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 their economic exposure to the same underlying asset: neither the risk profile nor the economic value of the position changes.

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 general barter logic of Article 37.1.h of the Personal Income Tax Act, in the absence of specific doctrine. 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.

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, for want of any change in value and of any real change in economic ownership. 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.