New: Accurate Tracking for Concentrated Liquidity on Solana
The switch to concentrated liquidity provision on Solana has been great — until tax time. Koinly’s latest release introduces a new approach to track Solana CLMMs accurately.
Concentrated liquidity providers on Raydium, Orca, and Meteora have faced significant challenges at tax time, often requiring extensive manual reconciliation to get reported figures close to their real gains and losses.
Koinly has just released unique transaction handling for concentrated liquidity provision on Solana. You can now accurately track every open, close, addition, reduction, and adjustment across all four major protocols, including Raydium CLMM, Orca CLMM, and Meteroa DLMM & DAMM2.
Try our new feature now by syncing your Solana wallet, or read on to find out more about why these transactions presented a challenge for crypto tax software, and more about how we now handle them.
Why is concentrated liquidity a challenge for crypto tax software?
Non-concentrated liquidity provision uses LP tokens, which makes it relatively easy for software to track position values, entries, and exits.
With CLMMs, positions are typically represented by NFTs. When you open a position, you trade tokens for an NFT. When you close it, you trade the NFT back for tokens.
To complicate matters further, you don’t always need to send the NFT to close a position. Similarly, when adding to or reducing a position, you may send or receive tokens without receiving anything in return.
With this limited transaction data, accurately tracking the cost basis of a position becomes extremely difficult.
While simple one-entry and one-exit positions may be tracked correctly, the reality is that most concentrated liquidity providers frequently adjust their positions, without those cost basis changes being properly tracked by tax software.
Example
You open a position with 1 SOL ($200) and 200 USDT and receive 1 NFT. The cost basis for the NFT is $400.
You later reduce the position and receive 0.7 SOL and 100 USDT without sending anything.
When you close the position, you send the NFT and receive 0.5 SOL ($100) and 50 USDT.
Most platforms treat this as a $400 trade for 1 NFT, followed by a sale of the NFT for $100, calculating a $300 loss.
This happens because the software lacks data about the earlier position reduction, which reduced the NFT’s effective value.
How Koinly now handles concentrated liquidity on Solana
Koinly solves the challenge of cost basis tracking for concentrated liquidity positions by creating a liquidity pool token that represents your share of the pool.
Then, when you add to or reduce a position, Koinly automatically records these changes via your LP token, allowing cost basis changes to be tracked correctly.
You can learn more about how CLMMs work in Koinly in our help guide.
Our approach provides the most accurate tax calculations for concentrated liquidity providers on Solana. You can try it for free by importing your Solana transaction data. Add your wallet address to Koinly to get started.
