Liquid staking is depositing tokens with a protocol that stakes them and issues a receipt token you can trade or use in DeFi, and whether the deposit itself is a taxable exchange is an unsettled question.
Rewards accrue through the receipt token’s value or through periodic distributions, and the tax treatment of each varies. A consistent, documented position is required; the IRS has not addressed liquid staking directly.
Why it matters: this is a common position for which a written opinion provides penalty protection. See staking rewards.
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