Venture capital giant Andreessen Horowitz (a16z), Uniswap Labs, and the DeFi Education Fund are urging Illinois regulators to overhaul proposed cryptocurrency tax regulations, warning that the rules could effectively prohibit decentralized finance (DeFi) activity in the state while exposing users to serious security risks.

In a letter submitted Friday, Oct. 30, the three organizations argued that the Illinois Department of Revenue’s proposed implementation of the Digital Asset Tax Act incorrectly treats decentralized exchanges (DEXs) as conventional financial brokers.

The groups contend that DEXs, including the Uniswap protocol, operate through autonomous software rather than intermediaries that control customers’ assets or execute transactions on their behalf. Unlike centralized exchanges, DEXs generally cannot identify customers, determine their locations, collect taxes, or file returns on individual transactions.

The organizations argue that imposing such obligations would make compliance practically impossible, potentially creating a de facto ban on DeFi services in Illinois.

Miles Jennings, head of policy at a16z, criticized the proposal in a post on X Friday, arguing that regulators were expanding the law beyond its intended scope.

“The law is already one of the most anti-innovation bills in the country—a tax on transactions just because they’re digital,” Jennings wrote. He accused Illinois officials of engaging in “politicized rulemaking” that would classify DEXs as tax-collecting brokers, despite their inability to comply.

“Autonomous software is not a person that can collect a tax,” Jennings wrote, adding that the proposal conflicts with federal classifications of decentralized exchanges and Illinois’ own Digital Assets and Consumer Protection Act.

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