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ADA · 4w

Tax implications of Minswap IDO

While the following looks at the tax impact of Minswap’s IDO from a United States tax perspective, many countries tax airdrops similarly to the US, as personal income as well as a capital gains tax when the tokens are sold. Thus the following will be broadly applicable to residents of many countries other than the US. Please talk to your tax adviser on applicability to your situation and tax residence. This blog is not to be taken as financial advice. See my disclaimer on use.

Summary — FISO participants owe a lot more tax than they think

Minswap launched a Fair Initial Stake Offering (FISO) in August 2021 to distribute the MIN tokens to the public. Minswap’s public roadmap and statements were that the FISO rewards were to be issued when the mainnet went live, with the IDO following afterward. However, on October 10, Minswap chose to do an early IDO. In doing so, they created an unexpected income tax obligation for all 10,000+ FISO participants, even if they didn’t join the IDO. Furthermore the IDO was priced in ADA as opposed to fiat, if ADA rises before the tokens are distributed in December and January, the tax bill to be paid by FISO participants will increase proportionately.

My analysis found that 90% of the tax burden will fall on the FISO participants, even though most did not participate in the IDO. The tax burden created by the IDO will be 2x to 4x the money raised for development, making this a very inefficient fundraising in terms of cost to the community. Of the total amount spent by the community due to the IDO, about 80% will be spent on taxes, with only 20% used for development. Due to how the Minswap handled the IDO, FISO participants now have a surprise significant and unnecessary tax obligation.

The IDO also created a cheap way to attack MIN by capitalizing on the micro-float from the IDO to drive the price up to trigger a tax bill for the FISO participants that is 10–20x more than their tokens are worth. My example belo...

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