Wrapping and bridging: a change in net worth?

The nature of wrapping and bridging

Wrapping consists of depositing a native asset into a smart contract and receiving in exchange a representative token on another network —WBTC, WETH and equivalents. Bridging consists of locking assets on a source network and releasing equivalent assets on a destination network. In both cases, the taxpayer keeps, in substance, their economic exposure to the same underlying asset: the position changes neither in value nor in market profile. It should be noted, however, that the operation does introduce additional technical risks: custodial risk in the wrapped token, or bridge risk in the bridging. This is a counterparty risk that should not be ignored.

The formal problem: distinct species of crypto-asset?

On a strict reading, the original asset and its wrapped version may be regarded as distinct assets and therefore give rise to a barter. The technical reference, if that thesis is maintained, is the barter valuation rule of Article 37.1.h) LIRPF. It should further be noted that the DGT has already applied that rule expansively to any exchange between distinct virtual currencies (V0999-18, V2005-22 and V2520-22), taking the view that it gives rise to a change in net worth regardless of whether there is any conversion into euros or another currency. There is no ruling addressing wrapping specifically, but the general administrative criterion is unfavourable to neutrality, which aggravates the exposure of this position. The flip side of that reading is that, if the operation were to generate a technical loss —unlikely, given that both assets are referenced to the same underlying, but possible through market differences—, that loss would also be deductible, which may be of interest in loss-harvesting strategies; although, precisely because the economic exposure to the same underlying is retained, one would have to weigh the possible application of the rule on losses from the repurchase of homogeneous securities of Article 33.5 LIRPF —with the one-year window applicable to securities not admitted to trading, rather than the two-month one—, which could neutralise the recognition of that loss.

Our position

In our view, there is an argumentative basis for defending neutrality in some cases of pure 1:1 wrapping on the same underlying. The sound basis, it should be made clear, is not the absence of a latent gain —which may exist relative to the acquisition cost, even if both tokens are worth the same as each other on that day—, but the lack of any genuine change in the composition of net worth and of any transfer to a third party within the meaning of Article 33.1 LIRPF: the taxpayer retains economic ownership of the same underlying, the wrapped token being a mere technical representation. But it must be presented clearly as a reasoned opinion, not as a settled criterion. The absence of a binding ruling entails a legal risk that should be weighed before adopting that position in a self-assessment.