Schwartz Mentions XRP Native Staking Card... "Haven't Sold It, But Pay Taxes First?"

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David Schwartz, Ripple's Honorary Chief Technology Officer, directly addressed the tax controversy surrounding XRP staking, bringing the design of the reward structure to the forefront as a key issue for investor tax burden.

According to U.Today, a cryptocurrency specialized media outlet, on May 28 (local time), Schwartz proposed a virtual design for XRP native staking that could protect investors from the excessive tax demands of the U.S. Internal Revenue Service (IRS). Schwartz explained in discussions with crypto tax expert Clinton Donnelly that the technical structure of how rewards are distributed determines their legal status.

The core issue is whether staking rewards are structured as a transfer of existing tokens or as newly generated tokens during the distribution process. Schwartz argued that if rewards are transfers of existing tokens, early taxation would be reasonable. Conversely, if rewards are newly minted during the staking process, demanding taxes before sale would constitute an overreach of authority by the IRS.

Schwartz explained this difference with a simple analogy from traditional tax law. He stated, "If staking rewards are created during the staking process, it's like knitting a sweater yourself for sale. There are no taxes to pay until you sell the sweater." However, he added that if a third party transfers tokens in exchange for asset holding services, it would be recognized as taxable income at the time of transfer.

These remarks are noteworthy because it is only the second time Schwartz has mentioned XRP Ledger native staking. Two years ago, he expressed a critical stance on the subject. At that time, Schwartz evaluated the profit structure through XRP Ledger's liquidity pools or automated market makers, warning that investors would have to convert XRP into pool tokens to participate and that there was no guarantee of receiving their original assets back in the same amount.

U.Today interpreted Schwartz's shift in focus from criticizing automated market maker risks to designing a tax-defensible structure as a move towards seeking technical compromises for ecosystem development. However, this concept remains purely theoretical for now. XRP cannot be technically staked within the XRP Ledger because it uses a federated consensus protocol, not a Proof-of-Stake mechanism.

To earn returns on their assets, XRP holders currently must use third-party services such as centralized exchanges, lending platforms, DeFi protocols, and Flare Network. While these sectors currently offer annual returns of 1.5% to 5%, they significantly increase the risks to held assets, including platform vulnerabilities, hacking, and impermanent loss.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. This content should be interpreted for informational purposes only.*