In this article, Fenwick Tax partners David Forst and Sean McElroy and associate Matthew Dimon examine how blockchain staking and liquid staking are treated under U.S. federal income tax law.
The article describes liquid staking, which enables holders to stake tokens while retaining liquidity by receiving liquid staking tokens (LSTs) as receipts. The authors conclude that minting or redeeming LSTs is not a taxable event because holders maintain beneficial ownership of the underlying tokens, comparing LSTs to ownership receipts such as American Depositary Receipts or coat‑check tickets.
Check out the full article, originally published in Volume 22, Issue 4 of the Journal of Taxation of Financial Products, for more details.