# Liquidity Pools ![](/files/C8KE3GaQpTGvCggihNBd) ## What Are Liquidity Pools Liquidity pools, predominantly used in [DeFi](/south-african-tax-guide/transaction-types/defi-interest-rewards.md) (Decentralized Finance), are a pool or pair of cryptocurrencies locked in a smart contract to allow users to lend or borrow crypto assets to other users. Without liquidity pools DeFi would not exist, as they are the backbone of decentralized exchanges and platforms, removing the need for a centralized 'market maker' such as Binance or KuCoin. ### Tax Treatment Similar to our [*DeFi interest*](/south-african-tax-guide/transaction-types/defi-interest-rewards.md) treatment, we must base our **assumptions** on previous rules written by SARS. * **We will assume** interest received from liquidity pools is seen as **crypto income**, similar to interest from a bank. As liquidity pools are simply decentralized lending platforms, the treatment should be the same as DeFi interest or rewards. ### Example Deciding to take her Bitcoin off a centralized exchange, Nataly sent it to a DeFi liquidity pool hoping to earn some rewards from her stake. Locking in a 3-month stake for 13% APR guaranteed, she forgot about it. Her locked Bitcoin had a value of R95,000 at the time of locking. {% hint style="danger" %} It is currently **unclear** whether SARS tracks a crypto assets cost basis at the time earned or at the time claimed. {% endhint %} Her total *reward* from providing liquidity was R3,088 (R95,000 \* 13% / 4) As she will be seen as an *investor*, Nataly will be fully taxed on her R3,088 crypto income. **Total Tax Payable: R555** (R3,088 \* 18%) --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.recap.io/south-african-tax-guide/transaction-types/liquidity-pools.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.