Quick answer
Lending crypto earns taxable interest; depositing it as collateral may also constitute a taxable disposal in some jurisdictions.
Tax Filing
Australia
Canada
Germany
United Kingdom
United States
Crypto Lending Tax
Tax treatment of interest earned and collateral deposited when lending or borrowing cryptocurrency.
AustraliaCanadaGermanyUnited KingdomUnited StatesUnderstanding Crypto Lending Tax on crypto
Crypto lending involves either depositing crypto assets to earn interest (lending) or borrowing against a crypto collateral position. Interest received from lending crypto is generally treated as ordinary income at fair market value when received. The more contested question is whether depositing crypto as collateral for a loan constitutes a disposal. Most practitioners argue that a collateralised loan — where the borrower retains beneficial ownership of the collateral — should not be a taxable event, but guidance is limited. HMRC issued specific DeFi lending guidance in 2023 addressing some of these questions, making the UK more prescriptive than most jurisdictions.
Crypto lending involves either depositing crypto assets to earn interest (lending) or borrowing against a crypto collateral position. Interest received from lending crypto is generally treated as ordinary income at fair market value when received. The more contested question is whether depositing crypto as collateral for a loan constitutes a disposal. Most practitioners argue that a collateralised loan — where the borrower retains beneficial ownership of the collateral — should not be a taxable event, but guidance is limited. HMRC issued specific DeFi lending guidance in 2023 addressing some of these questions, making the UK more prescriptive than most jurisdictions.
What this means for your crypto activity
CeFi interest is income
Interest earned on crypto lent through CeFi platforms (e.g. Nexo, BlockFi) is taxable ordinary income when received.
DeFi interest is income
DeFi lending interest (e.g. Aave, Compound) is also taxable income, typically on each block or distribution event.
Collateral deposit rules
Depositing crypto as collateral is generally not a disposal if you retain beneficial ownership, but this varies by platform structure.
Liquidation triggers CGT
Liquidation of collateral is a disposal at market value — triggering CGT on any gain from original cost basis.
Repayment may be disposal
Repaying a crypto loan in crypto may also be a taxable disposal if the repaid assets have changed in value.
- Interest earned on crypto lent through CeFi platforms (e.g. Nexo, BlockFi) is taxable ordinary income when received.
- DeFi lending interest (e.g. Aave, Compound) is also taxable income, typically on each block or distribution event.
- Depositing crypto as collateral is generally not a disposal if you retain beneficial ownership, but this varies by platform structure.
- Liquidation of collateral is a disposal at market value — triggering CGT on any gain from original cost basis.
- Repaying a crypto loan in crypto may also be a taxable disposal if the repaid assets have changed in value.
Seeing it in action
Example scenario
Carlos deposits 2 ETH into Aave as collateral and borrows $3,000 USDC. He earns aUSDC interest over 6 months totalling $150. The $150 is taxable income. He repays the loan and withdraws his ETH. No disposal occurred on deposit or withdrawal. However, if Aave liquidated his ETH collateral when its value dropped, that liquidation would be a taxable CGT event on the ETH.
How this works across jurisdictions
- Australia
The ATO treats lending yields as assessable ordinary income and considers DeFi collateral deposits to be CGT events (typically CGT event A1) if beneficial ownership shifts or if tokens are exchanged for protocol-specific liquidity tokens.
- Canada
The CRA taxes crypto lending yields as either property income or active business income based on trading frequency, while treating collateral arrangements under general swap rules if the lender loses exclusive economic control over the asset.
- Germany
The Federal Ministry of Finance (BMF) taxes lending income as miscellaneous income (sonstige Einkünfte under § 22 No. 3 EStG); collateral locking does not trigger an immediate sale if the structural right to return the same asset type remains intact.
- United Kingdom
HMRC regulations defer capital gains tax liabilities on DeFi lending and staking contract transfers, ensuring transactions are only taxed as capital gains once an ultimate economic disposal of the underlying cryptoasset occurs.
- United States
The IRS classifies crypto lending interest as ordinary income under Section 61, while collateral deposits are typically non-taxable unless the protocol's smart contract alters ownership rights or triggers an exchange of property under Section 1001.
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