What Are Staking Derivatives?
Staking derivatives are tokens that represent your staked assets. When you stake ETH in Lido, you receive a token—most commonly stETH—that tracks your staked ETH and staking rewards. cbETH is another derivative issued by Coinbase, also representing staked ETH. These tokens are designed to be liquid, tradable assets that reflect your staking position.
How Do These Derivatives Work?
stETH and cbETH are rebasing tokens. They automatically increase in quantity over time as staking rewards accrue. For example, if you start with 10 stETH, after some months of staking rewards, you might hold 10.5 tokens. Their price in USD remains roughly constant, but the token count grows.
This rebasing occurs because the tokens are designed to keep your stake proportionally aligned with the total staked ETH plus rewards. The key point: the number of tokens you hold changes without you performing any transaction.
Concrete Example of Rebase Mechanics
Suppose you stake 1 ETH worth $2,000 and receive 10 stETH tokens. After 6 months, your rewards have accrued, and your stETH balance auto-increases to 10.5 tokens. The USD value of your stake remains about $2,000, but your token count has grown. If you sell all 10.5 tokens later, you receive approximately $2,100, representing the staking rewards plus principal.
Tax Treatment of Staking Derivatives
The IRS hasn't issued specific guidance on rebasing tokens like stETH or cbETH. This creates uncertainty. Most tax professionals agree: the sale of these tokens is a taxable event, as you dispose of property. But how do you handle the rebasing? The consensus is that each rebasing is effectively a sale or a dividend.
- When you receive staking rewards, many treat this as ordinary income at the fair market value at the time.
- When the rebasing occurs, some argue it’s a taxable event — a 'constructive sale'— but the IRS hasn't clarified this.
- Selling the derivative later is generally a capital gain or loss.
Example: You start with 10 stETH at $200 each ($2,000 total). After 6 months, you have 10.5 stETH, still valued at $200 each ($2,100). Selling all results in a $100 gain, taxed as capital gain.
The complexity increases because the token balance changes without an explicit transaction, making cost basis calculation tricky. Many recommend tracking the USD value at each rebasing to determine gains.
Common Mistakes with Staking Derivatives
❌ Ignoring the rebasing as a taxable event
Why
Many users think only actual sales trigger tax, but rebasing can be treated as income or a sale.
Fix
Track the USD value at each rebase. Consult a CPA about whether to treat rebases as dividends or ordinary income.
⚠️ Cost
Potential underreporting of taxable income, leading to penalties.
❌ Not tracking cost basis properly
Why
Rebasing tokens change holdings without explicit transactions, confusing basis calculations.
Fix
Record USD value at receipt and at each rebase. Use consistent method for gains calculation.
⚠️ Cost
Incorrect gain/loss reporting, risking audit issues.
❌ Failing to report staking rewards
Why
Some users overlook rewards as taxable income.
Fix
Report staking rewards as ordinary income at fair market value when received.
⚠️ Cost
Omission can lead to IRS penalties.
How Moonscape Handles Staking Derivatives
Moonscape auto-detects staking derivatives like stETH and cbETH. It recognizes rebasing events and flags them as potential taxable events based on your transaction history.
Our platform tracks your initial purchase, the USD value at each rebasing, and sale. This helps you accurately calculate capital gains or income, even as your token balance changes without explicit transactions.
For example, if you receive 10 stETH and later have 10.5, Moonscape notes the rebasing event and calculates the gain based on the USD value increase. When you sell, we match it to the original cost basis, providing clear tax reports.