I get asked this question pretty regularly "which type of staking is the most tax-efficient?" I've answered it enough times that I figured I'd just write it up properly so there's something to link to.
The short answer is it depends entirely on the mechanics of the token you receive, not just the protocol you stake with. Same underlying asset, very different tax treatment depending on which format you hold. Let me break it down.
The two Lido token designs for liquid staking
Rebasing tokens — your balance grows
Example: stETH (Lido), rebasing LSTs on Solana
You deposit ETH and receive stETH. Your stETH balance increases a tiny amount every single day, roughly in line with staking yield (~4% APY). The token stays close to 1:1 with ETH, you just get more tokens over time.
Value-accrual (non-rebasing) tokens — your balance is fixed, but worth more
Example: wstETH (Lido wrapped), JupSOL (Jupiter), rETH (Rocket Pool)
You hold the same number of tokens indefinitely, but each token gradually becomes worth more ETH (or SOL) over time as rewards accumulate inside the protocol. You don't see new tokens appear, the exchange rate just quietly increases.
Why this matters for taxes
The IRS standard under Revenue Ruling 2023-14 is "dominion and control" you owe ordinary income tax on staking rewards when you have the unrestrained ability to spend, sell, or transfer them.
With rebasing tokens, every daily balance increase is a taxable income event at that day's fair market value. With value-accrual tokens, nothing new ever appears in your wallet, you just have an asset that's quietly appreciating, taxable as capital gains when you eventually sell.
Practical example: A 10 stETH holder at 4% APY generates roughly 365 micro tax lots per year, each with its own cost basis and timestamp you need to track. The same position in wstETH generates zero ongoing income events, just one capital gain when you eventually sell or unwrap.
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The Solana parallel: JupSOL vs exchange staking
JupSOL is Jupiter's liquid staking token. It behaves exactly like wstETH — starts at 1:1 with SOL and the exchange rate grows over time as staking rewards accrue inside the token. Your token count never changes. Under current IRS interpretation, no ongoing income recognition events.
Staking SOL on Coinbase or Kraken credits SOL rewards to your account every epoch (~2–3 days), each one a potential taxable income event. The tradeoff: the exchange handles your 1099, so simpler recordkeeping.
One more wrinkle: the entry/exit swap
Most tax professionals treat the conversion (ETH → stETH, SOL → JupSOL) or vice versa as a taxable swap. If your ETH has appreciated since you bought it, you'd recognize a capital gain on entry. Although this is still up for debate.
No explicit IRS guidance on liquid staking wrappers: Everything above is based on applying general IRS principles to these token structures — not a specific ruling.
Legislation is pending: Congress has pushed to reclassify staking rewards as self-created property taxed only at sale. Nothing has passed yet.
Your bracket matters: Whether value-accrual tokens are actually better for your situation depends on your income bracket, holding period, and specific circumstances.
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*Disclaimer: This post is for educational purposes only and is not tax or financial advice. Crypto tax law is complex, rapidly changing, and highly fact-specific. If you're thinking about choosing a staking strategy based on tax treatment, please talk to a qualified CPA or tax attorney with digital asset experience before making any decisions. The difference between these token types can have real consequences for your tax bill — it's worth a proper conversation with a professional, not just a Reddit post.