»Ê¹ÚÌåÓýapp

Georgia wishes to provide liquidity to a Decentralised Finance (DeFi) lending platform. She holds:

• 1,000 token A. »Ê¹ÚÌåÓýappse are in a section 104 pool with a total acquisition cost of £1,000.
• 1,000 token B. »Ê¹ÚÌåÓýappse are in a section 104 pool with a total acquisition cost of £500.

For more information about section 104 pools see CRYPTO22200.

On 11/11/20XX, Georgia transfers 50 token A and 100 token B to the DeFi lending platform. »Ê¹ÚÌåÓýapp DeFi lending platform transfers 10 liquidity tokens to Georgia. At the time of this exchange the token A are valued at £1.20 each, the token B are valued at £0.60 each. »Ê¹ÚÌåÓýapp liquidity pool token is valued at £12.00 each.

Georgia decides that a just and reasonable basis for apportioning the value of the liquidity pool token is in proportion to the market value of the tokens she disposes of. »Ê¹ÚÌåÓýapp total market value of the tokens she disposes of is £60 (50 token A x £1.20 each) plus £60 (100 token B x £0.60 each) equals £120.

Georgia’s Chargeable Gains (CG) computation of her disposal of her token A is as follows:

.	.	£
Consideration	Liquidity pool token - £120 x 60 / 120	60
Allowable costs	Section 104 pool � £1,000 x 50 / 1,000	(50)
Gain	.	10

Georgia’s section 104 pool for token A will be adjusted as follows:

Date	Quantity of tokens	Allowable costs (£)
Opening balance	1,000	1,000
11/11/20XX	(50)	(50)
Closing balance	950	950

Georgia’s CG computation of his disposal of her token B is as follows:

.	.	£
Consideration	Liquidity pool token - £120 x 60 / 120	60
Allowable costs	Section 104 pool � £500 x 100 / 1,000	(50)
Gain	.	10

Georgia’s section 104 pool for token B will be adjusted as follows:

Date	Quantity of tokens	Allowable costs (£)
Opening balance	1,000	500
11/11/20XX	(100)	(50)
Closing balance	900	450

Georgia will be treated as having acquired the liquidity token for the total market value of the token A and token B that Georgia transfers to the DeFi lending platform. This is £60 (50 token A x £1.20 each) plus £60 (50 token B x £0.60 each) equals £120. This will go into a new section 104 pool:

Date	Quantity of tokens	Allowable costs (£)
Opening balance	0	0
11/11/20XX	+10	+120
Closing balance	10	120

On 24/05/20X1, Georgia decides to withdraw half of her stake in the liquidity pool. She transfers 5 liquidity pool tokens to the DeFi lending platform.

At that time the balance of tokens in the liquidity pool has changed so that each liquidity pool token represents 5 token A and 20 token B. In return for the 5 liquidity pool tokens, the DeFi lending platform transfers 25 token A and 100 token B to Georgia. At the time of this exchange the token A are valued at £1.50 each, the token B are valued at £0.50 each. »Ê¹ÚÌåÓýapp liquidity tokens are valued at £17.50 each.

Georgia decides that a just and reasonable basis for apportioning the value of the liquidity token is in proportion to the market value of the tokens she receives. »Ê¹ÚÌåÓýapp total market value of the tokens she receives is £37.50 (25 token A x £1.50 each) plus £50 (100 token B x £0.50 each) equals £87.50.

Georgia’s CG computation of her disposal of her liquidity pool tokens is as follows:

.	.	£
Consideration	Token A � 25 x £1.50; plus Token B � 100 x £0.50	87.50
Allowable costs	Section 104 pool � £120 x 5 / 10	(60)
Gain	.	27.50

Georgia’s section 104 pool for her liquidity pool tokens will be adjusted as follows:

Date	Quantity of tokens	Allowable costs (£)
Opening balance	10	120
24/05/20X1	(5)	(60)
Closing balance	5	60

Georgia will be treated as having acquired the token A for an appropriate proportion of the market value of the liquidity pool tokens she transferred to the DeFi lending platform. This is £37.50 (£87.50 x 37.50 / 87.50). Georgia’s section 104 pool for token B will be adjusted as follows:

Date	Quantity of tokens	Allowable costs (£)
Opening balance	950	950
24/05/20X1	+25	+37.50
Closing balance	975	987.50

Georgia will be treated as having acquired the token B for an appropriate proportion of the market value of the liquidity pool tokens she transferred to the DeFi lending platform. This is £50.00 (£87.50 x 50.00 / 87.50). Georgia’s section 104 pool for token B will be adjusted as follows:

Date	Quantity of tokens	Allowable costs (£)
Opening balance	900	450
24/05/20X1	+100	+50
Closing balance	1,000	500