How to properly treat a liquity trove redemption

Koinly Support
1

Describe the problem:

I had a liquidity trove with 59 ETH in it and a debt of 53,800 LUSD.
This morning, my trove got redeemed (here is the transaction). After the redemption, I was left with only 15.82 ETH to claim, which I did.

What technically happened at the same time was:

  1. 43.18 ETH (i.e. the equivalent of 53,800 LUSD in ETH) were sent to the user who was redeeming his LUSD for ETH (he redeemed $5M LUSD… that’s why many troves got redeemed to be able to honor the redemption).
  2. In exchange of this ETH transfer, my 53,800 LUSD got paid back (technically the 53,800 LUSD got burnt).
  3. 15,82 ETH (the surplus) was moved to a “surplus” smart-contract for collection by the trove holder (me).

So my issue is the following: Obviously, Koinly does not see the redemption transaction: It only sees my final 15,82 ETH claim that I tagged as “removed from pool”.

How would you advise that I fix this?

Here what I think are the manual transactions that I should create:

  1. Remove 43.18 ETH from pool
  2. Sell 43.18 ETH for 53,800 LUSD
  3. Send 53,800 LUSD to payback the trove

Which exchange/wallet is this regarding?

A Gnosis SAFE / Liquity Protocol

How did you import data into this wallet?

Synced

What have you tried to fix this so far?

Not yet, waiting for your wisdom

Thanks!

2

Hi @thibauld , great question that one!

This really depends on how you (and the tax man) sees the situation.

As I understand it 43.18 ETH were liquidated to pay back the debt to the lender. Normally, this would be a simple disposal of ETH at fair market value on the date the liquidation occurred.

Your method of taking the 43.18 ETH out of the pool to create manually a disposal is sound. However there is no need to create those LUSD transactions as they did not really occur and will not change anything in terms of loss/gains calculation.

You would simply need to create 2 transactions, 1 “received from pool” deposit into your wallet of the 43.18 ETH, then a simple “Send” transaction of that ETH, which will generate gains/losses , the worth of it being $53800 (you can adjust the “worth” field when adding/editing the transaction).

I would also make use of the note section, to make sure to have some explanation for this transaction, just in case, and of course if in any doubt, consult a local accountant (it never hurts), we know of a few here Cryptocurrency Tax Accountants | Koinly

Hope that makes sense, cheers!