Rebase DAO tokens have become one of the latest trends affecting crypto, with the likes of Olympus DAO and subsequent forks, like Wonderland Money, both gaining popularity for their high-yielding products (usually between 30,000-90,000% APY). So what are Rebasing Daos and Rebase taxes? Let's find out more by reading the article below.
What are Rebasing DAO tokens?
Rebase tokens are crypto assets with an ever-changing circulating supply that either get bigger (more coins are created) or decrease (coins are destroyed or "burned"). Increases or decreases in market capitalization are distributed proportionally among token holders. Rebase tokens can be increased by minting more tokens, or burning existing tokens to reduce the number in circulation.
How does rebasing work?
Rebase works by automatically adjusting the supply of tokens in circulation based on changes in token price. The Rebase Token is similar to a stablecoin in that it has a fixed price target. The difference is that rebases have a resilient token supply.
Rebase rewards from staking
Olympus DAO and many forks of the project, such as Wonderland Money, use a specific method to distribute rebase rewards to token holders. Token holders in these projects must “stake” their tokens, and in return, they will receive a representative token that can be rebased cumulatively. In the case of Olympus DAO, the staked OHM becomes gOHM (formerly sOHM), and for Wonderland Money, the TIME when staked becomes MEMO. For these projects, the rebase is allocated at the end of each epoch, usually every 8 hours (different projects have different epoch lengths). With frequent periods, these rebases compound quickly and result in annual returns ranging from 30,000% to unlimited, attracting investors hungry for excess returns.
Rebase Taxes
If your rebase tokens don't pay you a reward - like AMPL - then this may not be taxed. Although no specific guidance has been issued by the IRS on rebase tokens - we can compare these rebase protocols to stock splits. A stock split is when a company splits existing shares into more shares to increase liquidity. Most tax offices do not consider stock splits to be taxable events because while investors may own more shares, they have the same market value as before. In this view, it is reasonable to assume that a token rebasing agreement that does not pay a reward would not be a taxable event, as the investor is unaware of any gains and receives no additional income.
On the surface, the purchase of rebase tokens does not appear to be a taxable event, as cryptocurrency purchases with fiat currency are tax-free. However, many rebase tokens are only listed on dex. As a result, you will often trade a cryptocurrency for your rebase tokens — like DAI for OHM, or ETH for AMPL. In most countries including the US, Australia, Canada and the UK, exchanging one cryptocurrency for another is a taxable event and you will be taxed on any gains from the transaction.
So I hope now you will know what rebasing dao and tax on rebase. Most rebase tokens are run by a Decentralized Autonomous Organization (DAO) - an entity with no central leadership. Decisions are made bottom-up and governed by a community consisting of a specific set of rules enforced on the blockchain.
