Customize Your Tax Treatment with Transaction Toggles

Awaken gives you the ability to control how certain types of transactions are treated for tax purposes. In your settings, you'll find toggles that let you mark the following transaction types as either taxable or non-taxable:

Awaken partnered with Fenwick & West LLP, one of the nation's leading law firms in technology and digital assets, to publish a legal analysis on the U.S. federal income tax treatment of these three transaction types. The core argument is that wrapping, bridging, and receiving an LST all produce a "Receipt Token" — a tokenized representation of an asset you already own. Because you never give up the economic benefits or burdens of ownership, these transactions should not be treated as taxable events under current U.S. tax law.

Wrapping: When you wrap a token (e.g., ETH → WETH), you receive a 1:1 representation of the original asset. The Fenwick & West analysis compares this to printing a title document — it reflects ownership but doesn't create new value or trigger a disposition.

Bridging: Moving a token from one chain to another (e.g., USDC on Ethereum → USDC on Solana) locks the original asset and mints a representation on the destination chain. Because the bridged token is not "materially different in kind or extent," no taxable exchange occurs.

Liquid Staking Tokens (LSTs): Depositing into a staking pool and receiving an LST (e.g., ETH → stETH) follows the same Receipt Token logic. You retain all upside and downside risk of the underlying asset, so no change in ownership has taken place. Note that staking rewards that accrue to your position may still be taxable as income.

If you choose to toggle these transaction types to non-taxable, your position is directly supported by the Fenwick & West legal opinion.

You can read the full analysis here.

Although not covered by Fenwick & West, Awaken also includes a toggle to treat staking swaps as non-taxable. In the event you receive a redemption token that represents your staked assets, this toggle will not consider the deposit and redemption of the staking position a taxable event, and will instead carry your cost basis price and date through when you withdraw.

Awaken also offers toggles for airdrops. These transaction types are not covered by the Fenwick & West opinion, and their tax treatment is less settled. Most tax professionals treat both as ordinary income at the time of receipt, but some filers take more aggressive positions, arguing that airdrops are not taxable until sold, or that certain airdrops have zero fair market value at the time of receipt. These toggles give you the flexibility to apply the treatment that matches your filing strategy, but be aware that non-standard positions here may carry higher audit risk.

Navigate to Settings → Advanced Tax Settings to adjust each toggle. Changes will automatically recalculate your tax reports across all supported tax years.