On March 4, 2025, the U.S. Senate voted 70-27 to repeal an IRS rule that would have potentially imposed very stringent reporting requirements on decentralized finance (DeFi) platforms, categorizing them as “brokers” under existing US tax laws.
This decision, driven by a bipartisan coalition and backed by the incoming Trump administration, arguably marks a pivotal moment for the nascent cryptocurrency industry.
It reflects a growing tension between fostering innovation while also ensuring regulatory oversight—a debate that’s far from resolved even with the new more crypto-friendly administration.
While this particular resolution still currently awaits House approval as well as presidential signature, its implications demand a closer look.
The rule, finalized in December 2024 during the Biden administration’s final days, aimed to align DeFi with traditional financial institutions by mandating platforms to report user transaction data, including gross proceeds, starting in 2027.
Proponents argued it would curb tax evasion and level the playing field with centralized exchanges. But it would probably be a better idea to develop updated tax reporting requirements for blockchain-based digital assets and DeFi platforms that are able to leverage the latest tech to improve transparency, accuracy, and reliability.
Critics, including Senator Ted Cruz—who spearheaded the recent repeal—called it an unworkable overreach, claiming it fundamentally misunderstood DeFi’s decentralized nature. It has actually become clear now to most industry participants that the previous Administration either did not choose to acknowledge the innovation that digital assets and DeFi bring to the country, or they simply did not understand them well enough to move forward in a productive manner.
Unlike banks or custodial exchanges, DeFi platforms often rely on smart contracts and lack the centralized control needed to collect such data. Since this new form of finance has its foundations in fundamentally different infrastructure compared to TradFi, it would only make sense to update the existing rules, which may have become outdated.
Notably, The Blockchain Association echoed this, warning that compliance could stifle innovation and push crypto development overseas.
The Senate’s vote, leveraging the Congressional Review Act, signals a shift.
It’s not just a rejection of a single rule but a broader pushback against what many see as Biden-era hostility toward crypto.
Senate Majority Leader John Thune framed it as a move to “restore financial freedom,” while the White House, under Trump’s influence, hailed it as a rollback of an “11th-hour attack” on the industry.
For DeFi advocates, it’s a lifeline—removing a seemingly unjust burden that threatened to choke a sector built on autonomy and accessibility.
Yet, this small victory comes with certain trade-offs.
Repealing the rule could cost the U.S. $3.9 billion in tax revenue over a decade, per estimates, raising questions about fiscal responsibility. However, this amount is insignificant if we compare it to the enormous potential of DeFi and how it can possibly add much more value to the US economy in the coming decade.
However, critics like Mike Kaercher of NYU’s Tax Law Center warn that it might push crypto further into the shadows, complicating efforts to combat tax evasion, money laundering, or even terrorism financing. The traditional banking system has also been exploited a lot more for carrying out these malicious activities, which everyone is aware of by now.
DeFi’s opacity, while a strength for privacy advocates, is a liability for regulators seeking transparency. This is basically the main argument presented by critics but it can again be argued that the traditional financial system has faced similar challenges for many decades. So the real problem is simply to go after the bad guys instead of trying to destroy a high-potential industry.
But it is also worth noting that the IRS’s intent wasn’t baseless—crypto tax compliance remains a mess, with billions in unreported gains—but its approach was clumsy, perhaps doomed by a failure to grasp the technology.
This moment feels like a crossroads.
The Senate’s decisiveness suggests a pro-crypto tide in Washington, bolstered by a Congress that Kristin Smith of the Blockchain Association calls the “most pro-crypto” yet.
It could pave the way for broader reforms, like stablecoin legislation or clearer market structures.
But it also risks widening the gap between innovation and accountability. If DeFi is to thrive in the U.S., it needs a framework that balances freedom with trust—not a free-for-all or the “wild wild west.”
For now, the crypto community celebrates a small win.
The House vote looms, and Trump’s support seems assured at this time.
But the real challenge lies ahead: developing proper rules and clear guidelines that don’t just react to the past but anticipate the future.