United States: DeFi projects are not brokers, therefore not taxable.

by Sylvester Iyere

In a landmark move, President Donald Trump has signed a congressional resolution that eliminates a contentious Internal Revenue Service (IRS) rule targeting decentralized finance (DeFi) projects. The rule, introduced in the final days of the Biden administration, would have required DeFi platforms to track and report user activity, treating them as brokers.

The resolution’s signing marks a significant victory for the crypto industry, with strong bipartisan votes in both the Senate and House of Representatives. This milestone legislation is the first pro-crypto effort to advance through Congress, showcasing the industry’s growing influence.

Background

In December 2024, CAB reported that the IRS has introduced 2024 regulations applicable to brokers that provide services to enable special digital asset sales and exchanges. It became effective 60 days after.

Under the IRS regulations, brokers are required to report all the proceeds they make from digital assets they facilitate for customers in certain sale or exchange transactions. It binded both centralized and DeFi operators.

Industry operators and stakeholders kicked against the IRS regulations under the BIden administration. When the Trump administration came on board, industry stakeholders took up the issue with it.

Blockchain advocacy groups sue the U.S IRS over new tax rules. – Crypto Asset Buyer

DeFi Adoption and Key Implications of the Landmark Decision

As of March 2025, DeFi boasts a total value locked (TVL) of approximately 91 billion USD, as reported by Defillama.

DeFi transactions include trading on decentralized exchanges (DEXs), staking, and liquidity mining. These activities may be taxable, subject to the applicable capital gains or income tax in a jurisdiction.

The pros and cons of Trump’s signing of the congressional resolution eliminating tax on DeFi projects are as follows:

Pros:

Relief for DeFi Platforms: DeFi projects are now exempt from onerous reporting requirements, preserving the sector’s decentralized nature and allowing them to maintain their pseudonymous transaction capabilities.
Innovation Boost: The move is expected to foster American innovation, protecting the country’s position as a global leader in digital assets and potentially driving growth in the industry.
Privacy Protection: The repealed rule would have compromised user privacy, and its reversal ensures the protection of sensitive information, aligning with the core principles of decentralization and anonymity in the DeFi space.
Reduced Compliance Burden: DeFi platforms will not have to gather and report user data, such as names and addresses, for crypto sales and transactions, reducing operational costs and complexity.
Increased Investments: As investors typically look to maximizing returns on their investments, DeFi projects are likely to witness increased investments from venture capitalists (VCs), locally and globally.

Cons:

Potential Tax Revenue Loss: Without the reporting requirements, the IRS may face challenges in tracking and collecting taxes on DeFi transactions, potentially leading to lost revenue.
Compliance Challenges for Broader Industry: While DeFi platforms are exempt, other crypto businesses may still face increased compliance burdens, potentially affecting their competitiveness and operational costs.
Risk of Unintended Consequences: The reversal of the rule may lead to unforeseen consequences, such as increased risk-taking or malpractices in the DeFi sector, which could negatively impact users and the broader financial system.

Industry Reaction

Representative Mike Carey, a key proponent of the resolution, hailed the signing as a “watershed moment” for DeFi. He emphasized that the rule would have not only hindered innovation but also overwhelmed the IRS.

In Carey’s statement following the signing of the resolution on Thursday, he said that “The DeFi Broker Rule needlessly hindered American innovation, infringed on the privacy of everyday Americans, and was set to overwhelm the IRS with an overflow of new filings that it doesn’t have the infrastructure to handle during tax season.”

Similarly, the DeFi Education Fund celebrated the move, stating that it marks a significant paradigm shift for the crypto industry. It signifies the US adopting a more future-oriented approach to digital assets.

Challenges with taxing DeFi

Generally, selling or trading crypto for crypto is a disposal, and any gain is subject to the capital gains tax in most countries. This applies both to DEXs and centralised exchanges (CEXs).

However, challenges often arise concerning certain DeFi transactions such as lending, liquidity mining, staking, and yield farming. Here, there is a lack of guidance provided by tax authorities. This makes tax implications unclear for adopters of DeFi products.

The generally acceptable principle is that in the absence of a middlemen or intermediary who charge fees for the use of their platforms, tax applies differently in DeFi transactions. But as long as individual users of DeFi gain from the disposal of their assets through their DEX wallets, such individual users are liable to tax. In this way, the DeFi project builder or owner, who has applied no transaction fees, is not expected to be eligible for tax.

Conclusion

With the elimination of the contentious IRS rule that would have made DeFi projects tax-liable, the US is clearly taking a clear stand on DeFi projects and regulation—DeFi does not fall within US agencies’ regulatory purview.

DeFi users—not DeFi projects themselves—must however note that the no-tax position by the US applies to DeFi projects themselves, not the users of the products that are offered on such DeFi projects.

It remains to be seen whether the US stance on zero tax liability for DeFi projects will shape the evolution of crypto tax regimes across the world.

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