The Hidden Tax Traps Lurking in the DeFi Ecosystem

DeFi isn’t just about yield and smart contracts — it also creates complex taxable events. Deposits into CDPs, liquidations, liquidity pool tokens, airdrops, interest fees, and governance rewards can all trigger direct taxes like income or capital gains, while DEX fees, keeper incentives, and oracle charges may fall under indirect taxes such as VAT/GST. Because jurisdictions treat these events differently — sometimes as repos, sometimes as disposals — compliance can be confusing and inconsistent. Understanding how DeFi activities map to traditional tax principles is critical for both users and protocols navigating this evolving regulatory landscape.