Former Ripple CTO Explains How XRP Staking Rewards Could Avoid Tax

TLDR

• David Schwartz said XRP staking tax treatment would depend on how rewards are created and distributed.
• Schwartz argued that newly minted rewards should face tax only when holders sell the tokens.
• He said the IRS has a stronger case when existing tokens are transferred as compensation.
• XRP Ledger still does not support native staking because it uses federated consensus.
• XRP holders currently rely on exchanges, lending platforms, or DeFi services for yield.

Former Ripple CTO David Schwartz has outlined a theoretical XRP staking model that could reduce tax pressure on holders.

Schwartz discussed the idea during a conversation with crypto tax specialist Clinton Donnelly. He said the tax result would depend on how rewards enter a user’s wallet.

According to Schwartz, rewards may face different treatment under U.S. tax rules. The key issue is whether tokens already exist before distribution.

If a protocol transfers existing tokens to a user, Schwartz said the IRS has a stronger case. In that setup, the user receives compensation at the time of transfer.

If a protocol creates new tokens during the reward process, Schwartz gave a different view. He compared that process to producing goods before a later sale.

Schwartz separates reward design from tax timing

During the discussion, Schwartz said minted staking rewards should not face early taxation. In his view, tax should apply when the holder sells those newly created tokens.

Donnelly’s discussion centered on a long-running crypto tax dispute. Many crypto users argue that staking rewards should not be taxed before sale.

The IRS has taken a stricter approach in several staking-related tax matters. Tax experts have also debated whether new tokens count as income immediately.

Schwartz said the answer depends on protocol design rather than a single staking label. His comments focused on reward mechanics, not a confirmed XRPL upgrade.

XRP Ledger still has no native staking

Despite community interest, XRP holders cannot stake tokens natively on XRP Ledger today. The network uses federated consensus instead of Proof-of-Stake.

Because of that structure, XRPL does not pay validator rewards like PoS networks. Validators support consensus without block rewards from the protocol.

According to Schwartz, any native XRP staking design would need careful technical planning. The design would also need to avoid confusing rewards with third-party payments.

At present, XRP holders seeking yield use exchanges, lending platforms, or DeFi services. Some users also use networks such as Flare for income products.

Those options carry risks that Schwartz has discussed before. Platform failures, smart contract bugs, and asset price losses can hurt users.

Earlier AMM concerns shape the new debate

Schwartz previously criticized passive income claims around XRPL automated market makers. He said liquidity providers must exchange XRP for pool tokens.

Under that model, users do not hold the same XRP during participation. Schwartz warned that holders may not recover the original asset amount.

He also said gains can lose value if XRP’s market price drops later. That concern made AMM income different from simple wallet-based rewards. His latest comments show a more technical focus on possible staking structures. However, Schwartz did not say that Ripple or XRPL developers plan to implement.

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