in the DeFi sector. This legal challenge demonstrated the industry’s commitment to maintaining the foundational principles of decentralization and user autonomy.
Following the Senate’s vote to repeal the IRS rule, the crypto industry expressed widespread relief and optimism. The vote was characterized as a pivotal moment in the push for broader crypto-friendly policies, with the current Congress being noted as the most pro-crypto in history.
Bipartisan Support and Future Implications
The bipartisan nature of the vote was emphasized, as 17 Democrats joined Republicans in opposing the IRS measure, showcasing a rare instance of cross-party collaboration. While the Senate’s resolution represents a significant victory for the DeFi community, it still requires approval from the House of Representatives before reaching the President for final endorsement.
The White House’s AI and crypto czar has already expressed support for the CRA introduced by Cruz and Representative Mike Carey, framing the IRS rule as an unwarranted attack on the crypto community by the previous administration.
Potential Outcomes and Industry Impact
If the resolution successfully passes through the House and is signed into law, it would solidify DeFi’s legal standing in the United States, providing essential clarity and regulatory relief for developers and platforms in this space. A more favorable regulatory environment could foster further innovation and investment in blockchain-based finance, positioning the U.S. as a leader in the global crypto landscape.
Recent developments in the Senate reflect a broader trend of increasing acceptance and support for cryptocurrency and blockchain technologies among lawmakers. As the DeFi sector continues to expand, the need for clear and supportive regulatory frameworks will be crucial in creating an environment conducive to innovation while ensuring consumer protection and market integrity.
The outcome of this legislative effort could set a precedent for future regulatory approaches to emerging technologies in the financial sector. This ongoing dialogue between lawmakers and the crypto industry is essential for shaping a balanced regulatory landscape that encourages growth while safeguarding users.
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