A recent article on the RadixDLT website explains the upcoming staking features on the Radix network, which will be available in the Babylon version. Staking is a way to secure the network and also earn rewards. The new staking system makes it easier for investors to participate.
To stake Radix (XRD), investors will visit a web page specifically designed for staking. They can also use third-party staking sites. Staking is as simple as sending XRD to a validator, like RadixRadar.de. In return, investors receive tokens called Liquid Stake Units (LSU) that represent their stake. These tokens can be freely transferred or used as desired.
If investors want to retrieve their staked XRD, they can unstake by sending their LSU back to the validator. The validator calculates the amount of XRD to be returned and moves it to a separate pool. A special NFT token called a claim token is given to the investor, specifying when and how much XRD they can claim. Once the waiting period is over, investors can exchange the claim token for their XRD.
The value of the stake and the rewards earned by stakers depend on the overall staked amount and the network’s performance. The Radix Wallet will provide information on the value of stakes and when rewards can be claimed.
Overall, the new staking system makes it simpler and more accessible for investors to stake their Radix tokens and participate in securing the network while earning potential rewards.
Tax Implications
Since the number of LSU tokens does not change during the staking period, and you don’t have immediate access to the staked XRD, one could argue that the reward emmissions in each epoch may not be considered taxable income. Only unstaking would be taxable, since only then is the gain or loss realized. However, both the IRS (US) and the HMRC (UK) don’t provide clear guidance on how liquid staking will be taxed.
We are working on a tool that will provide stakers on RadixRadar exports of the staking rewards per epoch, in case these will be needed for tax purposes.
This article is for discussion purposes only and does not constitute tax or legal advice.
Why you should diversify your Stake
When it comes to staking your cryptocurrency, diversification is key. Instead of putting all your stake into a single validator node, consider spreading it across multiple validator nodes to enhance network security. Distributing your stake among several validators helps to safeguard against potential downtime, attacks, or other technical issues that may affect individual nodes. By supporting multiple validators, you contribute to a more resilient and decentralized network, increasing its overall security and stability.
By diversifying your stake, you reduce the risk of relying on a single validator, as any issues or vulnerabilities specific to that validator could potentially impact your investment. If a validator performs badly, it can be affected by “slashing”: The validator will lose some staked XRD (the tokens are burned as penalty). This means when unstaking, you could get back less XRD than you put into the validator. This is another good reason to spread your stake over multiple validators – don’t put all of your eggs into one basket!
RadixRadar.de is a long-running Radix validator node that has been around since the betanet launched in April 2021. So please consider staking with us! Our validator address is rv1qw6m5nrwnjx2estgkv8zsvp77es6yea0p99zkregud6dqad8q5wg7yvr4na. See our article Learn how to stake for more information.
Update from 08.05.2023: We updated the part about lock-up periods according to the latest BMF letter. See section 2 – staking.
Dear Radixradar Community,
the sharp rise in cryptocurrencies is increasingly leading to rapidly increasing profits and growing wallets. However, the tax aspects must always be considered, otherwise the profits would have to be quickly transferred to the state in large proportions. In the following I will give you essential information about the taxation of crypto currencies briefly and concisely (! No tax advice here and not conclusive). Always send requests and comments to me. Greetings Robert
1. Holding
The tax calculation
Cryptocurrencies are in accordance with Section 23 of the Income Tax Act (EstG) to be classified as private sales transactions (OVG). It is therefore another economic good. In contrast to the so-called investment income (interest, shares, ETF, etc.), the personal tax rate (marginal tax rate) is relevant for cryptocurrencies and not the normal 25% of the investment income tax.
Calculation of the personal tax rate and marginal tax rate: Link to the calculator For example, starting from 57.919 Euro p.a. (Update 2023 62.810 Euro) brutto income each additional Euro is taxed with 42 percent marginal tax rate.
Crypto lending / staking – Lend cryptocurrency: see attached video from 12:37 min
Crypto mining : see attached video from 15:22 min
When do I have to pay taxes?
Profits are generally tax-free after a 1 year holding period. (Example 1) Profits of up to 600 euros per year are also tax-free 1 as with gold. (Example 2) If the exemption limit is exceeded, the total profit is taxed at the personal marginal tax rate. This means that from 601 euros, 601 euros are taxed. (Example 3)
Tip: Document times. When was the cryptocurrency purchased and when it was sold (for inquiries from the tax office).
1Attention: do not confuse this with the tax exemption for investment income (e.g. shares) of 801 euros per person – everything from 802 euros is taxed at 25 percent .
Examples
eRDX
Purchase date
Purchase price (€)
Date of sale
Selling Price (€)
Gross profit (€)
Taxes (€)
1)
10.000
01.04.2021
0,10
02.04.2022
0,20
1000
0
2)
10.000
01.04.2021
0,10
31.12.2021
0,16
600
0
3)
10.000
01.04.2021
0,10
31.12.2021
0,20
1000
420
Conclusion and strategy in holding
Hold cryptocurrencies for more than a year
If the sale is necessary beforehand, then the profit should not exceed 600 euros
Lending, staking and mining require special attention
Documentation is very important (First-In-First-Out (FIFO))
Further information on 1. hold
Explained well and simply by financial flow 0:00Introduction 1:23When do I have to pay taxes on Bitcoin as an individual? 2:34 Similar to gold for taxation? 3:00 Where do I have to declare Bitcoin profits in the tax return? 5:29 What is the 10 year period about? 7:55 How do I prove to the tax office that my 1-year period has expired? 8:37 Is there an exemption for Bitcoin? 9:29Other “Other Assets” 10:07Will Bitcoin tax laws change? 11:20 Are the tax regulations in Germany attractive? 12:37Crypto Lending – Lending Cryptocurrency 15:22Taxes on Crypto Mining 17:37Can I claim Bitcoin losses for tax purposes? 19:37 Giving away and bequeathing bitcoins 22:27 End
2. beams
In June 2021, the German Federal Ministry of Finance (BMF) published a draft letter on the taxation of cryptocurrencies. This has brought a bit more clarity to the taxation at proof-of-stake.
Important: This is only a draft and has not yet become law. However, it is expected to be adopted similar to the draft.
Update: There is acc. the BMF a view that a Staking/Lending does not lead to the “infection” of the existing Stake. “For individuals, the sale of purchased Bitcoin and Ether is tax-free after one year. The time limit does not extend to ten years even if, for example, Bitcoin was previously used for Lending or the taxpayers provided, for example, Ether to another for their block creation as a Stake.”
Rewards at Stakern
Gem. According to the BMF letter, the receipt of cryptocurrencies by way of proof of stake leads to taxable income from other services. according to § 22 No. 3 EStG, provided there is no commercial activity. This concerns both the staker who validates himself and the staker who puts his coin into a lock.
Thus, the entries in Lending or Staken are treated as other income and not as income from capital gains. I.e. not 25% on profit, but the personal tax rate is to be applied (see above at 1st holding),
Sale of the staking reward
The BMF goes one step further in the case of mining/lending or staking, which means that the units of a virtual currency acquired are considered to be “acquired” (exchange-like transaction). A subsequent sale of the Staking Reward within the speculation period of Sec. 23 EStG would therefore in principle be taxable. Note: All rewards are taxable over 256 Euro/year
Holding period 10 years (update BMF not for private individuals)
Basically, the following applies: The increase of the holding period of the cryptocurrency results from Section 23 I No. 2 Sentence 4 EStG. Accordingly, the divestment period is extended from one year to 10 years if income is generated from the source of income in at least one calendar year.
This applies to private individuals in accordance with the letter of the BMF dated 11.05.2022 no longer. After this, the holding period is no longer increased (no “infection by staking”)
Note: Increase the holding period of Crypto from 1 to 10 years (even if one year has already passed). Update: This applies acc. BMF not for private individuals Tip: Document when which coin was acquired so that proof can be provided later to the tax office and tax-free partial sales can be made if necessary.
Holding period for rewards/”dividends”?
Depending on how the rewards are handled, the holding period increases again to 10 years if they are used again in staking. Otherwise, this is then to be treated as for “holding” and thus 1 year holding period. Update: This does not apply to private individuals (see above).
Are the rewards taxable?
Gem. the above-mentioned draft, profits from lending/staking are to be treated as other income for tax purposes. This means that they are entered in the tax return in the SO annex and are taxed like income at the personal tax rate.
Conclusion and essential information:
In case of piling, the holding period increases to 10 years (exception, no profit intentions [ohne Rewards])
Update: BMF letter dated 11.05.2022: not for private individuals (see above). Here only one year holding period
Any profit (rewards/generated coins) if more than 256 euros/year is taxable.
Documentation of the profit is important, because on the one hand it has to be declared in the tax return and on the other hand in case of later sale of the coins the profit or loss will be referred to it.
Before the start of stacking (after one year holding period) sometimes it makes sense to sell and buy again, if the price has risen and consequently taxes are saved
More info about 2. staking
0:00 Introduction & Intro 1:39 The BMF letter 4:24 Taxation of capital gains 8:54 Consideration of types of income 10:41 Documentation of purchases & sales 13:17 Losses can be offset 14:43 Valuation & taxation of mining 17:25 Taxation of lending & staking 20:45 ICO 12:24 Information in the tax return 22:07 Conclusion & Contact.
Questions from the community
How rewards are taxed when distributed
The profit (inflow) is put on your annual income tax return with your personal tax rate (see above at 1. Hold).
Documentation of the distribution with the respective rate is important here! (Practically difficult)
Does the holding period for Staking extend if the holding period of one year prior to Staking has already been exceeded?
According to the BMF, the 10-year period starts from the beginning of the acquisition. I.e. bought in 2019, start staking in 2021, end holding period in 2029
Other views, but not yet confirmed by the courts: After one year, staking is tax-free
How will rewards be taxed if profits are taken later? Which holding period applies here
Gem. BMF currently yes (but still controversial). Here, the day of distribution is then considered by the Stake in relation to the sale. Should the reward be clocked again, then the holding period is also 10 years, otherwise only one year
How can I avoid the holding period or taxed on Cryptos through other structures abroad?
The upgrade of the public Radix network from Olympia to Babylon is coming soon, promising to enable the transition of global Web3 and DeFi from “tech demo” to mainstream-capable user and developer experience. The upgrade will take place around July 31st, 2023. The date is tentative, as it is subject to the approval of the Olympia validator set to activate the protocol update. The decision to extend the deadline was made after the team assessed the state of development following the RCnet network release and realized that everything had to go according to plan to make the June deadline.
A follow-up test network release, RCnet 2, will accompany the Babylon upgrade, with updates to the developer preview mobile wallets, Radix Dashboard, Gateway, and other developer tools planned for mid-June. Radix Off-Ledger Authentication (ROLA), which enables developers to access the tools needed to let users prove their ownership of an account or identity without submitting a transaction, will be released with RCnet 2. Additionally, a blog post outlining the Babylon Wallet’s feature set will be released so that developers can anticipate their customers’ user experience.
Although there has been a month’s delay in the Babylon upgrade, Radix’s sentiment has never been better, with team morale still pegged at 11 since the RCnet release. The project’s sticky appeal is a constant, as it offers a better user experience, Scrypto, scalability without breaking composability, RadFi, and more. The project’s momentum is building, with exciting ecosystem partnership announcements on the horizon.
