Written by Adam Tarlowski:
As the crops continue to ripen and DeFi farmers earn massive gains from the grain, Uncle Sam – like it or not – will still collect from the harvest. DeFi’s massive returns are filling the pockets of digital age “farmers.” Yield farmers, as they are called, have found an extremely lucrative opportunity to capitalize on borrowing and lending coins, surpassing the gains of investors, traders and miners alike.
Anyone in the United States who has invested or occasionally traded crypto knows how complicated it is to calculate the taxes owed. Each and every trade in and out of an alt coin is a taxable transaction. Yield farming takes this complexity to another level. The U.S. government has made small strides to understand crypto and write laws to help clarify its position but has continued to put out its hand to collect taxes at every turn. Yield Farmers engaging in a series of high-interest-rate loans, paying borrowers, collecting tokens, observing price increases, and moving between platforms quickly are beginning to realize the complexity of reporting their gains and losses to the IRS. On top of all the confusion, the short-term capital gains were taxed in unique tax brackets.
It comes as no surprise that Uncle Sam didn’t write easy to understand laws, and yield farming is far too new for it to be on the radar of the IRS. One thing is certain – Uncle Sam is unlikely to allow yield farmers to continue to plow away their gains with getting his taste.
On a positive note, DeFi maximalists have stepped in to save the day, with companies like Token Tax and Zerion developing ways to automate the calculations. The craze continues, but farmers are likely to huge chunks of their crops go to the US governement.