Decentralized finance (DeFi) has evolved from a niche experiment into a core treasury function for Web3 startups, funds, and DAOs. Today, many finance teams actively manage staking positions, lending portfolios, liquidity pools, perpetual strategies, yield-bearing assets, and multi-chain transactions.
While DeFi unlocks new yield opportunities, it also creates an accounting challenge. It’s no secret that conventional accounting systems cannot interpret smart contract activity. For the proper recording of DeFi activity, every on-chain interaction (whether a swap, liquidity deposit, or staking reward) must be accurately captured, valued, and categorized.
This guide provides a clear, practical roadmap for recording DeFi activity, with examples and workflows to help you produce audit-ready books.
Why Recording DeFi Activity Matters More Than Ever
DeFi reached a record TVL of $237 billion in Q3 2025, up from previous years. Startups are now relying on DeFi for treasury yield, liquidity provision, diversification, on-chain working capital management, and incentive programmes. However, the underlying transactions remain non-standardized. A single action on an AMM, such as Uniswap, can generate multiple blockchain transactions, each with accounting implications.
It has therefore become paramount to have accurate DeFi accounting and reporting. Auditors now expect a clear separation between principal movements and income-generating activities. Regulators also require fair-value measurement for tokens at the close of each reporting period. Moreso, tax authorities in markets such as the US, UK, and India treat many DeFi events as taxable.
For investors, transparent performance reporting is part of due diligence. Without accurate classification, fair-value treatment, and reconciliation, meeting the expectations of these stakeholders becomes nearly impossible. This is why proper recording of DeFi activity matters more than ever.
What Makes DeFi Accounting Different?
DeFi differs from traditional finance because transactions occur through smart contracts instead of identifiable counterparties. Income may accrue continuously through rebasing, token appreciation, or incremental increases in derivative balances.
Liquidity pool tokens do not represent ownership of a single asset but an evolving claim on multiple components. Fees, MEV, and rewards accumulate in ways that do not resemble conventional interest or yield. Moreso, since DeFi portfolios often span several wallets and chains, reconciliation becomes significantly more complex.
Despite these differences, core accounting principles still apply under both IFRS and GAAP. The challenge with recording DeFi activity is not in the accounting rules themselves, but in consistently interpreting them for on-chain activity.
How to Record Swaps, Trades, and Token Conversions
Swaps are the most frequent DeFi events and must be treated as a disposal of the outgoing asset and an acquisition of the incoming one. Under IAS 38, IFRS 13, and equivalent GAAP guidance, the outgoing asset is derecognized at its fair value, and any resulting gain or loss is recorded immediately. The incoming asset is recorded at its fair value at the transaction timestamp.
For example, if a treasury swaps 50 SOL for 1.2 ETH, and SOL trades at $150 while ETH trades at $4,000 at that moment, the SOL position is removed at its carrying value while the ETH is recognized at a cost basis of $4,800. Any difference between the carrying value of the SOL and its fair value is recognized as a gain or loss. Therefore, it is advisable to always use timestamp-matched pricing, as auditors frequently challenge inconsistent valuations in crypto swaps.
How to Record DeFi Lending and Borrowing
Lending protocols such as Aave and Compound treat deposits as transfers rather than income. When an organization deposits assets into such protocols, it receives derivative tokens (aTokens, cTokens, or equivalents) that represent both the right to withdraw principal and a claim to accrued interest.
For accounting purposes, the original token is derecognized and replaced with the derivative token, which is recognized at fair value and classified as a financial asset. Interest accrues continuously, either through balance increases or through exchange-rate adjustments in the derivative token.
Under IFRS, interest must be recognized as it accrues. GAAP follows the same principle, though impairment considerations may apply if the derivative token’s fair value declines. Consider a fund that deposits 10,000 USDC into Aave and receives 10,000 aUSDC. After 30 days, the wallet shows 10,040 aUSDC in accrued interest. The additional 40 tokens are treated as interest income at their fair value.
How to Record Staking Rewards (Native and Liquid Staking)
Staking rewards constitute income when received. Under both IFRS and GAAP, new tokens must be recognized at their fair value when they are credited to the wallet, and that fair value becomes the cost basis for future disposal.
For instance, if a Solana validator earns 4 SOL at $98 each on 12 January, that results in $392 in staking income. Under IFRS, subsequent changes in the fair value of these rewards may affect the asset’s carrying value. Under GAAP, valuation changes are recognized only when an asset is disposed of, unless it is impaired.
Liquid staking, however, introduces another layer. When users stake through protocols such as Lido, Marinade, or RocketPool, they exchange native tokens for derivative staking tokens, such as stETH or mSOL. This exchange is treated as a swap rather than as payroll or incentive compensation. Rewards typically accrue through rebasing or gradual appreciation of the staking token, and these increases must be recognized as income when they occur.
How to Record Airdrops
Airdrops are often misunderstood but are generally considered income once the organization gains control of the tokens. However, in some cases, the tokens represent a capital contribution from an investor or parent entity.
Airdrop tokens are recognized as income at fair value when they are received into the wallet. This fair value also becomes the cost basis for future accounting. If an airdrop token is thinly traded, accountants should use a reliable observable price, often from a decentralized exchange or price oracle.
Take the example of a fund receiving 5,000 OP tokens, each valued at $3.20. The organization recognises $16,000 in income and records the tokens at the same value. If the token later drops to $1.50, IFRS requires an impairment if the asset is classified as an intangible asset. GAAP also requires impairment, and unlike IFRS, the impairment cannot be reversed if prices recover.
How to Record Liquidity Pool (LP) Tokens
Liquidity pool (LP) tokens can be tricky to account for because they don’t represent a single asset. They’re essentially a claim on the assets you’ve contributed to the pool. For example, when an organization adds liquidity, it might deposit a pair like ETH and USDC, and in return, it receives LP tokens. From an accounting perspective, the original ETH and USDC are removed from the books, and the LP tokens are recorded at the total fair value of what was deposited.
Income from liquidity positions can arise from trading fees, protocol rewards, and rebalancing effects. LP tokens must be valued based on the fair value of the underlying assets rather than any quoted price for the LP token itself. For example, if a fund provides liquidity by depositing 10 ETH valued at $3,000 each and 24,000 USDC, the total position of $54,000 becomes the basis for recording the LP token. Rewards earned each day are recognized as income when received, while impermanent loss remains unrealized until the position is closed.
How to Record DeFi Fees, Gas Costs, and MEV
Every DeFi transaction generates fees, especially gas costs on chains like Ethereum. Under IFRS and GAAP, gas fees that create future economic benefits, such as the deployment of positions or the initiation of yield-bearing activities, can be capitalized. Fees incurred for simple transfers or non-productive actions must be expensed immediately. Staking-related fees generally qualify for capitalization if they contribute to future income.
Moreover, MEV rewards, when received, are treated as income and recorded at their fair value.
Multi-Wallet, Multi-Chain Reconciliation
Reconciliation is often the trickiest part of DeFi accounting. Imagine a portfolio with hundreds, or even thousands, of tokens spread across multiple chains. On top of that, bridges can create wrapped or synthetic versions of assets, and smart contracts sometimes generate phantom or metadata transactions that need careful interpretation. It’s no wonder accountants often spend a lot of time just making sense of what’s on-chain.
To keep everything straight, a good reconciliation system brings together wallet-level logs, per-chain valuation records, consistent cut-off times, and reliable price-oracle backups. By combining these elements, accountants can trace every token, even across multiple chains, and ensure the books are accurate and audit-ready.
How KoinX Books Automates DeFi Accounting
KoinX Books addresses these challenges by converting raw on-chain activity into structured, enterprise-grade accounting records. The platform ingests data from multiple chains and wallets, applies real-time fair-value pricing through robust oracle feeds, and generates automated journal entries aligned with IFRS and GAAP.
It also supports complex DeFi activities such as staking, lending, swaps, and liquidity pool positions, and maintains complete valuation and cost-basis histories. For busy businesses, this level of automation eliminates hundreds of hours of manual work each month and ensures audit-ready accuracy.
Conclusion
DeFi offers powerful yield opportunities but presents classification, valuation, and reconciliation challenges. Traditional systems are ill-equipped for smart-contract-driven events, making fair-value measurement and accurate transaction interpretation essential. Automation tools like KoinX Books can simplify DeFi accounting, helping your business scale safely, stay compliant, and build investor confidence.
Frequently Asked Questions
Are Defi Swaps Taxable Events?
In most jurisdictions, a DeFi swap is treated as the disposal of one asset and the acquisition of another, which creates a taxable gain or loss based on the fair market value at the time of the transaction.
How Should Organizations Value LP Tokens?
LP tokens must be valued using the fair value of the underlying assets in the liquidity pool. Since these tokens rarely have a standalone market price, companies must regularly recalculate their proportional share of the pool’s assets to establish accurate valuations.
Do Staking Rewards Count As Income?
Staking rewards are typically recognized as income at fair value when the company receives them. This value then becomes the cost basis for subsequent disposals under both IFRS and US GAAP.
How Do Liquid Staking Tokens Like Steth Fit Into Accounting Rules?
Liquid staking tokens are generally treated as derivative financial assets. They represent a claim on future yields in exchange for the underlying tokens, and any additional value generated through rebasing or market appreciation is recorded as income or as a fair-value adjustment.
What Makes Defi Reconciliation Difficult?
Reconciliation is challenging because DeFi activity happens across multiple chains, wallets, and smart contracts. Wrapped assets, bridges, and auto-compounding mechanisms create inconsistent metadata, making it difficult to trace transactions, match balances, and maintain a reliable audit trail without automation.