The UK abandons treating DeFi token deposits as sales "no longer taxed", Aave founder: A major victory for DeFi users

The UK HM Revenue and Customs (HMRC) announced: DeFi lending and staking activities will adopt the “No Gain, No Loss” principle. Users who deposit crypto assets into protocols such as Aave and Uniswap for collateral or to provide liquidity will no longer be considered to have “sold” for Capital Gains Tax purposes, and the tax burden will be deferred until an actual sale occurs. (Background: The Bank of England proposed new regulations for stablecoins: individual holding limit of £20,000, corporate limit of £10 million; reserves can be up to 95% in government bonds). (Background note: The UK government mailed out 65,000 tax letters warning cryptocurrency users to report taxes honestly). HMRC officially released the “Tax Treatment Consultation Results for Decentralized Finance (DeFi) Lending and Staking” document on November 26, marking an important step for the UK government in improving the crypto asset tax system, stemming from a public consultation conducted from April to June 2023. Initially, the industry strongly opposed HMRC's guidance in 2022, as it treated users depositing crypto assets into Aave, Compound, or Uniswap liquidity pools as a “disposal” for Capital Gains Tax (CGT) purposes (akin to a sale), even if users were simply borrowing money or earning rewards, and ultimately retrieving their assets, leading to unnecessary tax reporting burdens that did not align with economic substance. The adoption of the “No Gain, No Loss” principle defers tax burdens until an actual sale occurs. HMRC clearly stated in the latest document that it will abandon the complex practices originally based on traditional repurchase agreements (repo) and adopt the “No Gain, No Loss” (NGNL) model. In simple terms, if crypto assets are deposited into a lending protocol (like Aave) as collateral or into a liquidity pool, and the same amount of the same token is redeemed in the future, it will not trigger Capital Gains Tax; only when users actually sell the token, exchange it for other assets, or permanently lose control will they need to calculate gains or losses. Additionally, if the amount of tokens redeemed from Automated Market Makers (AMMs like Uniswap and Curve) matches the amount deposited, NGNL applies. DeFi rewards will be classified as “miscellaneous income” and taxed as income tax. The document also clarifies that whether it is lending interest, liquidity mining, or staking rewards, they will all be uniformly categorized as “miscellaneous income from crypto assets,” directly subject to income tax, eliminating confusion with capital gains and simplifying the calculation method. The industry views this as a “big win for UK DeFi,” with Aave founder publicly celebrating the outcome. This result is seen as a significant victory for UK DeFi users, especially for retail and institutional investors wanting to use BTC and ETH as collateral to borrow USDC and USDT, as the previous nightmare of high tax burdens due to the “deposit treated as a sale” rule is about to end, significantly reducing operational costs and likely attracting more UK users and capital to remain in the DeFi ecosystem. In this regard, Aave founder Stani Kulechov also posted on X platform: “This is a big victory for UK users wishing to use crypto assets as collateral to borrow stablecoins! Aave Labs is also honored to have participated in this consultation, successfully bringing the tax system back to economic substance.” However, it is worth noting that the new system still needs to wait for formal legislation to take effect. HMRC has published its consultation outcome in the UK regarding the taxation of DeFi activities related to lending and staking. A particularly interesting conclusion is that when users deposit assets into Aave, the deposit itself is not treated as a disposal for capital gains… — Stani.eth (@StaniKulechov) November 27, 2025 Related reports: The UK FCA fully lifts the “ban on cryptocurrency ETNs,” expected to unlock $930 billion in buying power? Financial Times: The UK plans to fully regulate cryptocurrency in 2026, easing some principles and strengthening targeted regulations. The Bank of England plans to “limit stablecoin holdings,” drawing public outrage: it is fundamentally impractical and will fall behind the global crypto race. <The UK abandons treating DeFi deposits as sales “no longer taxed,” Aave founder: a major victory for DeFi users> This article was first published in BlockTempo, the most influential blockchain news media.