This ‘Decentralized Finance’ Millionaire Moved to Puerto Rico to Avoid Taxes

Memecoins and DeFi are two of the riskiest, but potentially most profitable, plays in crypto. Now investors are moving to Puerto Rico to skip a hefty tax bill.

Mar 24 2022, 1:00pm

For about a decade, Puerto Rico has offered huge tax breaks to individuals who become residents and corporations who export services in a bid to attract wealthy investors. In recent years, cryptocurrency investors have begun to take advantage of this by moving to Puerto Rico to enjoy zero tax on capital gains, dividends, and interest—benefits that aren’t available to residents who already live there. 

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People like Bitcoin billionaire Brock Pierce, YouTuber Logan Paul, and Facebook whistleblower Frances Haugen have already relocated to the island to take advantage of its tax breaks and join with others attempting to build a community there―even as the influx of wealthy mainlanders seems to be creating a real estate bubble that is pricing out locals. In the latest episode of CRYPTOLAND, Motherboard visited Puerto Rico to talk with Brandon Mansilla, a crypto investor specifically in the new and risky frontier of memecoins and DeFi (decentralized finance) who also relocated to the island territory in hopes of not only protecting his crypto holdings from taxes but also taking advantage of the breaks to grow them even faster.

Mansilla, who last year was working as a loan assistance officer in Florida, quit his job after making a series of increasingly profitable trades in Dogecoin, Ravencoin, and eventually SafeMoon. SafeMoon—a cryptocurrency that went megaviral after celebrities and influencers boosted the coin—proved to be his most lucrative investment, with his $110,000 investment growing to well over $7 million. The altcoin’s price would eventually plummet close to 90 percent, but Mansilla exited his position with nearly $1 million. He had already relocated to Puerto Rico to become a resident when he cashed out, having made the decision once SafeMoon’s price began to pick up months earlier.

“When I was about one and a half million dollars, once I saw SafeMoon exploding I'm like, 'Okay it's time to go.' From that moment it took about 5 days—just get up and go,” Mansilla told Motherboard reporter Edward Ongweso Jr. “In Florida, I pay the minimum tax which was 39.6 based on income versus moving to Puerto Rico which is zero. If I make it back to $5 million, we're easily talking over a million dollars saved in taxes."

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In the episode, Motherboard also talked with Andrew Lewis, the creator of Super Cool Automatic Money (SCAM) coin, about his own journey and memecoins more generally. 

"The whole memecoin season was very interesting to me because these other coins came around with no background. I was like man it can't be that complicated. And then I took 30, 40 minutes on Youtube, half a blunt in, and I made my own coin,” Lewis said. “I just wanted to flex, just to say I did it--and I named it SCAM just to be fun. The ticker's SCAM―Super Cool Automatic Money―BOOM, BOOM, I guess people liked it enough to just buy it for no reason.”

For less than an hour’s worth of work, SCAM quickly hit a market cap of $70 million. If it seemed too good to last, that’s because it was. The coin’s value plummeted just as rapidly, and Lewis found himself subjected to an inordinate amount of harassment. Whatever money was made from SCAM has been eaten up by legal fees to set up future crypto ventures, he told Motherboard.

Motherboard also talked with the chief executive of SafeMoon, John Karony, who said the coin is distinct from other altcoins in a few ways. First, he said, it’s deflationary: the supply of the coin decreases over time through a tax on buying and selling. Second, he envisions an ecosystem of products and services that will be connected to Safemoon. 

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"Our actions speak louder than our words. We don't talk about price action, we've always talked about the vision, what we're doing,” Karony told Motherboard. “In terms of SafeMoon itself, our goal is to build the future and to apply blockchain technology to different industries.”

Despite the implication of the token’s name―that it’s a "safe" way to “get to the moon,” or realize a huge return on investment if the token’s price skyrockets―Karony insists it isn’t what SafeMoon is about, even though he kept mum on details about what that plan to apply blockchain technology to other industries would look like.

Joining CRYPTOLAND host Krishna Andavolu for a panel discussion were Litecoin creator Charlie Lee, cybersecurity expert Dan Guido of Trail of Bits, and Motherboard reporter Edward Ongweso Jr. to talk about the volatility and risks of altcoins and how they attract—and, just as often, punish—investors.

Litecoin was one of the original altcoins, launching in 2011, two years after Bitcoin's launch. It began life as a Bitcoin clone ("silver" to Bitcoin's "gold") that sought to make things "more fair" for users by allowing for easier access to miners and a larger supply, among other mechanisms. At the time of the panel, the coin had a market cap of $15 billion. Since then, however, a generalized sell-off in the crypto markets pushed nearly all tokens and projects down in value and it now sits at a $8 billion market capitalization.

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Things have changed a lot since those days, however, and the amount of new altcoins—or, derisively, "shitcoins"—has exploded along with the increasing ease of cloning existing projects and blockchains that are cheap to use, like Binance Smart Chain. These coins have sometimes been jokes that turn into something more serious (like Dogecoin), or outright scams, or just chasing the tail of the most recent dog-themed coin to pump and then dump. 

Now, the market has seen another evolution in the form of DeFi, which is the name collectively given to blockchain-based financial goods and services developed over the past few years. Similar to SafeMoon, they employ more complex investing mechanisms than simply buying and holding, such as "staking," which is when investors lock up some of their tokens to provide liquidity to a project and receive a return. SafeMoon, for its part, automatically earmarks a portion of the sell tax towards providing liquidity as well as a reward for holders. With all of this complexity, the DeFi space has also seen an explosion in hacks that have drained billions from the ecosystem. Guido is the chief executive of Tail of Bits, a cybersecurity firm that works closely with DeFi protocols and blockchain software companies to help protect them from exploits and hacks that seem profligate within the industry.

“It’s a collective delusion,” said Guido, referring to the momentum behind the now-massive market for altcoins, later adding that it was a market likely worth hundreds of billions of dollars.

"The multiples when you do figure something out that's very early in its development and then it gets pumped later—yeah you stand to make a lot of money, but there's also gonna be a lot of people on the other end of that that are gonna lose money," he said. "And what you're gonna hear, you're gonna hear the confirmation bias of ‘Yeah I got this massive return, I'm a millionaire now."

“There are many many more people that have the opposite story that you probably aren't gonna hear about as much," he added. "A lot of people are being misled by information they don’t really understand how to interpret and they’re making decisions based on guesswork, which means there’s going to be a lot of what the cryptocommunity refer to as 'bagholders' at the end of the day.”

Tagged:

Puerto Rico, Dogecoin, defi, Altcoins, worldnews, safemoon, shitcoins

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