Have you ever wondered how to handle your Frictionless Tokens and/or Rebasing Tokens on our platform? If so, you are in the right place. In this article, I’ll go over how they work and what to do to make sure your tax report is as accurate as possible without too much manual work.
What are Frictionless/Rebasing Tokens and how do they work?
While Frictionless and Rebasing tokens are different, they do have some similarities. That is that they both are tokens that change in amount without leaving transactions on the blockchain. As for their differences, we’ll go over those now.
Frictionless Tokens - These are often called auto-staking or auto-yielding tokens because they increase in amount while they sit in your wallet. They usually also promote hodling because they charge large fees every time the asset moves from one wallet to another.
Rebasing Tokens - These are tokens that can increase or decrease in amount to adjust the total value of the asset. Their value is usually linked to another asset and the rebasing is used to hold on to that value.
Because these tokens are so similar, we can handle them the same on our platform. We’ll how to do so in the next section.
How to handle Frictionless/Rebasing Tokens on our platform?
Since the assets both increase and decrease in amount without interacting with the blockchain, the total amount in your portfolio can’t be tracked properly. This is because our platform gets the holding amount of each asset by calculating it from each transaction within your portfolio. This means that manual intervention is required to provide an accurate tax report and not produce missing-asset errors from within the platform. The good news is that this only matters when the asset is either sold or transferred. We’ll go over how to fix any problems with either of these transactions.
Selling the tokens
Let’s say you bought OHM, a popular rebasing token, your transaction might look like the following.
When you sell the asset, it might look like this.
Notice that the amount being sold is greater than the amount purchased. Therefore, it produces the missing-asset error saying we are missing the purchase history of 2 OHM. To correct this, we only have to add a manual deposit of the missing amount just before the withdrawal. Then we can classify it as staking income. The transaction might look like the following.
You may also fix the missing funds errors by using the review process within our platform. This will fix the problem for you automatically.
If the amount sold was less then the amount purchased, then it will show that you still have some of the asset left in your portfolio. To fix this issue, you can do the same thing by adding a withdrawal classified as “Fee” for the amount that is still showing in your portfolio. Doing so might look like this.
Transferring the tokens
When you transfer a Frictionless token, it usually has a large fee associated with the transfer. The transfer might look something like this.
In most cases, you should be able to classify them as “Internal” and that should be it. But occasionally, you might not be able to classify them as such. In those cases, you might need to ignore the existing transactions and manually create an internal transaction transferring the amount received in the receiving wallet. You would then need to create a withdrawal transaction for the difference classified as “Fee”. Doing so will look like the following.
If you have received interest or the asset has rebased before the transfer has occurred, you can fix that by doing the same thing as when handling the sale of the asset shown in the above section.
Now you should know what Frictionless and Rebasing Tokens are and how they are handled on our platform. By following this article, you can use these methods to produce a more accurate tax report or periodically to track your portfolio more accurately.