a16z, Uniswap: Illinois crypto tax rules would effectively ban DeFi

Venture firm a16z, Uniswap Labs and the DeFi Education Fund filed a joint letter with the Illinois Department of Revenue on Oct. 30 arguing that its draft rules for the state's digital asset tax would effectively ban DeFi in Illinois. Bitcoin.com reported the letter.

Details

The department posted the draft rules on Sept. 28 and took comments through Oct. 30. They implement the state's Digital Asset Tax Act: a 0.2% tax on qualifying crypto transactions, scheduled to start Jan. 1, 2027, according to Cointelegraph.

Per Bitcoin.com, the letter objects to treating decentralized exchanges as tax-collecting brokers, since an autonomous protocol cannot collect a tax. It also criticizes provisions it says would push brokers to hold customers' private keys, and the taxing of transfers between personal wallets and cross-chain bridging. a16z's Miles Jennings wrote on X: "Autonomous software is not a person that can collect a tax." The letter itself is a PDF.

Cointelegraph's reading of the draft is narrower: DeFi activity is generally not taxed unless a user pays a fee that counts as "valuable consideration," such as a protocol maintenance fee. Network fees and swap fees paid to liquidity providers do not trigger the tax. Stablecoins count as digital assets and NFTs are excluded. Transfers from centralized exchanges to self-custody wallets can be taxed if the exchange charges a fee.

What this means for the market

Illinois is the first U.S. state to tax crypto transactions, and the final wording of the rules will decide how DeFi protocols are treated. The department has not yet responded to the letter and the rules are not final. There is no direct price impact. For the live bitcoin price, see the daily brief; the protocol's token is on the Uniswap page.