Crypto Victory: Senate Votes to Kill “Unworkable” IRS DeFi Rule

TLDR

• The US Senate voted 70-27 to repeal a Biden-era rule requiring DeFi protocols to report to the IRS
• The resolution now moves to the House before potentially going to President Trump, who supports killing the rule
• Crypto industry players call the rule “unworkable” as it would require decentralized exchanges to report crypto sales information
• The Senate also voted on a separate measure to overturn a CFPB digital-payments rule affecting non-custodial crypto wallets
• This action is seen as part of broader efforts to support crypto development in the US and prevent companies from moving overseas

The United States Senate has taken a major step toward eliminating a controversial cryptocurrency reporting requirement.

In a decisive 70-27 vote on March 4, senators approved a resolution to repeal the Biden administration’s rule that would require decentralized finance (DeFi) protocols to report to the Internal Revenue Service.

The rule, finalized in the last months of the Biden presidency, would have expanded existing IRS reporting requirements. It aimed to include decentralized exchanges and require brokers to disclose gross proceeds from cryptocurrency sales, including information about taxpayers involved in these transactions.

This Senate action follows a similar effort in the House of Representatives. House lawmakers advanced their own resolution to repeal the rule on February 26, though that measure has not yet received a full floor vote.

For the repeal to become final, the resolution must still pass the House. If successful, it will then head to President Donald Trump’s desk for signature. Trump’s AI and crypto advisor David Sacks has stated that the President supports eliminating the rule.

Industry experts have criticized the IRS rule as unworkable. Eli Cohen, general counsel of the RWA tokenizing platform Centrifuge, told Cointelegraph that the rule “never made any sense and was unworkable in practice.”

Cohen noted that since the rule never went into effect, reporting requirements remain unchanged. “It just means that the taxpayer needs to report directly to the IRS without an intermediary taking on this obligation,” he explained.

The Senate’s action represents a first test of what many see as the most crypto-friendly Congress to date. Kristin Smith, CEO of the crypto advocacy group The Blockchain Association, celebrated the vote on social media platform X, calling it a “big day for DeFi – and the US crypto industry.”

1/ It’s a big day for DeFi – and the US crypto industry. A bipartisan group of senators (including 18 Democrats) just voted to repeal the DeFi broker rule which would have crippled DeFi in the US.

Thank you @SenTedCruz for your leadership to help kill this rule for good.

— Kristin Smith (@KMSmithDC) March 4, 2025

Smith emphasized the strategic importance of the vote. “The effort to repeal this rule should be seen as part of a broader move to keep crypto in the US,” she said.

The Senate also addressed another crypto-related regulation on March 4. Lawmakers voted to move forward with a separate resolution to overturn a Consumer Financial Protection Bureau (CFPB) rule that expanded oversight of fintech payment apps.

This second rule, finalized in January, would extend obligations under the Electronic Funds Transfer Act to non-custodial cryptocurrency wallets. Critics argue this creates compliance challenges for developers who have no control over assets in these wallets.

A final Senate vote on the CFPB rule repeal is expected soon. Like the IRS rule repeal, this measure would also require House approval before taking effect.

Senate Majority Leader John Thune (R-S.D.) framed these efforts as necessary corrections to overregulation. “The Biden administration did everything it could to stifle financial innovation in the United States, threatening to send digital asset companies overseas,” Thune said in a statement.

Thune added that “The Senate is working to undo these burdensome regulations one at a time to restore financial freedom for the American people.”

Supporters of the CFPB rule have argued it provides needed consumer protections. Better Markets, a financial reform advocacy group, previously supported the concept of bringing new payment technologies under regulatory oversight to “protect the wallets of the rising number of Americans using these technologies.”

The crypto industry has watched these developments closely. Smith of the Blockchain Association sees the Senate vote as a positive sign for future crypto legislation. “This bodes well for the efforts to design and pass stablecoin and market structure legislation,” she said.

DeFi protocols operate without central intermediaries, using smart contracts to automate financial services. Industry advocates argue that traditional reporting requirements designed for centralized entities cannot reasonably apply to these decentralized systems.

The Congressional Review Act gives Congress limited authority to overturn regulations enacted in the final months of an outgoing administration. This approach was also used during the first Trump administration to roll back Obama-era rules.

The current efforts have received bipartisan support in the Senate. The 70-27 vote on the IRS rule repeal indicates substantial backing from both Republicans and Democrats, suggesting growing consensus on certain crypto policy issues.