Definitions

(a) In general Section 7701 of the Internal Revenue Code of 1986, as amended by section 8 of this Act, is further amended— (1) by redesignating subsection (q) as subsection (r), and (2) by inserting after subsection (p) the following new subsection: (q) Definitions related to digital assets For purposes of this title— (1) Bridged digital asset Except as otherwise provided by the Secretary, the term bridged digital asset means any digital asset if such asset— (A) is redeemable on demand, on a one-for-one basis, for another digital asset, and (B) is recorded on a cryptographically secured distributed ledger other than the cryptographically secured distributed ledger on which the digital asset referred to in subparagraph (A) is recorded. (2) Digital asset Except as otherwise provided by the Secretary, the term digital asset means any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary. (3) Digital asset transaction The term digital asset transaction means any transaction, instruction, or other operation submitted for execution and recorded on the cryptographically secured distributed ledger (or similar technology) referred to in paragraph (2), regardless of whether such transaction, instruction, or other operation transfers a digital asset or is successfully executed. (4) Digital asset validation supporting activities The term digital asset validation supporting activities means staking, mining, or similar activities in support of the validation of digital asset transactions. (5) Mining (A) In general The term mining, when used in connection with a digital asset, means— (i) performing computations, or making available computing power, in support of the validation of digital asset transactions on a cryptographically secured distributed ledger that uses a proof-of-work consensus mechanism, and (ii) except as otherwise provided by the Secretary, any activity which is substantially similar to an activity described in clause (i). (B) Exception The term mining does not include staking or the operation of a validator node on a cryptographically secured distributed ledger that uses a proof-of-stake consensus mechanism. (6) Qualified U.S. dollar stablecoin (A) In general The term qualified U.S. dollar stablecoin means any U.S. dollar stablecoin which is issued by— (i) a permitted payment stablecoin issuer (as defined in section 2(23) of the GENIUS Act, as in effect on the date of the enactment of this subsection), or (ii) a foreign payment stablecoin issuer (as defined in section 2(12) of the GENIUS Act, as so in effect) authorized to issue such U.S. dollar stablecoin to United States persons by reason of— (I) registration with the Office of the Comptroller of the Currency under the GENIUS Act (as so in effect), or (II) a determination by the Secretary under such Act that the regulatory and supervisory regime of the jurisdiction in which such issuer is organized is comparable to the requirements of such Act. (B) Exception For purposes of subparagraph (A)(ii), a foreign payment stablecoin issuer shall not be treated as authorized to issue a U.S. dollar stablecoin under such subparagraph by reason of the absence of a prohibition on the offer or sale of such U.S. dollar stablecoin in the United States. (7) Receipt token (A) In general Except as otherwise provided by the Secretary, the term receipt token means any digital asset (other than a bridged digital asset) that is readily redeemable, directly or through a protocol or similar arrangement, for a determinable amount of 1 or more other digital assets (referred to in this subsection as underlying digital assets), without regard to whether— (i) such receipt token and any underlying digital asset are recorded on the same cryptographically secured distributed ledger, (ii) the amount of underlying digital assets for which such receipt token is redeemable varies over time, or (iii) redemption is subject to a waiting period, queue, or similar delay imposed by the protocol. (B) Tiered receipt tokens If any underlying digital asset with respect to a receipt token is itself a receipt token or a bridged digital asset— (i) the underlying digital assets or reference digital asset of such asset shall be treated as underlying digital assets of the first receipt token, and (ii) rules similar to the rules of subparagraphs (B) and (C) of paragraph (8) shall apply. (8) Reference digital asset (A) In general The term reference digital asset means, with respect to any bridged digital asset, the digital asset referred to in paragraph (1)(A). (B) Special rule for rewrappings If, but for this subparagraph, the reference digital asset with respect to any bridged digital asset would be a bridged digital asset (referred to in this paragraph as the lower-tier bridged digital asset)— (i) subparagraph (A) shall be applied with respect to the lower-tier bridged digital asset, and (ii) the reference digital asset with respect to such lower-tier bridged digital asset shall be treated as the reference digital asset of such bridged digital asset. (C) Multiple wrappings If, after the application of subparagraph (B), the reference digital asset with respect to the lower-tier bridged digital asset is a bridged digital asset, such subparagraph shall be reapplied by treating such lower-tier bridged digital asset as the bridged digital asset. (9) Staking The term staking, when used in connection with a digital asset, means— (A) making such asset available in support of the validation of digital asset transactions, and (B) to the extent provided by the Secretary, any activity which is substantially similar to an activity described in subparagraph (A). (10) Staking reward (A) In general The term staking reward means any additional units of a digital asset, or portions thereof, that are created or issued by the protocol itself as part of validation and allocated to a taxpayer (directly or through 1 or more agents or pools) as a result of the taxpayer's direct or indirect participation in digital asset validation supporting activities of a distributed ledger. (B) Exclusion for service compensation (i) In general The term staking reward shall not include any fee, commission, spread, or other amount received for providing validation, staking, exchange, lending, or other digital asset financial services to another person. (ii) Exception For purposes of clause (i), a protocol-issued reward shall not be treated as compensation for providing digital asset financial services merely because the taxpayer directly validates transactions or delegates digital assets to a validator. (11) Tokenized digital asset The term tokenized digital asset means any digital asset (other than a qualified U.S. dollar stablecoin) that is a digital representation of all rights, obligations, or interests in a tangible or intangible asset that is not itself a digital asset. (12) Traded digital asset Except as otherwise provided by the Secretary, the term traded digital asset means any digital asset if— (A) such asset is fungible, (B) quotations of such asset are readily available or readily ascertainable on 1 or more exchanges and reflect trading in sufficient volume and with sufficient liquidity to provide reliable price discovery, and (C) such asset is either— (i) not a tokenized digital asset, (ii) a bridged digital asset with respect to which the reference digital asset is a traded digital asset, or (iii) a receipt token with respect to which each underlying digital asset is a traded digital asset. (13) U.S. dollar stablecoin The term U.S. dollar stablecoin means a payment stablecoin as defined in section 2(22) of the GENIUS Act (as in effect on the date of the enactment of this subsection) applied by substituting dollars for monetary value each place it appears in such section. (14) Validation The term validate, and any derivative of such term (including validation), when used in connection with a digital asset transaction, means participating in a consensus process of a cryptographically secured distributed ledger by proposing, attesting to, verifying, ordering, recording, or otherwise confirming transactions or blocks. (15) Widely traded digital asset (A) In general Except as otherwise provided by the Secretary, the term widely traded digital asset means, for any taxable year, any traded digital asset if— (i) quotations for such asset were readily available on an exchange for the entirety of the immediately preceding calendar year, (ii) the market capitalization of such asset exceeded $500,000,000 at substantially all times during such calendar year, and (iii) not more than 10 percent of the units of such asset were owned, directly or indirectly, by the taxpayer or any person described with respect to the taxpayer under section 267(b) (applied without regard to section 267(c)(3)) or section 707(b)(1) at any time during such taxable year or the immediately preceding taxable year. (B) Special rule for bridged digital assets Except as otherwise provided by the Secretary, in the case of any bridged digital asset, such asset shall be treated as a widely traded digital asset if the reference digital asset with respect to such bridged digital asset is a widely traded digital asset. (C) Authority to ensure reliable price discovery For purposes of subparagraphs (A) and (B), the Secretary may exclude any asset that lacks reliable price discovery or that the Secretary determines is at risk of price manipulation. (D) Authority to adjust requirements The Secretary may, by regulation, provide requirements that apply in lieu of 1 or more of the requirements of clauses (i) through (iii) of subparagraph (A) if the Secretary determines that, due to changes in market conditions (including by reason of the enactment of Federal legislation relating to digital asset market structure), such alternative requirements would more effectively or efficiently identify traded digital assets for which there is consistent and reliable price discovery. (E) Special rule for receipt tokens Except as otherwise provided by the Secretary, a receipt token shall be treated as a widely traded digital asset if each underlying digital asset with respect to such receipt token is a widely traded digital asset. (F) Inflation adjustment In the case of any calendar year after 2027, the $500,000,000 amount in subparagraph (A)(ii) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2026 for calendar year 2016 in subparagraph (A)(ii) thereof. Any increase determined under the preceding sentence which is not a multiple of $100,000 shall be rounded to the nearest multiple of $100,000.. (b) Conforming amendments (1) Section 6045(g)(3) of the Internal Revenue Code of 1986 is amended by striking subparagraph (D). (2) Section 6050I(d)(3) of such Code is amended by striking (as defined in section 6045(g)(3)(D)).