Lending, borrowing, swapping, and yield activity run by smart contracts rather than an exchange. Each swap is generally a taxable disposal; rewards are generally income when received.
DeFi produces more taxable events per dollar than any other crypto activity. Each swap is a disposal, each liquidity pool deposit may be an exchange for LP tokens, and yield arrives as income. Software often mislabels these, so DeFi-heavy years need manual review.
As of September 2026 the IRS has issued no guidance on liquidity pool deposits or LP tokens; its only 2025 staking guidance, Rev. Proc. 2025-31, covers exchange-traded trusts that stake, not individuals. Most practitioners treat the receipt of LP tokens as an exchange, which makes it taxable; a minority position treats it as a deposit. We document the position taken.
Last reviewed September 10, 2026. Tax rules change; confirm current law before acting.
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