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Polygon Labs asks senators to consider apple orchard as they tax crypto

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Polygon Labs used a novel analogy to explain crypto staking to Senators Ron Wyden, D-Ore., and Mike Crapo, R-Idaho, in a letter responding to a request for comments on the taxation of digital assets — apple farming. 

“Assume a group of farmers happens upon an apple orchard on ownerless property,” Polygon Labs chief legal officer Rebecca Rettig wrote in the letter. “They agree to take turns picking apples. To ensure no one cheats, each farmer is required to ante up the first 32 apples they pick. If they cheat, those apples are thrown into a river.”

“Over time, each of the farmers begins selling some of their apples, establishing a market price for them,” the example continued. “Although a system thus emerges from the aggregate of each farmer’s actions, the farmers are not taxed until they sell their apples. Stakers should be treated similarly on their newly minted tokens.”

Polygon Labs thinks potential rewards from staking should be taxed when tokens are sold, and not as they are accrued, according to the letter. Failure to do so could result in over taxation, it argued in the Sept. 8 letter, citing what it said was a long-standing tradition in the U.S. of there not being a tax event simply for exercising dominion and control over property for which there is no previous owner.

Sens. Crapo and Wyden asked for input on how to tax digital assets in July and asked for stakeholders to respond by last week. The Internal Revenue Code of 1986 does not classify digital assets in a straightforward way, they said. 

“This uncertainty creates complex reporting issues for taxpayers, and warrants examining how the IRC can provide clearer guidance for taxpayers on the treatment of digital asset transactions,” the lawmakers said in July in a statement.

Others also filed letters to Sens. Wyden and Crapo including the Tax Policy Center, the Coin Center and the Crypto Council for Innovation. Both senators lead the Senate Finance Committee, which has jurisdiction over the Treasury Department.

Oil, gas and minerals

“When taxpayers extract oil, gas, or minerals, they are not taxed until they sell that property,” Polygon Labs’ Rettig continued. “When they breed animals, they are not taxed until they sell the animals. When they harvest crops, they are not taxed until they sell the crops. The same rule applies when taxpayers create art, manufacture goods, bake scones, affix their autograph to paper, or otherwise assume control over property that does not have a previous owner.”

Polygon Labs further argued that newly minted tokens that accrue to stakers are created by software and should not be considered as income for tax purposes. It also pointed out staking rewards can only be used after a validator un-stakes them, and it also said that taxing staking rewards only upon disposition would be the administratively easiest option.  

“Tax policy should not incentivize one product type over another,” the letter continued. “In this nascent stage of blockchain development, taxing staking rewards when credited to validators risks doing just that, without materially increasing tax revenues.”

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. CoinReporter.io and EUReporter.co does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

DeFi

Coinbase Cloud integrates Kiln platform for native ETH staking below 32 ETH

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• September 11, 2023, 11:59AM EDT

The cloud division of crypto exchange Coinbase has integrated an on-chain staking protocol called Kiln to provide native ETH staking below the standard minimum requirement.

Conventionally, native ETH staking necessitates a minimum of 32 ETH ($51,000) to establish a single network validator, a condition that is prohibitive for many interested participants. Coinbase Cloud‘s integration with Kiln will allow crypto users to stake smaller amounts in a non-custodial fashion, allowing them to maintain control of their funds directly from wallets.

Utilizing specialized smart contracts, Kiln offers a flexible approach to ETH staking. It permits pooling stakes to collectively reach the 32 ETH minimum, serving as an alternative to similar flexible staking options found in liquid staking protocols like Lido and Rocket.

“We are thrilled to have worked with Coinbase Cloud and to welcome them as the first (non-Kiln) node operator leveraging the Kiln on-chain staking platform,” said Laszlo Szabo, CEO and co-founder at Kiln.

Coinbase Wallet to debut service

In the coming weeks, Coinbase’s wallet will become the first to implement this staking solution with the goal of making ETH staking more accessible, according to Coinbase Cloud.

This means that Coinbase Wallet users will have the ability to stake and earn rewards on ETH holdings regardless of the amount. Coinbase Cloud confirmed that this capability will be extended to both dapps and other self-custodial wallet providers.

“This integration with Coinbase Cloud is unique because it allows them to enable other wallets and services, including DEXs, with the same limitless ETH staking solution that will be offered by Coinbase wallet,” Laszlo Szabo added.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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