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POAP NFTs

What is a POAP & How Does It Work?

Learn what POAPs are, how they work, why you might collect them, and potential tax implications to keep in mind.

Blockchain technology unlocked a world of possibilities, from $3.4 million Bored Apes to a $2.4 million virtual land deal in Decentraland to an $80 billion decentralized finance ecosystem. If you’re attending events, you may have heard of POAPs—or digital bookmarks of your life that are increasingly taking center stage at events.

Let’s look at what POAPs are, how they work, why you might collect them, and potential tax implications to keep in mind.

POAPs are digital bookmarks of your life that are increasingly taking center stage at events.

What is a POAP?

Proof of Attendance Protocols, or POAPs, are non-fungible tokens (NFTs) that serve as collectible digital badges. The first POAP was minted for virtual and in-person attendees at the ETHDenver convention in 2019. Since then, they have become one of the most widely circulated non-monetary Ethereum Dapps used by event organizers and other groups.

For example, POAPs are commonplace at many crypto events. EthGlobal, Dappcon, and the Ethereum Community Conference have minted over 7,000 POAPs alone. Meanwhile, other crypto community projects, like SushiSwap, hand out POAPs to attendees of weekly community meetings, and Decentraland uses them to promote in-game events.

POAP NFTs
POAPs take a variety of styles but conform to a standard – Source: POAP Gallery

Organizers can use POAPs to do things like:

  • Organize a raffle for POAP holders to give away merchandise or airdrop tokens.
  • Hold votes or polls weighted by the number of POAPs that voters own.
  • Privately chat with event attendees or provide exclusive access to content.

For participants and attendees, the badges represent their presence at unique and distinctive experiences without the need to divulge personal data or maintain a physical collection. The POAP mobile or web app enables them to simply input their Ethereum wallet address and access all the events and experiences they’ve attended throughout their life.

How Do POAPs Work?

POAPs are NFTs built using the ERC-721 standard. As a collectible, each token is minted from a smart contract that governs its visual appearance and contains a record of the event date and time. In addition, the nature of the blockchain ensures that each badge is immutable and forever accessible, providing a permanent memory of the event. 

Originally, POAPs were minted on the Ethereum mainnet, but in October 2021, they moved to the Ethereum sidechain, xDai. While ETH gas prices introduced unpredictable expenses and bottlenecks, xDai provides fast and inexpensive transactions, lowering the barrier for issuers and ensuring that POAPs are available to anyone.

Event organizers can create POAPs in a few steps:

  1. Visit the POAP BackOffice and click the “Create New POAP” button.
  2. Fill in all the details for the event and click “Save.”
  3. You will receive a confirmation email and must await approval.
  4. Once approved, you’ll receive an email with a text file containing unique links for attendees to mint POAP NFTs.

Event participants and other POAP recipients can use the POAP mobile or web app to access their badges at any time. In addition, they can easily participate in raffles, voting, or other benefits by using the provided links. It’s an easy way for event organizers to keep in touch with participants and build relationships and memories over time.

POAPs are also becoming essential proof of community involvement. For example, some DAOs are exploring the use of POAPs as a resume of sorts, demonstrating someone’s commitment and participation in a community. In other cases, communities provide incentives to POAP holders, knowing that they actively participate in community events.

Selling POAPs & Taxes

POAPs are collectible badges designed to provide bookmarks of your life experiences. However, they’re essentially NFTs, and it’s possible to transfer the tokens between wallets. One can imagine a scenario where certain events (such as Woodstock) would result in valuable tokens bought and sold on NFT marketplaces.

While there are no tax liabilities for acquiring POAPs, since they have no inherent value and are received via an airdrop, you may be responsible for capital gains or collectibles taxes if you sell them. These taxes apply even if you sell the POAP for ETH or another cryptocurrency – you still owe capital gains tax on the transaction payable in U.S. dollars.

POAP NFTs
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What’s Next for POAPs?

POAPs have already become extremely popular within the crypto community, but they’re just scratching the surface of the events community. In the future, you can expect to see more event organizers leveraging POAPs to mint memories and provide exclusive access to prizes and content for attendees and their wider fan base.

In addition, POAPs are likely to become a mainstay of the Web3 community as a native application powering social communities. The tokens could be especially valuable in the metaverse where they fit naturally within existing token economies and can be helpful for everything from event ticketing to voting on community issues.

In the meantime, individuals in the crypto space may want to take advantage of POAPs to build their resume and prove their commitment to their communities. These track records could prove useful in the future if these communities rely on POAP-weighted voting or reward POAP holders for their participation in a growing number of ways.

The Bottom Line

POAPs are digital bookmarks of your life and a popular way for event organizers to stay connected with participants. From raffles to polls to unlocking prizes, there are a growing number of ways that POAPs can help make events better and avoid the need to collect personal data from participants—a win-win for everyone.

If you trade cryptocurrencies or invest in crypto assets, ZenLedger can help ensure that your taxes are accurate every year. Our platform automatically aggregates all of your crypto activity and computes your capital gains and losses. You can even pre-populate popular IRS forms to deliver to your accountant or import into TurboTax. Try it today for free!

Justin Kuepper

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