Governance tokens: when and how they are taxed
Governance tokens allow users to participate in the decisions of DeFi protocols. Many of them were distributed for free (UNI, COMP, AAVE…). How should these tokens be treated in your tax return?
Types of governance token distribution
Retroactive distribution (retro-airdrop)
Examples: UNI from Uniswap (Sep-2020), ENS from Ethereum Name Service, dYdX tokens…
Classification: Capital gain not derived from a transfer (general tax base of the IRPF).
They are valued at the market price at the time of the claim, not the distribution.
Governance token farming
Many protocols issue governance tokens as an incentive for providing liquidity or using the protocol.
Classification: Income from movable capital (if there is capital investment) or capital gain (if it is only for use).
Purchase on the open market
If you simply buy UNI or AAVE on an exchange, there is no taxable event upon purchase. Only when selling them.
Acquisition cost
The acquisition cost of governance tokens received for free is their market value at the time of accreditation:
- If the price when claiming was €4 and you receive 400 tokens → acquisition cost = €1,600.
- When selling them at €2 each → sale value = €800. Capital loss of €800.
Voting rights without economic value
If governance tokens have no market value (they are not listed on any exchange and have no verifiable price):
- There is no reportable income upon receipt.
- When selling them, the entire gain is the difference between the sale price and €0 cost.
Governance tokens and Form 172
If the value of your governance tokens exceeds €1,000 as of December 31, they must be included in Form 172 along with the rest of your crypto portfolio.
Conclusion
Governance tokens received for free are not "free" for tax purposes. They are declared as income in the year of receipt, at the market value at that time. Keep a record of every token claim with the date and price.