Taxation Of Cryptocurrency Liquidity Mining & Yield Farming

Introduction - What Is Cryptocurrency Liquidity Mining (or Yield Farming)?

When you deposit money in a bank, you've basically lent those funds to the bank. In return, the bank pays you interest. With liquidity mining (also called "yield farming") you lend cryptocurrency to a start up cryptocurrency platform seeking to raise capital. In return, the lender will often receive interest payments or share in a cut of the platform's transaction fees.

But even more important: the lender usually receives units or tokens of the platform's native cryptocurrency. These tokens reward the lender for injecting liquidity into a budding cryptocurrency platform. Some reward tokens allow their owners to vote on the cryptocurrency platform's protocols, such as value-capture mechanisms. Of course, the reward tokens can themselves be traded. So, many liquidity providers wager their loan on the likelihood that the new platform will take hold of cryptocurrency markets, thereby causing