Recently, a16z Crypto regulatory chief Michele Korver issued a statement strongly opposing the U.S. Treasury's (USTreasury) recently released new broker reporting rule, arguing that this rule will bring enormous uncertainty and legal risks to DeFi technology developers, potentially stifling innovation and driving DeFi businesses and technology developers to relocate to other more inclusive jurisdictions.

We @a16zcrypto believe that DeFi will make financial services and the digital economy more accessible, efficient, interoperable, dependable, and consumer-focused. However, yesterday, the @USTreasury issued a 'midnight' broker reporting rulemaking that is a direct threat to that...

— Michele Korver (@MicheleKorver) December 29, 2024

Michele Korver stated that a16z Crypto has always believed that decentralized finance (DeFi) can make financial services and the digital economy more accessible, efficient, interoperable, reliable, and more consumer-focused. However, the recent broker reporting rule issued by the U.S. Treasury, which has not been sufficiently publicly discussed, poses a direct threat to this vision. The rule not only increases unnecessary compliance burdens but may also put the U.S. at a disadvantage in the global DeFi competition.

The reason is that the new rule redefines 'broker' as individuals or entities providing 'facilitative services.' According to the rule, developers who create tools or software that 'assist' in completing transactions may be considered brokers. This means that developers of smart contracts, wallet software, or DeFi protocols, or even individuals who simply publish code, could be recognized as 'brokers.'

This will force DeFi developers and infrastructure providers (such as wallet developers, decentralized exchange protocol developers) to implement traditional 'Know Your Customer' (KYC) processes. For most DeFi tools, this is technically impractical and could stifle innovation.

In response to this threat, a16z Crypto announced support for a civil lawsuit jointly filed by the DeFi Education Fund, the Blockchain Association, and the Texas Blockchain Council.

This lawsuit will challenge the U.S. Treasury, Secretary of the Treasury Janet Yellen, and the Internal Revenue Service (IRS), alleging that this rule exceeds the Treasury's statutory authority, violates the Administrative Procedure Act (APA), and is unconstitutional.

Michele Korver stated:

DeFi developers should feel reassured that legal professionals in the industry are working hard to protect this technology. We will fight on all fronts, including in the courts, in Congress, and in collaboration with the incoming administration.

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