Tax Advantages of Index Coop Products

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How to make tax time 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.

By their very nature, they are efficient, liquid, cost-effective, and make building a diversified crypto portfolio simple. However, they also come with significant tax advantages that only further add to their appeal. 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. 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:

Tax Advantage: 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 reporting associated with holding index products.

Tax Advantage: 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.

TL;DR

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

Disclaimer: This content is for informational purposes only and is not legal, tax, investment, financial, or other advice. You should not take, or refrain from taking, any action based on any information contained herein, or any other information that we make available at any time, including blog posts, data, articles, links to third-party content, discord content, news feeds, tutorials, tweets, and videos. Before you make any financial, legal, technical, or other decisions, you should seek independent professional advice from a licensed and qualified individual in the area for which such advice would be appropriate. This information is not intended to be comprehensive or address all aspects of Index or its products. There is additional documentation on Index’s website about the functioning of Index Coop, and its ecosystem and community.

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