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Author: Admin | 2025-04-28
Jim would report $80 ($100 – $20) worth of capital gains from the transactions.You could argue that this is not taxable. Bruce is not actually selling his ETH. He is only depositing assets as collateral. His intention is to borrow funds against ETH. His intention is NOT to sell the protocol token, cETH.DeFi Wrapping TaxesSometimes, protocols require you to wrap coins before depositing them into a specific blockchain’s smart contract. For example, BTC operates on the Bitcoin blockchain technology, not on Ethereum. Therefore, to use Bitcoin with Ethereum-based DeFi platforms, you can “wrap” BTC using a protocol like Ren, which essentially locks your BTC in escrow in exchange for an ERC-20 token version of your BTC called wBTC, or Wrapped Bitcoin.An analogy to wrapping in the non-crypto world is a cashier’s check. It represents the value of dollars in your bank, and whoever gets their hands on your cashier’s check owns the right to the underlying money in the bank.Our take: wrapping is taxable. The wrapped version of the original coin is a new coin, resulting in a sale of the original. Crypto-to-crypto trades are taxable.However, this sale is not taxable for the BTC to receive wBTC. The intention of wrapping a coin is to add additional functionality to use the BTC on the ETH blockchain. You should prepare to defend this intent to the IRS, however.DeFi Borrowing TaxesSource: AaveLet’s say Sara borrows 50 DAI, which is worth $50 ($1 x $50)This act is likely not taxable. Generally speaking, funds
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