[Example Literature To Distribute To Financial Advisors] Using Maker Vaults For Tax-Efficient Crypto Asset Investing In US Jurisdictions

Note that this is just an example, and would need to be jazzed up with some formatting and graphics before being distributed to financial advisors. We would also need an opinion whether the creation of new DAI constitutes a lending activity or an exchange under US law. As a corollary (and not addressed here), but once crypto assets can be held within a portfolio with other investments, interest on loans (but not sure about SFs and their status) can be deducted from taxes owed in taxable portfolios. But this seemed like the kind of thing I’d want to send to my financial advisor, so if we don’t have some brochure literature already, we should start on it!

Appreciated Assets Represent Large Potential Tax Liabilities

With the rise of Bitcoin (BTC) valuations – 700% in just the last 12 months – many clients are left holding appreciated BTC and other crypto asset holdings. [insert graphs showing various cryptos going up and to the right] For a variety of reasons, those clients may not wish to sell their crypto asset holdings, chief among them being a belief in continued appreciation and the potential tax liability from any sales.

**Access Value In Appreciated Crypto Assets Without **

Given the massive concentration of most crypto asset portfolios, however, many savvy investors are likely to want to diversify their holdings. The collateralized loans offered by MakerDAO offer a way for holders of appreciated crypto assets to avoid both the paperwork associated with taxable transactions like tracking cost basis, and continue to own their crypto assets.

[insert summary of vaults and depending on the exact audience, highlight the they’re non-custodial, permissionless, fairly quick, fairly private, maintain lots of control, no lockup period, etc]

Maker Vaults simultaneously store crypto assets and allow those assets to be used as collateral for DAI – a stablecoin cryptocurrency pegged to the value of the US dollar that generally fluctuates within a tenth of a cent of its targeted value [insert fancy graph showing DAI’s performance lately]. DAI are widely used in crypto finance, and unlike other stablecoins, does not depend upon the backing of USD in the physical world, which removes counterparty risk associated with the entities that supposedly hold that cash to prop up other stablecoin currencies. This makes DAI highly desired, and typically attracts yields of [insert current yields] simply for lending it out, allowing for safe returns on a stable crypto asset that are typically above the fees accrued by opening a Maker Vault.

Clients with highly appreciated crypto assets may wish for more returns than above-market interest rates, however, and can also use the DAI on crypto asset exchanges to then diversify their crypto asset portfolio, but without actually parting with any of their Bitcoin, Ether, or other assets that form the core of their crypto investments.

Contact A Representative From MakerDAO For A Detailed Walkthrough Of How To Use Maker Vaults And Popular Uses For Borrowed DAI*

[Insert contact info for whomever, presumably at MarComms CU?]

So yeah. Do we have this kind of literature? Preferably in slick packaging? The US has a deep market of high-net worth individuals whose advisors don’t know much about crypto. You can’t expect them to recommend investing and tax arbitrage strategies if they don’t know there’s actually something going on in crypto besides made-up computer money (BTC), and that many of the “currencies” actually are more like oil than money (like ETH). I feel like there’s a whole campaign that can be done.

If it’s already underway, that’s great! I’d love to lend a hand if there isn’t.


It occurs to me that it may be better to explain the borrowing of DAI as a sale at X cost basis, which then has the capital gain/loss offset upon repayment (less fees incurred). But in introductory literature, I suspect it’s ok to gloss over that technical detail (unless we get an opinion that it really is a loan in the standard sense)

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I’m not sure “sale” language will help, even if the cost basis is stated. There is precedent for this in any case; I don’t see that borrowing against a property and using that for investment is any different in principle. The point is that all the necessary legal frameworks already exist, so long as crypto is treated the same.
One thing to note would be that if a Vault is liquidated, that is a sale, with all the tax liabilities.