Uniswap Labs, venture firm Andreessen Horowitz and the DeFi Education Fund are pressing Illinois regulators to carve decentralized exchanges and the web apps that connect users to them out of the broker definition in draft rules implementing the state's new digital asset tax.
The three organizations laid out their objections in a comment letter to the Illinois Department of Revenue dated Oct. 30, responding to proposed regulations the agency published Sept. 28. The draft rules interpret the Illinois Digital Asset Tax Act, which imposes a 0.2% levy on digital asset transactions and sets out who qualifies as a broker required to collect it.
At issue is whether software protocols and self-custody wallets should be treated the same as intermediaries that hold customer funds. The letter argues they should not, and asks the state to protect self-custody arrangements in which users hold their own coins and private keys.
According to the filing, the draft reaches both the protocols that power decentralized exchanges and the applications that give users access to them. It also takes up how the rules would treat protocol fees, private keys, withdrawals to a customer's own wallet and transfers between blockchains.
Miles Jennings, policy lead and general counsel at a16z's crypto arm, said on X that the measure is among the most anti-innovation laws in the country because it taxes transactions simply for being digital. He argued that autonomous software cannot be a tax collector, even as state officials seek to classify decentralized exchanges as brokers.
A central complaint centers on a provision that would require brokers to record and retain customers' private keys. The groups contend that such data, if leaked, could expose holders to theft of their assets. Jennings also compared taxing withdrawals from centralized exchanges to personal wallets, and asset movements across blockchains, to levying a charge on transfers between a person's own accounts.
The letter's broader argument is that decentralized exchanges operate as autonomous software with no intermediary that controls customer assets or executes trades on their behalf. Unlike centralized platforms, the groups say, such systems cannot structurally verify customer identity, determine location, collect taxes or report individual transactions, and that imposing those duties would be effectively impossible to carry out, potentially shutting DeFi services out of Illinois entirely.
The DeFi Education Fund describes itself as a nonprofit that advocates for the rights of users and builders in the sector. Together, the three groups say open software tools should be regulated differently from firms that hold customer funds.
Industry groups have filed legal challenges to the underlying law, and the state has reportedly agreed to push back the start date to July 2027. Tax dates can shift, and the department's own materials remain the authoritative source for the latest schedule.
Note: Dates and figures as stated in the comment letter and the draft rules; the start date has been reported but not confirmed in the published text.
The outcome matters well beyond Illinois. If the broker label survives in final form, other states weighing similar levies could adopt the same template, and DeFi developers would face compliance duties that the technology was not designed to perform. A carve-out, by contrast, would give software teams a precedent for arguing that code without custody is not a financial intermediary.
The department is expected to review the comments before issuing final rules. What to watch: the final text's treatment of the broker definition, a firm effective date, and whether the private-key recordkeeping provision survives. Until the rules are final, how the tax applies to these tools may keep changing.