The only problem with this approach is if the DeFi platform upgrades or it becomes necessary to withdraw, such as getting hacked. Then, it forces a realization of the gain. Then again, it never gets converted to money.
It's not right to be taxed for an event you didn't initiate. If you withdrew your crypto for whatever reason under normal circumstances, then it can be taxed as normal; you chose to cash out, and you knew what the tax penalties were ahead of time.
Crypto withdrawals due to hacking cannot be taxed because the withdrawl (or cashing out) took place without your knowledge, and therefore without your consent. You didn't choose to "withdraw" or "cash out" in this case. In short, the crypto taken out was due to theft. Theft cannot be used as the basis for creating a taxable event.
I used the word "cannot" in the everyday sense of the word, but the legal context may or may not be different. This is up to a top-shelf crypto lawyer to present to the taxing authorities.
Sooner or later, legislation needs to be written and then signed into law which properly and ethically accounts for the hacking situation. If not for those reasons, then it should be included because any of the legislators (not to mention the chief executive and his/her staff) could fall victim to theft by hacking and we know they don't want to be taxed in that event.
Posted Using LeoFinance Beta