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Track token migrations

A token migration happens when a blockchain undergoes a major technology update that requires holders to exchange old tokens for new ones.

Examples of token migrations:

  • LEND migrated to AAVE.
  • BNB transitioned from an ERC-20 token to its own native Binance Coin.
  • ANS migrated to NEO.

Token migrations are non-taxable events

A token migration is not considered a taxable event if the original blockchain is completely abandoned and all assets are transferred to a new blockchain. The IRS treats a token migration as a continuation of your original investment, not as a disposal or realization event that would trigger capital gains tax.

Tax implications of token migrations

When a token migration occurs, the new tokens inherit these tax attributes from the original ones:

  • Cost basis: The original purchase price of your tokens on the old blockchain becomes the cost basis for the new tokens.
  • Holding period: The time you held the tokens on the original blockchain carries over to the new tokens. This is essential for determining eligibility for long-term capital gains tax rates, which are generally lower.

By inheriting these attributes, the migration ensures continuity for tax purposes.

Token migrations vs. hard forks

The tax treatment for token migrations is significantly different from that of hard forks:

  • Hard forks: In a hard fork, the blockchain splits into two, and both chains continue to exist independently. This often results in the receipt of new coins, which may be considered taxable.
  • Token migrations: A token migration involves retiring the old token and transitioning directly to the new one on an updated platform. No new or independent cryptocurrency is created, so the event is generally not considered taxable.

Understanding these differences is key to handling taxes correctly.

How to track token migrations

Tracking token migrations can be complex, especially when the migration occurs at a ratio other than 1:1. When accounting for token migrations, make sure the new tokens inherit the cost basis of the original tokens. Here's a worked example:

Example of tracking a token migration

Using Elrond's token migration at a 1,000-to-1 ratio:
  • Original tokens held: 5,000 ERD
  • Migration ratio: 1,000 ERD = 1 EGLD
  • New tokens after migration: 5 EGLD (5,000 ERD ÷ 1,000 = 5)
  • Total purchase price: $130
  • Cost basis per ERD: $0.026 per ERD ($130 ÷ 5,000 = $0.026)
  1. Identify the original purchase. Locate the transaction where you bought the old tokens — in this example, 5,000 ERD for $130.
  2. Identify the new token transaction. Locate the transaction where you received the migrated tokens — in this example, 5 EGLD.
  3. Link both transactions. Select the checkbox next to each transaction, then select Link transactions in the toolbar at the bottom of the screen. 
  4. In the modal, choose Linked trade and select Update to finalize. The two transactions merge into a single Linked trade.
  5. Change the transaction category to Asset migration.
  6. Review and confirm. Double-check that both the proceeds and the cost basis reflect your original investment.

Disclaimer: CoinTracker is provided for informational purposes and is not intended as tax, audit, accounting, investment, financial, or legal advice. For financial, tax, or legal advice, please consult your own professional. See our full disclaimer.

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