Let’s face it, tracking DeFi returns is messy. Here’s how to do it properly
Zerion
DeFi
3 years ago
1 QCP
Learn how to apply cost basis to DeFi assets and why Zerion looks at both Investment Return and Return vs HODLing.
It’s no secret that accurately tracking your DeFi portfolio is virtually impossible. The DeFi ecosystem is nascent, and we’ve previously discussed how fragmentation across protocols and dApps makes fetching accurate data the stuff of dreams. Just take a look at the same address tracked within a 5-minute window on five different DeFi interfaces
These differences are not trivial. Interfaces that are connected to more protocols invariably show more accurate figures — but from a user perspective, finding precise portfolio data is only half the problem.
What’s often overlooked is how portfolio returns are presented. In this article, we’ll look at a few ways to evaluate the performance of a DeFi portfolio and discuss why some methods work better than others.
Understanding cost basis
Let’s start with a simple approach to evaluating the performance of an investment:
In finance, cost basis is the purchase price of an asset, commonly used to calculate the capital gains rate (the difference between the cost basis and current market value) for tax purposes. With DeFi assets, calculating the true investment return in this way can become tricky depending on which base currency you use.
For example, what happens if you invest 10 ETH at $130 per ETH in a liquidity pool at the beginning of the tax year, then take out your investment at the end of the tax year when the price of ETH is $200? You should receive $2,000 plus the amount you made in trading fees — let’s say that’s $100. The cost basis for your investment is $1,300 and the capital gains would be $2,100 — $1,300 = $800.
Now, how helpful is this figure when deciding whether the investment was actually worth it? What would have happened if instead the price of ETH dropped to $100 and you made only $50 in trading fees for the year? Your entire investment would be worth $1,050 and your capital loss would be $1,300 — $1,050 = $250.
...
More: https://blog.zerion.io/lets-face-it-tracking-defi-returns-is-messy-here-s-how-to-do-it-properly-2a0a71d3bc31
It’s no secret that accurately tracking your DeFi portfolio is virtually impossible. The DeFi ecosystem is nascent, and we’ve previously discussed how fragmentation across protocols and dApps makes fetching accurate data the stuff of dreams. Just take a look at the same address tracked within a 5-minute window on five different DeFi interfaces
These differences are not trivial. Interfaces that are connected to more protocols invariably show more accurate figures — but from a user perspective, finding precise portfolio data is only half the problem.
What’s often overlooked is how portfolio returns are presented. In this article, we’ll look at a few ways to evaluate the performance of a DeFi portfolio and discuss why some methods work better than others.
Understanding cost basis
Let’s start with a simple approach to evaluating the performance of an investment:
In finance, cost basis is the purchase price of an asset, commonly used to calculate the capital gains rate (the difference between the cost basis and current market value) for tax purposes. With DeFi assets, calculating the true investment return in this way can become tricky depending on which base currency you use.
For example, what happens if you invest 10 ETH at $130 per ETH in a liquidity pool at the beginning of the tax year, then take out your investment at the end of the tax year when the price of ETH is $200? You should receive $2,000 plus the amount you made in trading fees — let’s say that’s $100. The cost basis for your investment is $1,300 and the capital gains would be $2,100 — $1,300 = $800.
Now, how helpful is this figure when deciding whether the investment was actually worth it? What would have happened if instead the price of ETH dropped to $100 and you made only $50 in trading fees for the year? Your entire investment would be worth $1,050 and your capital loss would be $1,300 — $1,050 = $250.
...
More: https://blog.zerion.io/lets-face-it-tracking-defi-returns-is-messy-here-s-how-to-do-it-properly-2a0a71d3bc31
- Hodl
- User interface
- Investment return
- DeFi
- Crypto portfolio
Confirm Delete
Are you sure, you want to delete the Comment ?