Aave Tax Reporting
TokenTax connects to Aave for easy crypto-currency trade tracking and tax filing.
Background of the Aave DeFi platform
Aave is an open source Decentralized Finance (DeFi) protocol released in 2020, joining the Uniswap market in May of 2020. It is a non-custodial platform primarily for interest earnings and borrowing. The Aave team aims to create a transparent and open infrastructure for DeFi money markets. The main uses of Aave are through its aTokens and LEND tokens.
aTokens allow you to earn interest on your deposits through Aave. You accumulate aTokens over time the longer you keep your crypto deposited. This is slightly different from cTokens on Compound, for which the individual tokens increase in value to provide you with interest on your crypto holdings.
Tax implications of Aave’s aTokens
If you earn aTokens from depositing your crypto on Aave and lending it out to borrowers, you are taxed the same as if you earned interest on a fiat money market account. In other words, it is taxed as income.
If you trade (or burn) aTokens for another crypto or sell it for fiat currency, you recognize capital gain on your disposition. The same is true if you trade another crypto for aTokens.
For examples of how to calculate your taxes for specific Aave use cases, you can read our DeFi guide as an introduction, and reach out to us on our chat function (lower right corner) to ask questions about your specific tax situation.
You can also read more about how your taxes on other platforms and exchanges function in our crypto tax guide for the United States and other countries.