Taxation of Staking, Lending and Liquidity Mining Income

The abbreviation DeFi stands for decentralised finance and is used to describe all financial services based on decentralised blockchain technology. In DeFi applications, the classic intermediaries such as central banks, financial institutions and insurance companies are replaced by so-called smart contracts.

A smart contract is a digital contract that is embedded in programme code and automatically carries out transactions according to predefined rules. The most important advantage of DeFi is that anyone (including people without a bank account) can use financial services with an internet-enabled device and a wallet. Another advantage is the particularly high level of privacy protection, as no data is processed by third parties. DeFi applications can also significantly reduce the costs of financial services by eliminating costly financial intermediaries.

There are a large number of DeFi applications. Many users who are also holders of cryptocurrencies can use DeFi applications to profit not only from capital gains but also from asset returns in the form of cryptocurrencies and thus continuously increase their cryptocurrency holdings.

The most important DeFi applications and thus possibilities to achieve decentralised capital gains by means of cryptocurrencies will be explained in a first part (I.). In the second part (II.), the tax treatment of such decentralised capital gains will be discussed.

More about crypto-monnaie and taxes

I. DeFi applications


The largest DeFi protocols, such as MakerDAO, Compound, and Aave, have one thing in common: their main use case is built on lending and borrowing. Specifically, in Lending, one provides an amount of crypto tokens to other participants and receives interest in return. The interest is often distributed directly in the lent crypto-monnaie or in the form of a stable coin.


As with "classic" mining (proof-of-work consensus mechanism), this mining alternative also validates new blocks and thus ensures the functioning of the blockchain. However, with staking, this is not done using the miners' computing power, but solely by holding and providing tokens in a wallet.

Basically, 2 types of staking can be distinguished:

  • Variant 1: Delegator-Staking - Owners of tokens can make their tokens available or delegate them to a third party (e.g. an online trading platform). These delegators receive regular compensation for "lending" their tokens. The delegator does not have the knowledge and equipment to act as a validator;
  • Variant 2: Validator staking - A validator on a blockchain acts like a bank and verifies every transaction. Depending on the blockchain or network, a different number of tokens is needed to act as a validator. For example, a validator on Ethereum 2 needs at least 32 Ether tokens, which corresponds to a current equivalent of around USD 80,000 and is not even financially possible for many investors. This will then also be the main reason why delegator-staking is more common. As soon as the validation is completed, the validator receives a so-called "Staking Reward". This staking reward varies depending on the blockchain. How high the reward is on the individual blockchains can be seen on sites such as Staking Rewards.

The two best-known and most capitalised cryptocurrencies, Bitcoin and Ethereum, still use classic mining. Staking is not (yet) possible here. Ethereum in particular, however, is working hard on the transition from proof-of-work to proof-of-stake. On 4 August 2021, the long-awaited London Hard Fork on the Ethereum blockchain took place , which represents another important milestone towards Ethereum 2. More on the timeline of Ethereum 2 can be found here.

More about crypto-monnaie and taxes

Liquidity Mining

To enable trading on decentralised exchanges such as Uniswap or Sushiswap, these platforms must provide liquidity for decentralised trading. The required capital is provided by so-called liquidity miners in the form of token pairs (e.g. ETH/USDC) in liquidity pools. Each time liquidity is deposited into a pool, governance tokens (e.g. UNI tokens) are distributed to the liquidity miner in proportion to the amount of liquidity deposited into the pool. In addition, the trading fees collected by the decentralised platform (trading fee at Uniswap is currently 0.3% per trade) are distributed proportionately to all liquidity miners in a pool.

II. Tax treatment of decentralised property income

Income tax

Income tax qualification

Income from movable assets is generally taxable in Switzerland, which means that decentralised income from assets should also be taxable in principle. For a long time, the federal government and the cantons did not comment on the tax qualification of income from staking, lending and liquidity mining. In its working paper of December 2021, the FTA publicly stated for the first time that decentralised investment income should be qualified as interest from credit balances and taxed accordingly as taxable income. This confirms the already prevailing practice in the cantons. Regarding the declaration of cryptocurrencies, see our blog post on cryptocurrencies and taxes.

Danger: Self-employment

In connection with decentralised asset income, it is also important to note - as with trading in cryptocurrencies (see our blog post of 27 January 2022 on cryptocurrencies ) - that such activities may well qualify as self-employment on the part of the tax authorities.

In particular, the FTA states the following in connection with staking:

  • Taxation of delegator-staking: In the view of the FTA, anyone who merely delegates their own tokens to third parties and thereby generates income is normally doing so as part of simple private asset management and not as part of a self-employed activity. Accordingly, the income is taxable as income, but social security contributions are not due. For the assessment of such income for income tax purposes, see below;
  • Taxation of validator staking: According to the FTA, a distinction must be made here between the capital and labour input required for the activity. Since the function of a validator can often be performed with a commercially available laptop and pre-programmed software, not every validator will perform staking as part of a self-employed activity.

To date, the federal government and the cantons have not commented on the tax treatment of lending and liquidity mining. Initial clarifications with the cantonal tax administrations in this regard have shown that in such cases, according to the principle, a self-employed gainful activity can only exist if the DeFi application is directly operated by the taxpayer himself and not used via a third party. The entire circumstances of the specific individual case must always be taken into account.

A reclassification as self-employment has the consequence that a later sale of cryptocurrencies or rewards is subject to tax and social security contributions. Regarding the tax consequences of a reclassification as self-employment in detail, see our blog post from 27 January 2022 on Crypto-Trader.

Valuation for income tax purposes

How cryptocurrencies are to be valued for income tax purposes has not been commented on by the Swiss tax authorities for a long time - in contrast to the valuation for wealth tax purposes. For the first time, the FTA publicly commented on this issue in December 2021, stating that the general rules on determining the value on the reporting date and determining any foreign currency exchange rate apply to the declaration of values within the scope of Individual Income Tax . The FTA has not yet issued a statement on this issue. The practice of the tax authorities regarding investment income in foreign currencies is as follows: Income in foreign currency must be converted into Swiss francs for the calculation of income tax at the time the tax claim arises. For the conversion, the monthly average exchange rate published by the Swiss Federal Tax Administration (FTA) or the daily exchange rate (sale) may be used as desired. In the case of foreign currencies for which the FTA does not publish a rate, the published daily exchange rate (sale) of a domestic bank applies.

Since the FTA does not yet publish daily rates or monthly average rates for cryptocurrencies, it seems appropriate to value investment income in cryptocurrencies - just like foreign currencies without a published FTA rate - at the daily rate (sale) of an online trading platform. Initial clarifications with the Cantons in this regard have shown that a valuation at the monthly or annual average rate is also accepted as an alternative, whereby the valuation method once selected should be retained. In any case, it is important to think about the choice of valuation method in advance, because the simplest and most practicable solution (valuation at the monthly or annual average rate) is not always the most sensible solution from a tax point of view. For example, if decentralised investment income is valued at the monthly or annual average rate, there is a risk that the investment income received will be valued higher or lower than it actually was at the time of receipt.


Investment income generated by means of DeFi applications is in principle subject to income tax. For a long time, the federal government and the cantons have not made any pronouncements on the qualification under income tax law. As of today, it is clear that income from staking, lending and liquidity mining is subject to income tax like interest from credit balances.

The biggest challenge in connection with decentralised returns on assets is the valuation issue for income tax. The Confederation and the cantons have also been very cautious about this. In principle, decentralised assets - analogous to foreign currencies - are to be valued at the time of inflow, whereby the cantons also accept valuations at the monthly or annual average rate.

Finally, when operating DeFi applications, one should always keep in mind the latent danger of a possible reclassification as self-employment. There is no general rule in such cases. The entire circumstances of the specific individual case must always be taken into account. However, as with trading in cryptocurrencies (see our blog post "From crypto-trader to securities trader" ), such activities only qualify as self-employment in exceptional cases.

If large returns on assets are achieved with staking, lending and liquidity mining, it is therefore essential to discuss the tax opportunities and risks with a tax advisor.