Since Euphoria launched earlier this month, perhaps one of the most awaited improvement requests has been the implementation of wrapped sWAGMI. We are pleased to announce that this is now an option, and you can now wrap your sWAGMI via the ‘Wrap’ modal on Euphoria.
Please note that this is not financial or tax advice and we recommend you discuss this with a qualified tax professional to ensure you follow the correct tax guidelines for your jurisdiction.
A major discussion point in DeFi 2.0 algorithmic reserve currency protocols has been the tax treatment of rebase tokens. Depending on who you ask, you’ll hear varying opinions on how these are treated by tax authorities. One of the more common opinions are that sWAGMI received during rebases are subject to income tax, and you will then be subject to capital gains tax when you sell your sWAGMI.
Considering that rebases occur 3 times per day, and there is no single transaction that can be recorded to track rebase rewards, it can become very difficult to keep track of your rebase rewards. For example, the following may happen within a single day:
Depending on tax legislation in your jurisdiction, you could potentially be subject to paying income tax at the applicable rates for 0.24 sWAGMI, which were received at various times throughout the day and would have had varying fiat values when they were received. When you sell these 0.24 sWAGMI you may potentially also then be subject to capital gains tax on any gain.
The introduction of wsWAGMI will massively simplify this. For example, if you wrap 1 sWAGMI you may receive 0.65 wsWAGMI (the exchange rate will change over time). When you hold wsWAGMI then you will always have 0.65 wsWAGMI. Your balance will not increase during rebases, and therefore there are no potential income tax events.
When you decide to unwrap the wsWAGMI you would then receive the corresponding amount of sWAGMI, taking into consideration the effect that previous rebases would have had. For example, if you originally wrapped 1 sWAGMI into 0.65 wsWAGMI: when you decide to unwrap the wsWAGMI you will receive more than 1sWAGMI — this will depend on how much the index has increased by.
wsWAGMI will also allow you to utilize your sWAGMI in other DeFi protocols. Previously this hasn’t been recommended as you would miss out on rebase rewards if you staked/deposited WAGMI or sWAGMI outside of Euphoria.
With the introduction of wsWAGMI we will now be able to introduce further DeFi initiatives that will allow you to gain further yield from your wsWAGMI. This will allow us to progress the vision of bridging the gap between DeFi 1.0 and DeFi 2.0 — initially by offering traditional yield farms on ViperSwap, and eventually by implementing further exciting initiatives we’re working on.
As a key figure in the Harmony DeFi Ecosystem, we also hope to build further relationships with other projects in the Harmony ecosystem, and work together to grow Harmony’s DeFi space harmoniously. We believe that wsWAGMI can play a key role in this.