March–April 2025 · POLICY & REGULATION
Every so often, a piece of lawmaking comes along that accidentally exposes just how little the rule-makers understood the thing they were trying to rule. The IRS’s “DeFi broker rule” was one of those, and its unwinding in 2025 tells you something rather important about where crypto regulation is actually heading.
Let me walk you through it, because underneath the dry headline sits a genuinely interesting question: what happens when you ask a piece of software to behave like a bank?
A rule that asked software to behave like a bank
In the final days of the Biden administration, the IRS finalised a rule requiring DeFi “front-ends” — the websites and interfaces through which people reach decentralised protocols — to collect and report their users’ data, exactly as a traditional broker reports to the taxman. The intention behind it wasn’t sinister, I should say plainly: it grew out of a broader effort to close the crypto tax gap and stop people quietly dodging what they owe. Now that is a perfectly reasonable goal.
The trouble was the execution, which ran headlong into the nature of the thing it was regulating. Because DeFi protocols are software — smart contracts running autonomously on a blockchain, with no central operator sitting in the middle who controls the money or can see who you are. A brokerage has a back office, a compliance desk, and a filing cabinet full of customer details. A smart contract has none of that. It’s code. Asking the website that merely displays it to suddenly build full know-your-customer machinery — the passports, the paperwork, the identity checks — was, for many of these small teams and open-source contributors, a straight choice between the impossible and switching the lights off.
Why (almost) everyone baulked
The pushback was ferocious, and — this is the part I find telling — it did not come only from the usual crypto cheerleaders. Yes, the industry groups lined up against it. But so did civil-liberties advocates worried about the surveillance implications, and technology-policy experts of no particular tribe who pointed out that the rule misunderstood how decentralised systems work at a fundamental level. When your critics span crypto libertarians, privacy campaigners and neutral wonks, that’s usually a sign the drafting has gone somewhere strange.
So Congress reached for a rarely used tool called the Congressional Review Act, which lets it strike down a fresh regulation with simple majorities. In March 2025, the Senate voted 70 to 28 to repeal the rule — a genuine bipartisan supermajority, blending Republican hostility to the Biden regulatory approach with a good many Democrats simply conceding the thing was technically broken. Trump signed the repeal in April, and it went into the history books as the first crypto-specific bill ever signed into US law.
The line that actually matters
Here’s why I think this mattered far beyond the immediate cheering. Buried in all the noise, Congress quietly drew a line it had never properly drawn before: a distinction between centralised crypto intermediaries — the exchanges and custodians that hold your money and absolutely should be regulated like the financial institutions they are — and genuinely decentralised protocols, which may need an entirely different rulebook, if they can be sensibly regulated as software at all.
That line — where exactly does “a company” end and “just some code” begin? — is going to define crypto’s regulatory architecture for years. And 2025 planted an early, important flag in the ground about where it gets drawn.
The catch nobody’s shouting about
Now, I’d be doing you a disservice if I let you leave thinking this was a tidy, cost-free triumph, because it wasn’t. Repealing the rule didn’t magically solve the problem the rule was clumsily trying to address. The tax gap it was chasing is real — and some serious people warn that scrapping the reporting requirement leaves the IRS with a genuinely harder time tracking gains earned in DeFi. Fewer forms are lovely for privacy and for innovation; it’s rather less lovely if you’re the one trying to make sure everyone pays what they actually owe.
So the honest picture is not “good guys win, bad rule dies.” It’s that a badly built rule was struck down, and the harder, better version of it — one that respects how the technology actually works and still lets the taxman do his job — has yet to be written. My hunch is the IRS will be back, hopefully with something smarter next time.
Where that leaves us
What 2025 really settled, then, wasn’t the tax question. It was a definitional one. You cannot simply point traditional financial rules at a piece of autonomous software and expect it to salute. You can’t subpoena a smart contract.
Getting the distinction right — between the human institutions that should answer to regulators and the code that genuinely can’t — is the whole game from here. And for once, the law took a meaningful step toward understanding the thing it’s regulating. That, I’ll happily take.
The Jacqueline Brand — knowledge builds confidence, confidence builds wealth. This is editorial commentary for inspiration, not financial or professional advice. Always do your own research. The Collection
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