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Tax Advantages of Index Coop Products | by Weeze | The Index Coop | Sep, 2021

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Tax Advantages of Index Coop Products by Weeze

If you are actively buying, selling and swapping cryptocurrencies and other decentralized finance products, you’ll need to sort out how to pay taxes on these assets. Index Coop products are designed to make dealing with taxes on your decentralized finance products easier.

The Index Coop is a decentralized autonomous organization (DAO) that exists to create and maintain crypto-native products built on DeFi asset management technology. The products include a range of indices that offer broad exposure to different sectors of the cryptocurrency ecosystem:

$DPI: The DeFi Pulse Index is a market-cap weighted index that tracks the performance of decentralized finance assets across the market.

$MVI: The Metaverse Index is designed to capture the trend of entertainment, sports, and business shifting to take place in virtual environments.

$BED: The BED Index seeks to give safe, passive exposure using an equal-weighted allocation across the most promising themes in crypto: store of value, programmable money, and decentralized finance.

These products have similar characteristics to traditional equity ETFs. By their very nature, they are efficient, liquid, cost-effective, and make investing simple. However, they also come with significant tax advantages that only further add to their appeal.

Tax treatment will of course vary by country, but in the vast majority, anytime you sell, swap or otherwise dispose of a cryptocurrency holding, a taxable event is triggered. With that in mind, here is how the Index Coop products work to your benefit:

Transaction Reporting is Simple: Products like $DPI, $MVI, and $BED give you broad exposure to more than a dozen protocols with a single purchase. If or when you sell, that means a singular capital gain/loss transaction to report. Contrast that with the dozens of transactions that would be required if you were to buy and sell the underlying holdings of the index individually. When tax reporting time comes around, your future self will thank you for the simplicity of index investing.

Rebalancing is Tax-Free. Index Coop products all use Set Protocol’s infrastructure to automatically rebalance the portfolio of assets in line with their defined methodologies on a monthly basis. While the underlying holdings are rebalanced, all this happens with zero tax implications to you, the holder of the index. Before and after the rebalancing you still hold the same number of index tokens, so no taxable event is triggered. Contrast that with doing the same rebalancing but with individual holdings. You’d be selling the outperformers and buying the underperformers, which would generate taxable events and also come with the typical transaction costs. Save yourself the taxes, the costs, and the hassle and let the Index Coop products do the rebalancing automatically.

For a deeper dive on the benefits of rebalancing see our article on How Automatic Rebalancing Powers Long-Term Performance.

The Index Coop products, in addition to being simple, easy, and effective, come with tax advantages that make them some of the most compelling investment vehicles in the cryptocurrency ecosystem.

Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.



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