Polygon's Explanation of Staking Income Taxes on Apples
Date: 2023-09-13 Author: Dima Zakharov Categories: BLOCKCHAIN, IN WORLD
Apples and Cryptocurrencies
To illustrate their point, Polygon Labs' Chief Legal Officer, Rebecca Rettig, drew an analogy between cryptocurrency staking and apple picking. In her analogy, a group of farmers stumbles upon an apple orchard located in unclaimed territory.
They decide to take turns harvesting apples in the orchard, but there's one condition: each farmer must contribute 32 apples as an initial deposit. If anyone attempts to deceive the community, those apples are thrown into the nearby river.
Over time, the farmers sell some of the apples they have collected, essentially establishing a market price for these fruits. However, despite having a structured apple distribution system, the farmers continue to pay taxes until they sell their apples. Polygon Labs uses this example to argue that staking should be treated similarly.
Polygon Labs Advocates for Minimal Taxation
Polygon Labs emphasized that the tokens received through staking are generated by software and should not be considered taxable income until they are sold.
Furthermore, access to staking rewards can only be obtained once a validator decides to withdraw them. Thus, taxing these rewards only upon their disposal is seen as the most administratively convenient option.
Polygon Labs highlighted the importance of tax policy neutrality, opposing favoritism towards one product type over another. Taxing staking rewards upon allocation to validators could unintentionally create such bias without significantly increasing tax revenues.
