Aave Labs submitted our response to HMRC's Call for Evidence on the Taxation of Stablecoins. We greatly appreciate the opportunity to offer HMRC direct, practical visibility into how stablecoins actually function in on-chain lending markets at scale.
The UK's Financial Services Growth and Competitiveness Strategy identifies digital assets and tokenised payment infrastructure as priorities for UK financial services. But the current tax framework imposes administrative burdens on stablecoin users that are disproportionate to the underlying economic activity — burdens that don't arise on equivalent fiat positions, and that don't arise for users in comparable jurisdictions.
Our response makes five core arguments.
Reduce disproportionate administrative burdens
A UK individual who supplies USDC to a lending protocol, holds for six months, and redeems can generate multiple CGT events on a single, unchanged economic position — even where they retain a fully redeemable claim on the same asset throughout. We're proposing that qualifying stablecoins be treated as exempt assets for CGT purposes, and that companies be brought within the loan relationship rules.
Extend scope beyond GBP-denominated coins
A sterling-only regime would have almost no practical effect. UK users overwhelmingly hold USD-referenced stablecoins like USDC and USDT. Any workable reform needs a substance-based definition — one that captures what a stablecoin does, not where it's issued or how it's structured. That definition should also extend to overcollateralised decentralised stablecoins like GHO, which are economically analogous to fiat-backed coins.
Ensure coherence with existing DeFi tax frameworks
Stablecoin reform should operate alongside "No Gain No Loss" (NGNL) principles for cryptoasset loans and liquidity pools. Supplying a token to a lending pool and receiving a receipt token — an aToken, for example — isn't an economic disposal: the user retains beneficial exposure to the same underlying asset. Treating it as one creates gains and losses that have nothing to do with the user's actual position.
Align the treatment of returns with their economic character
Interest-like returns from stablecoin lending should be treated consistently with interest for tax purposes, rather than as miscellaneous income. Reporting should rely on the UK's new CARF regime and ordinary self-assessment — not on withholding obligations that decentralised protocols have no technical or practical way to discharge.
Avoid unnecessary transaction-level reporting
Routine stablecoin payments shouldn't trigger comprehensive reporting obligations. CARF and self-assessment already give HMRC proportionate visibility into cryptoasset activity without requiring every disposal to be tracked.
Stablecoins already account for the majority of lending and borrowing activity across DeFi — including on Aave, where they represent a significant share of the Protocol's total user deposits. Getting the tax treatment right isn't a theoretical exercise; it's central to whether the UK's digital asset ambitions translate into practice. We hope our response helps HMRC build a framework that reflects how stablecoins are actually used.