The Blockchain Association and 75 members have petitioned Congressional leaders to repeal a recent Internal Revenue Service (IRS) regulation that threatens to drive the U.S. decentralized finance (DeFi) offshore.
The Blockchain Association also pointed out in a letter to the leaders of both houses and parties that the IRS rule extends the definition of a “broker” to mean software through which users interact with DeFi protocols. The group also noted that the current change could put too much pressure on developers working on DeFi systems.
That rule affects software companies that do not have possession of personal property by requiring them to gather and disclose personal identifying data and transaction details. The Blockchain Association explained that compliance would change the DeFi software dramatically and even necessitate some middlemen for reports.
According to Kristin Smith, the CEO of the Blockchain Association, the group has already embarked on a legal battle regarding the rule. However, she said that getting Congress to repeal it would take a shorter time compared to any other course of action.
Impact on U.S. DeFi innovation
The Blockchain Association also argued that allowing the rule to proceed would be detrimental to the United States’ dominance in DeFi and financial technology. The letter clarified that the regulation solely targets domestic DeFi firms, while international companies providing the same services to U.S. consumers are not affected. The group explained that this imbalance may slow down domestic innovation, though it may push some projects offshore.
“Second, the rule raises privacy and surveillance concerns. It requires DeFi industry participants to collect and store users’ personal identifying information, and to report transaction details to the IRS. This is a dramatic infringement that disincentivizes innovation.”
The Blockchain Association
Ron Hammond, the senior director of government relations of the association was optimistic that the rule would be repealed across the parties. He cited similar sentiments in 2021 when issues to do with regulation of decentralized finance, DeFi, held up the infrastructure bill.
Hammond criticized what he described as overregulation by the Biden administration and asserted the industry is not in the phase of learning anymore. He underscored the need for policy and regulation that promote innovation but effectively shield consumers. He also noted that DeFi is gaining support from the finance and banking authorities, explaining that sentiments are changing as Trump has vowed to make America the leader in cryptocurrency.
Other crypto organizations have also expressed a lot of concern about the IRS rule. The DeFi Education Fund hailed the growing trend as a response to what it termed as unworkable and unconstitutional regulation.
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