I am in need of clarification on the tax status of a certain type of DEFI cryptocurrency. These are specifically rebasing protocols, such as Titano, but there are quite a few of these now (Such as Libero, Safuu and more). Titano is a token which can be bought on a Dex, such as PancakeSwap. After I have bought it, I don’t do anything with it, just leave it in my wallet. I don't stake, lock, lend, pool, or dispose of it (or expect a service), but it rebases every 30mins so the amount of tokens I have in my wallet changes a lot each day. The supply is elastic, but the price fluctuates, so any extra received is not at a previously set or agreed fiat price. There is an unrealised token gain at the point of receiving them, but as the price fluctuates, there is potential for the gain to be zero when the tokens are sold. I want to clarify whether this is classed as subject to income tax, or whether it is capital gains taxed only when I dispose of the asset. Any extra tokens received are not recorded as transactions in the wallet or on the blockchain, there is no record of them as the amount is controlled by the blockchain contract, so I can’t see a way to even record these rebases, other than by the difference in token amount from the buying, to selling them. An example would be: I buy 100x tokens at £1 each, and buy no more tokens. I then sell 2000x tokens at £2 each, after rebases increase the amount of tokens in the wallet, and the price changes. I would then pay capital gains as such: £4000 - £100 = £3900 profit. Capital gains would therefore be £390 for a basic rate tax payer (disregarding the allowance for this example). I appreciate this is a fast moving and ever-changing area of investments, but I find the guidance unclear in this circumstance. The guidance CRYPTO21250 seems to most closely describe the situation, to me at least, although the token elastic supply changes the wallet amount, rather than them being specifically airdropped: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto21250 Specifically, "An airdrop is where someone receives an allocation of tokens, for example as part of a marketing or advertising campaign in which people are selected to receive them. Other examples of airdrops may involve tokens being provided automatically due to other tokens being held or where an individual has registered to become eligible to take part in the airdrop." And "Income Tax will not always apply to airdropped tokens received in a personal capacity. Income Tax may not apply if they’re received: • without doing anything in return (for example, not related to any service or other conditions) • not as part of a trade or business involving cryptoasset exchange tokens or mining” If guidance on this has not been clarified yet, how should I proceed with registering this on my tax return? Further, if this is classed as income tax, there would be 17,500 rebases a year, and as there is no transaction for each recorded in the cryptocurrency wallet, how could this be calculated? The fluctuating market price of the token makes it impossible to calculate each rebase historically to every 30 minutes, especially as the tokens just appear in the wallet and are not recorded as a transaction. Any clarification on this matter would be gratefully received.
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