INATBA’s Finance Working Group Releases Guide on Staking and DeFi Taxation
INATBA’s Finance Working Group has developed a document to clarify staking activities within the context of blockchain enabled finance, consensus mechanisms and decentralized finance (DeFi). The document addresses the confusion around the term “staking,” distinguishing between Proof-of-Stake (PoS) validation and liquidity provisioning, which are often miscategorized. Staking, as defined in the document, is the locking of tokens to support a blockchain’s consensus mechanism, while liquidity provisioning should not be considered staking.
The report emphasizes that staking rewards should not be immediately taxed or treated as financial transactions. Instead, taxation should only occur when cryptocurrencies are converted into fiat. INATBA strongly opposes regulatory proposals seeking to license PoS validators, as staking serves as a technological function for blockchain security, not as a taxable event. The report aims to prevent over-regulation that could stifle innovation in decentralized networks.
INATBA recommends handling tax and compliance at the fiat conversion stage. Anti-Money Laundering (AML) and Know-Your-Customer (KYC) requirements should be enforced at the point of entry and exit through Crypto-Asset Service Providers (CASPs), not on decentralized protocols. This approach ensures a balanced framework that supports innovation while preventing illicit activities within the blockchain ecosystem.
By promoting industry self-regulation and clarifying definitions, the report advocates for a legal framework that will safeguard innovation in DeFi. Clear guidelines, taxation only at off-ramping, and a focus on AML/KYC at key access points will help foster sustainable blockchain development while ensuring regulatory compliance.
A huge thank you goes out to the contributors of the report: Jean-Christoph Mathonet (Prosquare, Finance WG Co-Chair), Izzat-Begum B. Rajan (Imani Partners, Finance WG Co-Chair), Max Bernt (TaxBit), Georg Brameshuber (Validvent), Antonio Lanotte (EUBOF), Laura Kajtazi (Validvent), Benjamin Bürgi (Cardano Foundation), Sebastian Heine (Northstake), Jori Armbrouster (EthicHub), Donna Redel (Fordham Law School, INATBA Academic Advisory Body), Tom Jansson (IOTA), Nihal Dsouza (IOTA), Giannis Rousopoulos (IOTA), Iwona Strzepka (Onchain Foundation), Akash Daryanani Pizarro (BBVA), Mykola (Niko) Demchuk (AMLBot), Martin Manolov (Nexo).
In case you are interested in other activities of the Finance Working Group, visit this page.