More complex DeFi processes that require an LP-Token can be replicated in Blockpit (as soon as LP-Tokens are implemented) either partially automated via Bitcoin and Ethereum Wallet Depots (xPub and ERC20) or via manual entries within one or several depots. Here, the assets provided as liquidity to the protocol (Asset1 and Asset2, etc.) are represented as "Trade" at the time of provision in equal parts of Asset1 and of Asset2 against the LP token. All additional rewards are entered as "Staking", "Lending" or "Bounty" transaction upon inflow (claim).
The fees, which are generated by providing liquidity, are generally reflected in an increase in the value of the LP-Tokens and are not reported as own transactions. These revenues are realized upon the exchange of the LP-Tokens back into Asset1/Asset2.
Example of providing BTC & DOGE as Liquidity:
- Entry into the LP-Contract:
50% BTC "Trade" to 50% LP-Token.
50% DOGE "Trade" to 50% LP-Token.
- Exit out of the LP-Contract:
50% LP-Token "Trade" to 50% BTC
50% LP-Token "Trade" to 50% DOGE
If Staking, Lending, or Governance contracts were entered into during LP-Providing, the Rewards must be entered as "Staking", "Lending" or "Bounty" according to the contracts from the time of the inflow (claim) or, if applicable, from the exit from the protocol.
This process is very similar to the replication of a simple Swap. The only difference is the division of initial assets in equal parts (Asset1 and Asset2, etc.) into several "Trade" transactions.
Please note, that LP tokens are currently not available in Blockpit. For Ethereum-based applications, these will be generated automatically as soon as they are made available. For LP tokens on other blockchains, it is planned to be able to create user-defined tokens. We therefore ask for a little patience until the corresponding features are ready.
For more information on the taxation of DeFi transactions, see our DeFi blog article.