Flare Network is announcing they are rethinking the airdrop due to complications with tax issues so it may not go as planned
Flare Network had drafted 3 proposals to modify the distribution of Spark Tokens (FLR). In which, the much-anticipated airdrop for XRP holders is facing a significant fork on the way right before launch.
Flare Network had drafted 3 proposals to modify the distribution of Spark Tokens (FLR)
According to the blog post, the proposed changes are intended to support XRP holders in jurisdictions that tax airdrops in addition to the usual capital gains tax incurred when selling cryptocurrency. The new proposals were later scrapped, intended primarily to benefit people living in the United States.
Flare’s original plan was to send eligible XRP holders 15% of their claimable Spark at once and the remaining tokens monthly, completing the distribution in a minimum of 25 months and a maximum of 34 months.
According to the blog post, the longer-term distributions may end up being a big tax concern:
“Specifically, there is a concern that due to the Spark token becoming priced subsequent to the launch of mainnet that the long-term distribution of 3% per month, but not the initial distribution of 15%, could be considered as income for tax purposes.”
Three proposals to modify Spark Token Distribution have since been scrapped. The first proposal would provide an option for recipients of the initial 15% drop of Spark Tokens, burn a small amount of their FLR to buy the remainder of the distribution. The proposal, called Buy Through Burn, avoids the need to pay taxes on subsequent airdrop distributions but still incurs capital gains tax on future token sales. Then, distribute the remaining 85% in monthly 3% increments.
The second proposal is the Distribution Halt, which will pause any distribution after the first. Therefore, give XRP holders their first 15% airdrop, and then burn all remaining tokens, essentially giving users 100% of the supply after the first airdrop. The third proposal was to retain the existing plan.
So option 1 is just distribute $FLR like it was planned. (15% first month and every month 3% with total supply of 100B)
Option 2 is burning 85% (85B🔥) and distribute that 15% and that’s it. (15B total supply)
— 👑 𝕏ℝℙ 𝕂𝕚𝕟𝕘 𝔻𝕠𝕘𝕘𝕠 𝕀𝕍 👑 $1500+ (@KingDoggoXRP) June 17, 2021
The CEO of Flare Network, Hugo Philion, announced that he had canceled the proposals altering the distribution of Spark Tokens (FLR):
2/ People who are concerned about tax will be able to opt out of the 3% monthly distributions. Make sure you are aware of your responsibilities to pay tax in each of your countries.
— Hugo Philion (@HugoPhilion) June 19, 2021
Flare plans to put the three options into a governance vote and include a draft with the startup’s own views and research:
“Full governance proposals for these options will be drafted, including our view of the pros and cons, and released together with the legal memo upon which Option 1 will be based. Options 1 & 2 will be based on a super majority requiring >66% positive votes to pass. Option 3 (retain the original plan), because it is the default setting, will be based on a simple majority >50% to pass.”
Finally, Philion reminds the Flare Network community that they could individually opt-out of the 3% monthly distributions. He also reminded the community, that knowing their respective tax obligations was recommended moving forward.
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