DeFi Token Rewards

In this article of the Decentralised Finance (DeFi) series, we will introduce you to the tax relevance of token rewards.

DeFi has become one of the hottest applications of blockchain technology in 2020.

With DeFi, the character of a decentralized currency is extended from Bitcoin to the broader financial sector. The transfer of value through lending, borrowing, exchange trading, derivatives trading and also insurance is decentralized and without intermediation. Participants in the DeFi system receive the intermediation fee directly and theoretically it is possible for anyone to participate.

Receiving Rewards makes participation in the DeFi system particularly interesting.

For example, Aave, Curve, Sushiswap and Uniswap give you rewards for providing liquidity to a pool. Compound offers additional rewards for borrowing from a pool and Aave for voting on governance proposals.
Many DeFi protocols started centrally and with the goal of putting governance in the hands of community members over time. Community members can submit and vote on governance proposals. Proposals often include the distribution of rewards. As a result, these can change rapidly.

Tax-wise, a few questions arise from this: do you have to pay taxes on rewards, if so, when and how much?

How do I calculate taxes on DeFi?

In a previous article we explained the function of Airdrops.
In contrast to Airdrops, DeFi Rewards are normally received as a service. You receive DeFi Rewards e.g. for providing liquidity on a decentralized exchange.
Since there is a benefit, the Rewards received are considered as income and are also taxed as such.

In a decentralized protocol, users interact with a smart contract and keep their assets in their own possession. There is no need for a centralized custodian. DeFi Rewards can have features of incentivizing a service such as participation in the protocol (bounty), lockup in a decentralized network (staking), and interest-bearing investment (lending).

DeFi Rewards as an incentive for a service

Many protocols offer rewards for participation or certain interactions with the protocol. For example, Compound pays additional COMP Rewards for Lending or even Borrowing. Rewards are also often available for participation in governance processes. In this case, the token rewards inflows can be classified as “bounty” in the Blockpit Cryptotax software.

DeFi Rewards for providing liquidity to a liquidity pool (liquidity mining)

As a Liquidity Provider, you typically receive a share of the Liquidity Pool represented by an LP-Token. We consider this to be an exchange between the paid-in tokens and the paid-out LP-Token. This means that this process is to be recorded as a trade in Blockpit and already entails a realization of possible profits or losses when your assets are deposited in a pool. We have already covered the tax aspects of liquidity pools in this article:

In many protocols, such as Uniswap, there are also incentivized pools where you get additional rewards of the protocol token in addition to the normal LP fees. In this case, the income derived from the incentivization can also be classified as a “bounty”.

DeFi Rewards in Lending

If you lend tokens in a decentralized protocol and receive interest for them, then it is obvious to consider the interest income as income from lending. However, in some protocols such as Comp and Aave, you receive an interest-bearing token when lending, such as cDAI or aUSDC. In this case, the interest is not paid out, but accumulated and retained until the interest-bearing tokens are exchanged back. In this case, the respective transactions of lending and redemption are considered as exchanges and taxed accordingly. You can find a detailed explanation of the taxation of lending in this article:

In some protocols, you also receive additional rewards that are paid out in the form of governance tokens as an incentive for participating in the protocol. This incentive is considered like “Bounty” for tax purposes and is classified accordingly.

DeFi Rewards in Staking

In DeFi there is also the possibility of staking by locking up a token in a protocol. If rewards are paid out for the lock-up in the form of the tokens, you can consider these as staking income and classify them accordingly. In our view, this has no effect on the holding period of the underlying asset, just so no gains/losses are realized when an asset is locked-up.

Tax treatment of staking, lending and bounties in DeFi

Commercial or private

The tax information below refers to taxation in the private sector. It is to be examined in the individual case whether a trade is present. With our commerciality test you can get a first tax assessment of your activity.


In Germany, staking, lending and bounties are taxed equally as other income within the meaning of § 22 №3 of the German Income Tax Act. They are taxed at the personal income tax rate. However, an exemption limit of €256 applies. If the exemption limit is exceeded, the total amount is taxable.

The taxable value will be the market value at the time the Rewards are attributed to you or claimed by you.

A subsequent sale of the rewards received from staking, lending and bounties is tax-free, as there is no acquisition transaction. It should be noted, however, that any exchange losses on the subsequent sale are also disregarded for tax purposes.


In Austria, income from Lending is treated differently from Staking and Bounties.
The interest from the lending of capital (in the sense of § 27 para. 2 in connection with § 27a para. 1 line 2 EStG) is taxable at the special tax rate in the amount of 27.5%. This tax treatment is automatically applied by Blockpit when you classify a deposit as Lending.

Income from staking and bounties, on the other hand, is treated as other income within the meaning of Section 29(3) of the Austrian Income Tax Act. This income is taxable if it exceeds the annual exemption limit of 220 euros in total. Tax is levied at the progressive income tax rate.

The date when you receive the rewards is also relevant. For Staking and Lending Rewards, the tax is due when you receive the rewards at the current daily rate.

There are also differences in the later sale. The coins or tokens that you have classified as Lending or Bounty are considered tax-free in case of later disposal. We are of the opinion here that it does not lead to a speculative transaction in the case of later disposal, as there should be a lack of acquisition (cf. analogy to dBMF, letter of the dBMF dated 25.10.2004 — IV C 3 -S 2256–238/04 BStBl 2004 I 1034 with reference to § 23 para. 1 sentence 1 no. 2 dEStG, marginal no. 42 f.).

In the case of staking, however, we assume a manufacturing process comparable to mining. Therefore, the later sale of the tokens received from staking is again income from speculative transactions within the meaning of Section 31 EStG. Thus, in case of a later sale, the holding period of 1 year has to be observed again and thus only the sales after the expiration of the one-year period would be tax-free.


Staking and Bounty DeFi Token Rewards are considered other income in Germany and Austria. (Progressive tax rate). Lending DeFi Token Rewards are considered income from interest-bearing investments in Austria (special tax rate 27.5%).

The tax liability arises in the amount of the market rate at the time when the rewards are credited to you or claimed by you.

With DeFi, the crypto ecosystem has received an exciting addition whose revenues have tax implications.

As you can see, it can quickly become complex if you want to calculate the tax on your DeFi activities. That’s what our application is for. You don’t need to know anything about tax — our application calculates the acquisition costs and computes the taxable profit or loss, taking into account the relevant tax type, holding periods and exemption limits. At the end you get a detailed tax report, which is also accepted by tax advisors and tax offices.

As a leading provider in the DACH region in terms of optimized portfolio tracking including crypto tax calculation, we take care of the tracking and tax reporting for you, so you can focus on your defi activities.

➡️ If you register via our partner Bitpanda or Bitpanda Pro, we offer you a 10% discount on your first tax year.

Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations, we recommend contacting a certified legal advisor in the respective country. If any questions occur, feel free to contact us on our social media channels.

Originally published at on February 2, 2021.




Stay up-to-date with Blockpit when it’s about taxation of your cryptocurrencies. Track your portfolio in real-time and get a personalized tax report.

Love podcasts or audiobooks? Learn on the go with our new app.

Recommended from Medium

Problems of existing cross-chain solutions.

Beta version of HOQU Affiliate App is available now!

Enter The Masterverse: How Chillville Connects The Sandbox with Bored Ape Yacht Club & More

Audius Announces $5M Strategic Investment From Katy Perry, The Chainsmokers, Nas and Others

What is Datamine (DAM) Token?

$DEMON Tokenomics And Utility: Powering The Demon Ecosystem.

Here’s our 79th AMA recap!

An introduction to Binance Smart Chain

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store

Stay up-to-date with Blockpit when it’s about taxation of your cryptocurrencies. Track your portfolio in real-time and get a personalized tax report.

More from Medium

Myster Box Crypto | $MYST

Liquid Loans Overview and How to Participate in the Sacrifice Phase

Mars Ecosystem Weekly Report #17

XRP — A Beginners Guide To Finding The Best Staking (Lending) APY