What is the GENIUS stablecoin Act and IRS crypto broker rules?

May 3, 20254 min read

TLDR;

The GENIUS (Guiding and Establishing National Innovation for U.S. Stablecoins) Act of 2025 seeks to provide regulations around stablecoins like Tether (USDT) and USD Coin (USDC)

The IRS crypto broker rules wanted to expand the taxman�s definition of a broker to include entities like DeFi protocols and decentralized exchanges

Donald Trump, the U.S. President, halted the IRS�s intentions to expand the broker definition

The United States government is moving closer to the crypto scene after years of watching from a distance and enforcing haphazard regulations. The Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 Act, commonly known as the GENIUS Act, is among many laws that the country wishes to use to regulate the stablecoin sector of the crypto world.

To venture deeper into the crypto world, the IRS (Internal Revenue Service), the country�s taxman, was also looking to use the IRS crypto broker rules to expand the definition of a financial broker to include DeFi protocols and other financial-centric, blockchain-based platforms.

What is the GENIUS stablecoin act?

The GENIUS stablecoin act is a bill introduced in the U.S. Senate in February 2024. Senator Cynthia Lummis, Kirsten Gillibrand, Bill Hagerty, and Tim Scott supported the bill. Its main goal is to outline the dos and don'ts for stablecoin issuers. These are meant to prevent them from stepping on the regulators� toes.

To provide this clarification, the act covers various aspects of the stablecoin world. Its scope includes definition, issuance, standards, jurisdictional boundaries, and consumer protection.

The GENIUS Act isn�t the first such regulation in the United States. As such, it seeks to improve on existing stablecoin-focused laws. One such prior regulation is the Clarity for Payment Stablecoins Act of 2023.

A major difference between the GENIUS Act and other stablecoin acts is that the GENIUS Act draws jurisdictional boundaries. This allows state or federal regulators to govern stablecoin issuers, depending on the scope of their stablecoin project.

Main points of the GENIUS stablecoin Act

Stablecoin issuers need to adhere to regulations - The act states that stablecoin issuers in the United States must be under the watch of financial regulators.

1:1 backing - The GENIUS Act recommends stablecoins to have a 100% backing. The backing can be in the form of fiat, treasury securities, bank deposits, or other liquid reserves. An issuer must periodically disclose the quantity of the reserve asset or face criminal charges.

Audit required - The act treats issuers as banks. As such, it requires them to open their financial books to third-party auditors to ensure compliance with the 1:1 reserve backing rule.

Issuer size determines regulatory jurisdiction -� The size of a stablecoin determines whether it falls under state or federal watch. Federal-regulated issuers are those whose stablecoins have a market capitalization of over $10 billion.

Stablecoins are not securities - The GENIUS Act clarifies that stablecoins are not securities. Therefore, they're outside the country�s securities watchdog.

What are the IRS crypto broker rules?

Although the U.S. President Donald Trump refused to sign the IRS crypto brokers rules into law, let�s briefly see what they were all about and what the United States taxman wanted to achieve with them.

The IRS crypto broker rules were a set of requirements compelling decentralized crypto platforms to reveal their users� details for tax purposes. The IRS intended to do this by defining DeFi and DEX platforms as financial brokers or, more precisely, �digital asset middlemen.�

This expansion of the term �broker� would encompass everyone in the crypto space. This includes exchanges, wallets, Bitcoin ATMs, DeFi brokers, and crypto payment processors.�

Multiple entities protested against the rules, saying they placed an �impossible burden� on developers of decentralized protocols. Other critics termed the rules �unworkable.� These protests attracted the U.S. Congress, where the Senate and the House of Representatives voted to overturn the rule through a bipartisan supermajority.

How the IRS broker rules would affect regular crypto users

Apart from making it harder for DeFi platforms, the rules would also have some implications on regular DeFi users. Some of the implications include:

Tracking crypto trades - The rules required crypto users to track their trades on a cost basis. This was required for each wallet instead of giving a general overview of their activities. The rules required traders to keep the dates, wallet address, and purchase amounts.

Penalties - Non-compliant DeFi users would be fined. The IRS considered non-compliance a crime, viewing it as intentional underreporting. Non-compliance would also attract interest on unpaid taxes and force the IRS to audit a DeFi user.

Conclusion

The GENIUS Act brings regulatory clarity into the stablecoin market, while the IRS wanted to make it harder for DeFi developers to operate and DeFi users to report their activities to the taxman. Although the IRS crypto broker rules were repealed, they show how regulators can harm the growth of the decentralized world when they enact rules without participation from the crypto industry.