David Schwartz’s Shares Tax Insights on AMM Pools Yield Returns

• Ripple CTO David Schwartz emphasizes understanding tax implications in AMM transactions.
• User shares tweet showing an example of upto 24% AMM high yields upon XRP withdrawal.
• David Schwartz takes lead in the twitter conversation and sheds light on AMM’s tax challenges.

David Schwartz, co-founder of Ripple, highlights the importance of understanding the tax implications associated with AMM transactions. The CTO went on to explain that Depositing and withdrawing assets from these pools can trigger taxable events, as users effectively convert their cryptocurrency into liquidity provider (LP) tokens upon deposit and back into cryptocurrency upon withdrawal.

When you get LP tokens, you establish the value of the assets you gave up in exchange for them. That might result in a capital gain or less, which would be taxable, and sets the basis for the LP tokens.

When you the redeem or otherwise dispose of the LP tokens, you establish the…

— David "JoelKatz" Schwartz (@JoelKatz) April 11, 2024

The concept of “basis” is of great importance in navigating the tax landscape of AMM transactions. The value of assets deposited into the AMM pool at the time of entry serves…

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