On March 4, the US Senate released the Congress Review Act to cancel a regulation of the Biden era commonly known as a challenge rule. This rule required decentralized financing platforms to share user data with the Internal Revenue Service.
The CRA should cancel the gross reports of the products by brokers who regularly provide services carrying out sales of digital assets (or simply the “broker’s challenge rule”) was created by Senator Ted Cruz and 13 Coparracés. The vote on the cancellation of the rule was scheduled for March 5, but it can occur later due to the conflicts of the calendar.
According to Cruz’s administration policy, the rule has expanded the definition of “broker” to include software that gives access to decentralized financing platforms, effectively placing the DEFI sector under IRS Outight.
The DEFI broker’s rule has pushed the platforms DEFI to users subject to knowing your customer policy, to report raw transactions and other actions on platforms, and to share the details of taxpayers with the agency. In the arc, the DEFI broker’s rule is described as a burden of conformity imposed on American Defi companies. Another problem with the rule is confidentiality problems.
The rule was adopted in the last days of the Biden administration on December 30, 2024 and entered into force on January 1, 2025. However, the DEFI platforms should not meet compliance obligations until 2027. Cruz and his co-sponsors urged the president to stabilize it.
David Sacks, the White House cryptography advisor, expressed his support for the arc on X.
Why is the broker ‘challenge rule?
The cryptographic industry opposed the rule of the broker DEFI from the start, arguing that it does not understand the functioning of decentralized finances. The rule assumes that the DEFI platforms work as intermediaries, such as traditional brokers, rather than frontal services facilitating transactions between peers.
The broker’s challenge rule suggests that the DEFI platforms (such as real brokers) serve as intermediaries between their counterparts. The authors of rules apparently do not understand that decentralized financing platforms act as the frontal services facilitating transactions between peers, connecting the counterparts but not controlling them.
Kristin Smith of the Blockchain Association qualified the unconstitutional rule because it violates the law on administrative procedure and goes beyond the statutory authority of the IRS and the Treasury Department. The joint declaration of the Association, the Education Fund Defi and Texas Blockchain Council cites the leader of the Blockchain Association of Marisa Coppel, saying: “Not only is it a violation of the rights to the confidentiality of individuals using decentralized technology, it would push all this offshore boom.”
The activists warned that this “midnight decision” of the Biden administration would paralyze the DEFI sector, not only imposing a burden on entrepreneurs but constituting an existential threat to industry. No wonder the announcement of the White House support for the cancellation of the broker’s challenge rule has encountered a lot of enthusiasm.
What is the probability that the rule will be canceled?
The broker’s challenge rule does not align with the pro-Crypto position of the current administration. He contradicts the objective of keeping the sector of private cryptocurrencies and exempt from government surveillance. Since the Trump administration explicitly prohibited the development of the Central Bank digital currencies, a vote to repeal the rule would be in accordance with its political orientation.
More than that, during his presidential campaign in the summer of 2024, Trump promised tax relief for cryptographic companies in the United States. The broker’s challenge rule effectively pushes American Defi offshore platforms due to the improbable demand for collecting and sharing personal information from users. Given these facts, the rule is likely to be canceled.
In addition, the rule itself was subjected by IRS, and Donald Trump expressed his desire to completely abolish the IRS. The respective EARL CARTER proposal has already been created. However, it is too early to judge if something like it takes. Nevertheless, this is another argument in favor of the high probability of the success of the arc introduced by Ted Cruz.
