Polygon Labs Uses Apple Orchard Analogy to Explain Crypto Staking to U.S. Senators

By 0xK2 09/12/23 5:02 AM

Polygon Labs has taken a creative approach to educate U.S. senators about crypto staking. They have chosen a rather unexpected analogy – apple farming – to elucidate the nuances of this emerging digital asset activity. Polygon Labs’ Chief Legal Officer, Rebecca Rettig, penned a letter in response to a request from Senators Ron Wyden and Mike Crapo, who are currently examining the taxation of digital assets.

The analogy begins with a group of farmers who discover an apple orchard on ownerless property. These farmers agree to take turns picking apples, but there’s a catch – to ensure fair play, each farmer must contribute the first 32 apples they pick. Should any of them attempt to cheat, those ill-gotten apples are cast into a nearby river.

As time passes, these farmers start selling some of the apples they’ve collected, naturally establishing a market price for their produce. The analogy underscores that despite the emergence of a structured system governing the actions of these farmers, they are only taxed when they decide to sell their apples. Polygon Labs contends that crypto stakers should be subject to similar tax treatment, advocating for the taxation of potential rewards from staking only when the tokens are sold, not when they are initially earned.

In their letter dated September 8, Polygon Labs raises concerns that failing to tax staking rewards in this manner could result in over-taxation. They justify their argument by referencing a long-standing tradition in the United States where there is typically no tax event for merely exercising control over property when there is no prior owner.

Senators Crapo and Wyden initially sought input on how to tax digital assets in July, recognizing the ambiguity surrounding the classification of digital assets within the Internal Revenue Code of 1986. In a statement at the time, they expressed their concerns about the complexity of reporting digital asset transactions and the need for clearer guidance to assist taxpayers.

Polygon Labs is not alone in addressing this issue. Several other organizations, including the Tax Policy Center, the Coin Center, and the Crypto Council for Innovation, also submitted letters to Senators Wyden and Crapo on this matter. Both senators are at the helm of the Senate Finance Committee, which holds jurisdiction over the Treasury Department and plays a pivotal role in shaping tax policies.

The use of the apple orchard analogy by Polygon Labs provides an innovative way to explain the intricacies of crypto staking to lawmakers. As the cryptocurrency landscape continues to evolve, it remains to be seen how the U.S. government will ultimately decide to tax digital assets and whether analogies like these will help shape the future of cryptocurrency regulation in the country. The input from organizations like Polygon Labs is a vital part of the ongoing dialogue surrounding the taxation of digital assets, and it highlights the need for a comprehensive and clear framework in this rapidly growing sector.