The Blockchain Association has taken legal action against the IRS over new rules that target the decentralized finance (DeFi) sector.
The lawsuit challenges the IRS’s decision to classify some DeFi protocols as brokers, a move that would require these platforms to gather and report detailed user transaction data through Know Your Customer (KYC) procedures. The IRS estimates that this regulation could affect nearly 900 DeFi platforms, which has raised significant concern across the crypto community.
Legal experts and investors have voiced opposition to the regulation, citing potential violations of constitutional rights and increased security risks associated with storing sensitive KYC information. In response, the Blockchain Association, in partnership with the DeFi Education Fund and the Texas Blockchain Council, has filed a lawsuit to prevent the regulation from going into effect.
The association argues that the IRS has overstepped its authority by expanding the definition of a “broker” to include platforms that merely facilitate trades without executing them. Marisa Coppel, the association’s legal head, emphasized that the rule infringes on privacy rights and could push DeFi innovation overseas.
Critics, including the Blockchain Association’s CEO Kristin Smith and legal figures like Jake Chervinsky from Variant, have strongly condemned the regulation. They argue that it represents an unwarranted overreach by the IRS and could stifle the growth of the DeFi sector in the U.S.
Some in the crypto community have suggested that the Biden administration is intentionally pushing through restrictive rules in an attempt to hinder the future pro-crypto stance of the incoming Trump administration. The lawsuit reflects the ongoing tension between crypto advocates and regulatory authorities over the future of digital finance.
