LP Tokens Uncovered: How Liquidity Pools Are Taxed in Spain

Liquidity pools are the heart of decentralized finance. Without them, Uniswap, Curve, PancakeSwap, and practically any DeFi protocol wouldn’t exist. When you deposit your cryptoassets into a pool, you become a liquidity provider (LP) and receive LP tokens that represent your share. In exchange, you earn a portion of the fees generated by the pool.

Sounds simple. But tax-wise, it’s a maze.

This article breaks down, step by step, the full tax cycle of LP tokens: from the first euro you deposit to the last cent you withdraw. With numerical examples, real-world cases, and the key points to report correctly to the AEAT.

A liquidity pool is a smart contract that holds reserves of two or more cryptoassets. Users can swap tokens against these reserves, and liquidity providers (LPs) receive fees for facilitating those swaps.

Basic mechanics:

1. You deposit two tokens in an equivalent proportion (e.g., ETH + USDC at a 50/50 value)
2. You receive LP tokens that certify your participation in the pool
3. While you remain, your position accumulates trading fees
4. When you withdraw, you burn the LP tokens and recover the underlying assets (adjusted by fees and impermanent loss)

The tax issue: Each of these steps has specific tax consequences that Spanish rules do not expressly regulate, forcing you to apply general criteria on swaps, income, and capital disposals.

The three tax moments of a liquidity pool

This “triple taxation” structure is what makes pool taxation especially complex. It’s not enough to report when you sell to euros: each intermediate phase can create independent tax obligations.

When you deposit tokens into a Uniswap, Curve, or any AMM pool, you’re not simply “storing” your crypto. You’re executing a swap: you deliver two assets (ETH + USDC) and receive a new one (the LP token).

Why the deposit creates a capital gain

The AEAT treats any exchange of one asset for a different one as a capital disposal. By receiving LP tokens in exchange for your original tokens, a taxable event occurs if the market value of what you deliver differs from its acquisition cost.

Practical example:

Initial situation:
- You bought 1 ETH at €2,000 six months ago
- You bought 2,500 USDC at €1/USDC three months ago

Deposit into ETH/USDC pool (when ETH = €2,500):
- You deposit: 1 ETH (now worth €2,500) + 2,500 USDC
- You receive: 100 UNI-V2 ETH/USDC LP tokens

Tax calculation for the deposit:

ETH:
- Transfer value: €2,500
- Acquisition cost: €2,000
- Capital gain: €500

USDC:
- Transfer value: €2,500
- Acquisition cost: €2,500
- Capital gain: €0

Total gain on deposit: €500
Tax (19%): €95

Acquisition value of the LP tokens:
100 LP = €5,000 (€2,500 ETH + €2,500 USDC)
Unit cost: €50/LP token

The most common mistake: "I haven’t sold anything"

Many investors believe depositing into a pool is not taxable because they “still have crypto.” This is incorrect. For the AEAT, you disposed of ETH and USDC in exchange for a different asset (an LP token). It is tax-wise equivalent to selling and buying something else.

Consequences of not reporting:

• Unreported capital gains
• Incorrect tax basis for future operations
• Potential 50%-150% penalty if the tax authority detects the omission

Special cases on deposit

Stablecoin pools: If you deposit USDC + USDT into Curve’s 3pool, the gain is usually close to €0 because stablecoins do not fluctuate significantly. However, it is still a taxable event that must be recorded.

Asymmetric (single-sided) deposit: Some protocols allow depositing a single token. The protocol converts it internally into the two pool tokens. This creates two taxable events: first the internal swap, then the deposit.

Multi-asset pools: In pools like Balancer with 4+ tokens, each deposited token generates its own independent capital gain/loss.

While your funds remain in the pool, two economic phenomena occur with different tax implications: fee accumulation and impermanent loss.

Pool fees: when are they taxed?

Liquidity pools generate fees every time someone swaps. These fees are distributed proportionally among LPs and accumulate inside the pool, increasing the value of LP tokens.

Tax treatment of fees:

There are two possible interpretations:

Interpretation 1 (conservative): Fees are investment income taxed when they materialize (when you withdraw liquidity or claim).

Interpretation 2 (integrated): Fees are embedded in the LP token value and are taxed as a capital gain when the LP is disposed of.

In practice, the second interpretation is the most commonly applied because:

• Fees are not “paid out” separately in most pools (they are embedded in the LP value)
• It greatly simplifies the tax calculation
• It avoids the complexity of valuing fees in real time

Example of embedded fees:

Initial deposit:
- 100 LP tokens valued at €5,000
- Acquisition cost: €5,000

6 months later (on withdrawal):
- The 100 LP tokens are now worth €5,400
- (Difference: €400 of accumulated fees)

Tax calculation on withdrawal:
- Transfer value of LP: €5,400
- Acquisition cost of LP: €5,000
- Capital gain: €400
- Tax: €76 (19%)

Impermanent loss: the loss you can’t deduct (yet)

Impermanent loss (IL) is the difference between keeping your tokens in the pool versus holding them in your wallet. When the price ratio between the two tokens changes, you suffer IL.

Key tax rule: Impermanent loss is NOT deductible while you remain in the pool. It is an unrealized loss.

Visual example:

Initial deposit:
- 1 ETH (€2,500) + 2,500 USDC = €5,000 total
- You receive 100 LP tokens

3 months later (ETH rises to €4,000):

If you had HODLed:
- 1 ETH (€4,000) + 2,500 USDC = €6,500

In the pool (due to AMM rebalancing):
- ~0.79 ETH (€3,160) + ~3,160 USDC = €6,320

Impermanent loss: €6,500 - €6,320 = €180
(Loss versus not depositing)

Can you deduct that €180?
NO. The IL is not realized.

But if the pool generated €300 in fees:
Real value in pool: €6,320 + €300 = €6,620
Result vs HODL: €6,620 - €6,500 = +€120
(Fees offset IL)

When IL is realized:

Impermanent loss becomes a real tax loss only when:

1. You withdraw liquidity (burn LP tokens)
2. The value recovered is lower than the acquisition cost of the LP tokens

If fees exceed IL, there is no tax loss even if you experienced impermanent loss.

When you exit the pool, you burn your LP tokens and recover the underlying assets. This creates a capital gain or loss on the LP tokens.

Tax mechanics of withdrawal

Basic formula:

Gain/Loss = Transfer value of LP - Acquisition cost of LP

Where:
- Transfer value = market value of the tokens received
- Acquisition cost = what you “paid” when depositing (calculated in Phase 1)

Full withdrawal example:

Deposit data (6 months ago):
- You deposited: 1 ETH (€2,500) + 2,500 USDC
- You received: 100 LP tokens
- Acquisition cost of LP: €5,000
- (You already reported €500 gain due to ETH appreciation)

Withdrawal (today):
- You burn: 100 LP tokens
- You receive: 0.85 ETH (€3,400, ETH = €4,000) + 3,400 USDC
- Total value recovered: €6,800

Tax calculation:
- Transfer value of LP: €6,800
- Acquisition cost of LP: €5,000
- Capital gain: €1,800
- Tax (21% second bracket): €378

New acquisition cost of the tokens received:
- 0.85 ETH with cost = €3,400 (€4,000/ETH)
- 3,400 USDC with cost = €3,400 (€1/USDC)

Special cases on withdrawal

Partial withdrawal: If you withdraw only 50% of your position, you apply FIFO to the LP tokens. If all have the same acquisition cost, you allocate proportionally.

You have 100 LP with total cost €5,000 (€50/LP)
You withdraw 40 LP tokens:
- Cost of the 40 LP: €2,000
- Value recovered: €2,800
- Gain: €800

Remaining 60 LP with cost: €3,000

Withdrawal at a loss (IL > fees):

Deposit:
- 100 LP tokens, cost: €5,000

Withdrawal (bear market + high IL):
- You recover: €4,200 in tokens
- Capital loss: €800

This loss IS deductible.
It offsets other gains in the year or the next 4 years.

Withdrawal into a single token: Some protocols allow withdrawing into a single token (e.g., only USDC). This implies an additional internal swap that creates another taxable event.

Not all pools work the same way, and the differences have tax implications.

Standard 50/50 pools (Uniswap V2, PancakeSwap)

Features:

• Two tokens in a 50/50 value proportion
• Fungible, standard LP token
• Fees embedded in the LP token value

Taxation: The simplest. The three-phase model described above applies.

Concentrated liquidity pools (Uniswap V3)

Features:

• Liquidity provided within specific price ranges
• Position represented by an NFT (not a fungible token)
• Higher capital efficiency but higher IL risk

Special taxation:

• The position NFT is treated as a unique asset
• If price moves out of range, you stop earning fees (no new taxable event)
• When you close the position, you calculate gain on the NFT as a unique asset

Uniswap V3 example:

Opening the position:
- You deposit 1 ETH + 3,000 USDC in the 2,800-3,200 USDC/ETH range
- You receive NFT #12345
- Acquisition cost of NFT: €6,000

Closing the position:
- You burn NFT #12345
- You recover 0.9 ETH + 3,500 USDC = €7,100
- Gain: €1,100

Stablecoin pools (Curve 3pool, FRAX)

Features:

• Tokens with similar prices (USDC, USDT, DAI)
• Low impermanent loss
• Lower but more stable fees

Taxation:

• Deposit usually creates a gain close to €0
• Returns mainly come from fees and external rewards
• Ideal for conservative investors from a tax perspective

Curve 3pool example:

Deposit:
- 10,000 USDC at €0.99/USDC = €9,900 cost
- Market value: €10,000
- Gain on deposit: €100 (minimal)

1 year later:
- You recover 10,400 tokens (USDC+DAI+USDT)
- Value: €10,350
- Gain: €450 (fees - small IL)

Pools with external incentives (Liquidity Mining)

Many pools offer additional rewards in protocol tokens (UNI, CRV, CAKE) on top of trading fees.

Taxation of rewards:

Example with CRV rewards:

You deposit into the Curve ETH/stETH pool:
- 100 LP tokens, cost: €10,000
- You stake the LP in Curve’s gauge

Over 6 months:
- Monthly claims: total 200 CRV
- Value at claim: average €0.50/CRV = €100
- Investment income: €100
- Tax: €19

On LP withdrawal:
- Value recovered: €11,500
- Gain on LP: €1,500
- Tax: €315 (21%)

CRV inventory:
- 200 CRV with cost €100 = €0.50/CRV

For a more detailed guide on farming and rewards, see our article on how yield farming is taxed in Spain.

Let’s follow a complete real-life case, from the initial purchase of tokens to the final sale into euros.

Investor profile

María buys ETH and USDC, deposits them into a Uniswap pool, receives liquidity mining rewards, and finally sells everything to euros.

Timeline of operations

January 2024: Initial purchase

- Buys 2 ETH at €2,200/ETH = €4,400
- Buys 4,400 USDC at €1/USDC = €4,400
- Total invested: €8,800

February 2024: Deposit into the pool

ETH is now worth €2,500/ETH

Deposits into the Uniswap ETH/USDC pool:
- 2 ETH (value: €5,000)
- 5,000 USDC (needs to buy 600 more)
- Additional purchase: 600 USDC at €1 = €600

Receives: 200 UNI-V2 ETH/USDC LP tokens

Tax calculation for the deposit:

ETH:
- Transfer value: €5,000
- Acquisition cost: €4,400
- Gain: €600

USDC:
- Transfer value: €5,000
- Acquisition cost: €5,000 (€4,400 + €600)
- Gain: €0

Total gain on deposit: €600
Tax Q1: €114 (19%)

Acquisition cost of LP tokens:
200 LP = €10,000 (€50/LP)

February–July 2024: Liquidity mining

She stakes the LP tokens in a Uniswap farm
Monthly UNI claims:

- Feb: 20 UNI @ €8 = €160
- Mar: 22 UNI @ €7 = €154
- Apr: 18 UNI @ €9 = €162
- May: 21 UNI @ €6 = €126
- Jun: 19 UNI @ €7 = €133
- Jul: 20 UNI @ €8 = €160

Total rewards: 120 UNI = €895
Investment income: €895
Tax (19%): €170.05

UNI inventory: 120 tokens
Average cost: €7.46/UNI

August 2024: Withdrawal from the pool

ETH is now worth €3,200/ETH

She burns 200 LP tokens:
- She receives: 1.7 ETH (€5,440) + 5,440 USDC
- Total value: €10,880

(Note: Less ETH and more USDC than initially = IL due to ETH rising)
(But total value increased due to accumulated fees)

Tax calculation on withdrawal:
- Transfer value of LP: €10,880
- Acquisition cost of LP: €10,000
- Gain: €880
- Tax (19%): €167.20

New inventory:
- 1.7 ETH with cost €5,440 (€3,200/ETH)
- 5,440 USDC with cost €5,440
- 120 UNI with cost €895

September 2024: Sale to euros

She sells everything:

1.7 ETH at €3,500/ETH = €5,950
- Cost: €5,440
- Gain: €510

5,440 USDC at €1 = €5,440
- Cost: €5,440
- Gain: €0

120 UNI at €10 = €1,200
- Cost: €895
- Gain: €305

Gains on sale: €815
Tax (19%): €154.85

María’s annual tax summary

María’s economic result:

• Initial investment: €8,800 + €600 = €9,400
• Final proceeds: €5,950 + €5,440 + €1,200 = €12,590
• Gross profit: €3,190
• Taxes paid: €606.10
• Net profit: €2,583.90 (27.5% net return)

These are the most common mistakes we detect in portfolio analyses with liquidity positions:

Mistake 1: "The deposit isn’t taxable, I’m just moving my crypto"

Incorrect. Depositing into a pool is a swap: you deliver tokens A+B and receive an LP token. If the market value of A or B changed since purchase, there is a capital gain.

Consequence: Unreported gains. If the tax authority detects discrepancies in your crypto wealth, it can open an audit.

Mistake 2: "I report everything together when I sell to euros"

Incorrect. Each phase has its own tax moment:

• Deposit: when you deposit
• Rewards: when you claim
• Withdrawal: when you burn LP
• Sale: when you convert to fiat

Consequence: Incorrect timing. Income and gains must be allocated to the tax year in which they arise, not when you cash out to euros.

Mistake 3: "Impermanent loss gives me deductible losses"

Incorrect while you remain in the pool. IL is unrealized. You can only deduct it upon withdrawal if the value recovered is lower than the acquisition cost of the LP tokens.

Consequence: Reporting unrealized losses can be rejected by the AEAT and lead to penalties.

Mistake 4: "LP tokens are worthless, they’re just a receipt"

Incorrect. LP tokens are assets with market value. They represent your claim on the pool’s tokens plus accumulated fees. They have an acquisition cost (what you deposited) and a transfer value (what you recover).

Consequence: Not tracking LP tokens makes it impossible to calculate gains correctly when withdrawing.

Mistake 5: "I use pool value to calculate my wealth"

Partly correct. For Modelo 721 (reporting crypto held abroad), yes, you must use the market value of your position on December 31. But for gains/loss calculations, you use historical acquisition cost.

To learn more about Modelo 721 and DeFi positions, see our guide on Modelo 721 and cryptocurrencies.

Mistake 6: "Pool fees are like bank interest"

Conceptually similar, but tax-wise different. Liquidity pool fees are not “paid out” separately like deposit interest. They are embedded in the LP token value and are taxed as a capital gain when you dispose of the LP, not as investment income.

Exception: Liquidity mining rewards (UNI, CRV, etc.) are taxed as income when you claim them.

If the total value of your crypto held abroad exceeds €50,000 on December 31, you must file Modelo 721.

How to report LP tokens in Modelo 721

LP tokens must be reported at their underlying market value, not by the “number” of LP tokens.

Example as of December 31:

Pool positions:
- 500 ETH/USDC LP tokens (represent 2 ETH + 6,000 USDC)
  ETH = €3,500 → 2 × €3,500 = €7,000
  USDC → €6,000
  LP value: €13,000

- 1,000 stETH/ETH LP tokens on Curve
  Underlying value: €15,000

- Unclaimed rewards: 200 CRV @ €0.60 = €120

Total DeFi positions: €28,120

Other crypto assets:
- 5 ETH in wallet: €17,500
- 3,000 USDC on exchange: €3,000

Total crypto: €48,620 → Does NOT exceed €50,000

If ETH had been at €4,000:
- ETH/USDC LP: €14,000
- ETH in wallet: €20,000
- Total: €52,120 → Modelo 721 IS mandatory

Deadline and penalties

• Deadline: until March 31 of the following year
• Minimum penalty: €10,000 for not filing
• Extended statute of limitations: 10 years (instead of 4) if you don’t file

Handling liquidity pool taxation manually is complex. These tools help:

For position visualization

• DeBank: Excellent for viewing current LP token value across multiple chains
• Zapper: Clear interface, good detection of Uniswap, Curve, Balancer pools
• APY.Vision: Specialized in tracking IL and pool returns

For data export

• Etherscan/PolygonScan: Export deposit/withdrawal transactions
• The Graph: APIs to pull historical pool data
• Dune Analytics: Custom queries for advanced analysis

For tax calculation

Automatic tools have significant limitations with LP tokens:

• They don’t always detect the deposit as a swap
• They incorrectly value the LP acquisition cost
• They don’t integrate accumulated fees well

For portfolios with multiple liquidity positions, professional DeFi portfolio analysis ensures:

• Correct detection of each tax phase
• Accurate valuation of LP tokens at each point in time
• Integration of fees and IL into gain/loss calculations
• Auditable reports for the AEAT

You can see more options in our comparison of tools to track cryptocurrencies.

Uniswap

V2 (classic pools):

• Standard ERC-20 LP token
• Straightforward taxation under the 3-phase model
• Fixed 0.3% fee

V3 (concentrated liquidity):

• Position as an NFT
• Higher tax complexity due to price ranges
• Possibility of being "out of range" (no fees generated)

Curve Finance

Special features:

• Pools optimized for stablecoins (low IL)
• Gauge voting system (veCRV)
• CRV rewards taxed on claim

Specific taxation:

• Locking CRV for veCRV is a swap
• Reward boosts do not change the tax nature
• Bribes received for voting are taxed as income

Balancer

Special features:

• Pools with more than 2 tokens
• Configurable weights (not necessarily 50/50)
• LP tokens represent multiple assets

Specific taxation:

• On deposit, each token creates its own gain/loss
• Internal rebalancing does not create additional taxable events
• BAL rewards are taxed as income

PancakeSwap (BSC)

Special features:

• Very low gas fees
• Syrup pools for CAKE staking
• Lottery and predictions system

Specific taxation:

• Same treatment as Uniswap V2
• CAKE from Syrup pools is income
• Lottery and predictions are taxed as gains (not exempt like traditional lotteries)

1. Document from the first deposit

For each interaction with a pool, record:

• Transaction hash
• Tokens deposited and amounts
• EUR value at the exact moment
• LP tokens received
• Date and time

This is essential to calculate acquisition cost correctly.

2. Batch reward claims

Each claim creates a taxable event. If you claim daily small amounts, you’ll have hundreds of records.

Strategy: Accumulate rewards and claim monthly or quarterly. Fewer records, same total taxation.

3. Consider withdrawal timing

If you have significant gains in the pool, evaluate:

• Do you have capital losses in the same year to offset?
• Is it better to withdraw in December or wait until January?
• Does the market suggest future fees will offset IL?

4. Use stablecoin pools to simplify

Stablecoin pools (Curve 3pool, FRAX) typically generate:

• Minimal gain on deposit (stable prices)
• Very low IL
• More predictable returns

Tax-wise they are much easier to manage.

5. Keep separate accounting per pool

Each pool is an independent “asset.” Keep separate records:

• Uniswap V2 ETH/USDC pool
• Curve stETH/ETH pool
• PancakeSwap USDC/USDT pool

Do not mix calculations across different pools.

Is depositing into a liquidity pool taxable even if I don’t sell to euros?

Yes. The deposit is a swap (you deliver tokens, you receive LP tokens). If the market value of the deposited tokens differs from their acquisition cost, there is a capital gain. This happens regardless of whether you later convert to euros.

How do I calculate the acquisition cost of my LP tokens?

Add up the market value of all tokens you deposited at the time of deposit. If you deposited 1 ETH (valued at €2,500) + 2,500 USDC, the acquisition cost of your LP tokens is €5,000.

Are pool fees taxed as income or as capital gains?

As capital gains, embedded in the LP token value. When you withdraw liquidity, the difference between what you recover and the acquisition cost includes the accumulated fees. They are not reported separately.

What about liquidity mining rewards (UNI, CRV, CAKE)?

As investment income, at the market value at the time of claim. They are different from pool fees: rewards are actively claimed and taxed at that time.

Can I deduct impermanent loss?

Only when you withdraw liquidity, if the value recovered is lower than the acquisition cost of the LP tokens. While you remain in the pool, IL is an unrealized, non-deductible loss.

How do I report Uniswap V3 LP positions (NFTs)?

As a unique asset. The NFT represents your entire position. When you close it, you calculate gain/loss by comparing the value recovered with the acquisition cost of the NFT (what you deposited when creating the position).

Do I have to report my LP tokens in Modelo 721?

If your total crypto exceeds €50,000 on December 31, yes. LP tokens are reported at their underlying market value (the value of the tokens they represent at that time).

How does pool “rebalancing” affect my taxes?

It does not create an additional taxable event. The AMM’s automatic rebalancing is internal to the pool. You only pay tax when you deposit (initial swap) and when you withdraw (disposal of the LP). Intermediate proportion changes are not reported.

What if the protocol is hacked and I lose my LP tokens?

It is a deductible capital loss. You must be able to prove you had the position and that the hack caused the loss. Keep: deposit hash, incident documentation, and any protocol communications.

Can I use LIFO instead of FIFO for LP tokens?

No. Spanish rules require FIFO (First In, First Out) to calculate capital gains on cryptoassets. If you have multiple deposits into the same pool, the earliest deposited units are the first considered disposed of.

How do I document my positions for the tax authorities?

Keep transaction hashes for each deposit, claim, and withdrawal. Complement with explorer screenshots (Etherscan) showing amounts and values. For complex portfolios, consider professional analysis services that generate auditable reports.

What should I do if I didn’t report LP token operations in prior years?

Regularize as soon as possible. Options: amended return (if the filing period hasn’t closed), voluntary late filing (after deadline, lower penalty), or wait for an audit (higher penalty). See our guide on crypto tax filing mistakes for more details.

Liquidity pools offer attractive yield opportunities, but their tax complexity is significant. Each deposit is a swap. Each withdrawal is a disposal. And fees, rewards, and impermanent loss add extra layers that must be handled correctly.

Keys to correct LP token taxation:

1. The deposit is taxable: Don’t ignore unrealized gains when entering the pool
2. Fees are embedded: Taxed as a capital gain upon withdrawal
3. Rewards are income: Taxed on claim at the value at that moment
4. IL is only deductible on exit: Not before
5. Each pool is a separate asset: Keep independent accounting
6. FIFO is mandatory: For multiple positions in the same pool
7. Modelo 721 if you exceed €50,000: Include the underlying value of your LP

Recommended next steps:

• If you have pool positions: Confirm you’ve documented the acquisition cost of each LP token
• If you haven’t reported correctly: Request a DeFi portfolio analysis to assess pending obligations
• If you need tax settlements: Our tax settlement service prepares the forms ready to file
• For ongoing advisory: Specialized tax advisory supports you throughout the year

Reporting LP tokens correctly not only avoids penalties: it gives you real control over your tax situation and lets you make informed decisions about when to enter or exit positions.

At Cleriontax we specialize in liquidity pool taxation and complex DeFi positions. Our team combines technical AMM protocol knowledge with tax experience to offer you:

• Analysis of all your LP positions: Uniswap, Curve, Balancer, PancakeSwap and more
• Correct calculation of acquisition cost: Even if you deposited years ago
• Integration of fees and IL: Into gain/loss calculations
• Separate treatment of rewards: Distinguishing income from capital gains
• Auditable reports: Documentation valid for AEAT requests

Request an analysis of your liquidity positions →

Disclaimer: This article is for informational and educational purposes. It does not constitute personalized tax advice. Tax rules are subject to interpretation and every personal situation is unique. Always consult a professional tax advisor before making tax decisions.

Last updated: December 2025

Published by: Cleriontax Team – Specialists in DeFi Taxation and On-Chain Analysis