What happened
On 30 October 2026, Andreessen Horowitz (a16z), Uniswap Labs and the DeFi Education Fund submitted a letter to the Illinois Department of Revenue urging regulators to overhaul proposed rules for implementing Illinois' Digital Asset Tax Act.
The groups warn that the proposed implementation could effectively prohibit decentralised finance (DeFi) activity in Illinois, while also creating serious security risks for users.
Their central argument is about how decentralised exchanges (DEXs) are classified. The letter argues that the proposed rules incorrectly treat DEXs as conventional financial brokers. The groups say DEXs, including the Uniswap protocol, operate through autonomous software rather than as intermediaries that control customers' assets or execute transactions on their behalf.
Unlike centralised exchanges, they argue, DEXs generally cannot identify customers, determine their locations, collect taxes, or file returns on individual transactions. Imposing those obligations, they say, would make compliance practically impossible.
Why it matters
If the proposed approach stands, the groups argue, DeFi services could face a de facto ban in Illinois — not because DeFi is named as banned, but because the compliance duties cannot be met in practice.
A second concern is security. One controversial provision would require brokers to maintain records containing customers' private keys — the credentials used to authorise transactions and control digital assets. The signatories warn that collecting and storing those credentials could expose customer funds to theft if the records were compromised, and could force companies to choose between protecting customer assets and complying with state rules.
The letter proposes replacing the term "private keys" with "public keys", which can be used to track blockchain transactions without granting control over customers' funds.
The groups also object to provisions that could tax withdrawals from centralised exchanges to personal wallets and transfers of assets between blockchains, known as bridging. A16z policy head Miles Jennings compared that treatment to taxing someone simply for moving money between their own bank accounts.
The groups ask regulators to explicitly exclude decentralised protocols and their interfaces from the definition of digital asset brokers, and to clarify that collecting automated protocol fees does not automatically establish broker status.
What is confirmed
- The letter was submitted on Friday, 30 October 2026, by a16z, Uniswap Labs and the DeFi Education Fund, as reported by Bitcoin.com News on 30 October 2026.
- Illinois enacted its Digital Asset Tax Act in June, imposing a 0.2% tax on the value of qualifying cryptocurrency transactions and other covered digital asset activity. The levy is based on transaction value, not on profit.
- Implementation has been postponed from 1 January to 1 July 2027, to allow litigation to proceed.
- The Blockchain Association and Crypto Council for Innovation have challenged the law in court, raising concerns including overlapping taxation, constitutional protections and potential criminal penalties.
What is still unknown / not confirmed
- Whether the Illinois Department of Revenue will revise the proposed rules, exclude decentralised protocols, or change the private-keys provision to public keys. That decision has not been confirmed.
- The outcome of the court challenges. A prediction by one industry figure that challengers will succeed is an opinion, not a ruling.
- Whether the proposed rules would, as a matter of law, amount to a ban on DeFi. That is the groups' warning and argument, not a confirmed legal outcome.
This article is news only and is not investment advice.
Source: Bitcoin.com News, 30 October 2026 — https://news.bitcoin.com/regulation-and-legal/a16z-uniswap-warn-illinois-crypto-tax-rules-ban-defi/
Should decentralised protocols be treated differently from traditional brokers for tax reporting — and if so, how should that line be drawn?