Blockchain Association is making some serious noise in Washington. They’ve rallied 75 members to urge Congress to ditch the IRS regulation that could send U.S. DeFi into exile.

The worst take in the history of bad takes?

The IRS has decided that a broker now includes the software that helps you interact with DeFi protocols.

So if you’re developing or using DeFi software, you might suddenly find yourself in a compliance nightmare.

This new rule demands that software companies collect and disclose personal data and transaction details, even though they don’t hold any personal property.

The Blockchain Association argues that this could seriously stifle innovation and force developers to act like middlemen just to comply. Which is almost sounds impossible.

Selective rules

Kristin Smith, the CEO of the Blockchain Association, isn’t taking this lying down, and already gearing up for a legal showdown over the rule but believes that getting Congress to repeal it would be a quicker fix.

8/ In December, Blockchain Association, along with @fund_defi and @TXBlockchain_ sued to vacate the rule, arguing the rule exceeds the IRS’s statutory authority, is unconstitutional, and violates the APA.https://t.co/ZxdfG6hPxv

— Kristin Smith (@KMSmithDC) February 12, 2025

And honestly, who wouldn’t want to avoid lengthy legal battles when you can just have a chat with lawmakers?

The impact of this rule on U.S. DeFi innovation isn’t expected to be good.

The Blockchain Association warns that if this regulation sticks around, it could really hurt America’s standing in the DeFi and fintech arenas, especially because this rule only targets domestic firms while letting international companies off the hook.

So, while U.S. innovators are bogged down by red tape, their overseas counterparts could swoop in and take the market by storm.

Someone said… decentralized?

This regulation raises some serious privacy concerns. It forces DeFi players to collect and store users’ personal information and report transactions to the IRS.

That’s a major invasion of privacy and could seriously dampen innovation in the space.

Ron Hammond, the association’s senior director of government relations, is feeling optimistic about repealing this rule across party lines.

He recalls how similar regulatory issues held up the infrastructure bill back in 2021. Hammond isn’t shy about criticizing what he sees as overregulation from the Biden administration and emphasizes that we need policies that support innovation while protecting consumers.

Other crypto organizations are also sounding the alarm over this IRS rule. The DeFi Education Fund has labeled it as unworkable and unconstitutional.

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