Tax-Optimized Borrowing

Another major use-case, especially for long-term BTC holders and institutions, is tax optimization. Borrowing against crypto is commonly used to avoid taxable events that a sale would trigger. Helios enhances this in a couple ways:

• Loan Proceeds Are Not Income (Generally): If a user borrows BTC or a stablecoin using their BTC as collateral, that loan is typically not considered taxable income (it’s a debt). Thus, they can get liquidity (to spend or invest elsewhere) without selling BTC and realizing capital gains. This is a similar value proposition as services like BlockFi offered, but Helios provides it in a trustless manner.

• Interest is Tax Deductible (Possibly): For institutions or businesses, interest paid on a loan might be deductible as an expense. Helios could provide statements of interest paid to facilitate this.

• Partial Collateral Swap for Tax Adjustments: As discussed, the partial swap feature can help with tax-loss harvesting or deferring gains. If a holder’s BTC collateral has huge gains, swapping some to a stablecoin within Helios might defer the capital gains event; later swapping back could realize a loss or smaller gain if timed right, helping manage tax liabilities. Essentially, Helios could allow what is akin to a 1031 like-kind exchange but in the context of collateral, or at least provide flexibility in recognizing gains.

• No Forced Sales: Helios’s adaptive risk model aims to prevent sudden liquidations (“surprise liquidations” are mentioned as something to avoid). By doing so, it helps users avoid forced sales of BTC at inopportune times (which could trigger taxable events at unfavorable prices). If the system can gently prompt users to add collateral, many liquidations (taxable disposals) could be avoided, allowing users to keep deferring taxes.

From an institutional perspective, these features mean better after-tax returns on strategies using Helios. Funds and companies holding BTC can use Helios to get liquidity for other ventures or yield, while keeping the BTC on their books. In jurisdictions where borrowing isn’t taxed, this is a powerful way to monetize holdings. Helios even envisions providing tax reports – e.g., monthly statements of interest paid/earned, which can greatly simplify accounting for institutions.

Example: A crypto fund might hold BTC long-term. Instead of selling some for operational cash (and incurring cap gains tax), they can borrow stablecoins on Helios, use that for operations or to invest in yield farms, etc. The interest they pay might be much less than the tax they’d pay on selling, and it’s possibly deductible. Meanwhile, their BTC continues to accrue any upside. Helios caters to such use cases by being institution-ready (e.g., ability to whitelist their addresses, as we’ll see next, to comply with regulations while doing this).