Why this matters

If you’ve ever tried to swap a trendy token and been told to “crank slippage,” you’ve probably bumped into a taxable token. People call them “taxable,” “buy/sell‑tax,” or fee‑on‑transfer (FoT) tokens: assets that take a cut whenever they move and reroute it per the token’s rules. That cut might be redistributed to holders (“reflections”), sent to a project wallet, injected into liquidity, or burned. The idea isn’t new, but it matters because it changes how trades settle and how much you actually receive.

Quick glossary

1. Fee‑on‑transfer (FoT) / Tax token. A token that deducts a percentage on each transfer and redirects it per the rules set by the issuer.
   
2. Reflections. A design that redistributes a slice of each transaction to all holders, increasing balances automatically (e.g., RFI’s 1% model).
   
3. Unsellable (honeypot) token. A token engineered so you can buy but can’t sell, often via extreme sell fees or blacklist/whitelist conditions.
   

How “tax” differs from fee

Because swaps, sends, and withdrawals already carry various charges, it’s easy to mistake those for the token’s own deduction. Here’s how to separate ordinary fees from what makes fee‑on‑transfer tokens different:

• Network (gas) fees — paid to miners/validators in the chain’s native coin (TON, ETH, BNB, etc.). Gas is outside the token: it doesn’t reduce your token amount; you pay it separately.
  
• DEX swap fees — the pool’s fee (e.g., standard 0.3% on STON.fi pools or Uniswap v3 fee tiers like 0.05% / 0.3% / 1%). This fee is part of the swap price mechanics, not a cut taken by the token contract itself.
  
• Aggregator/interface fees — sometimes charged by the app routing your trade; again, not taken by the token you’re buying/selling. (Varies by app; check the UI or docs.)

Now, the special one:

• Token‑level fee (the “tax”) — coded into the token. Each time the token transfers, the contract withholds a percentage of the tokens and sends them to its destinations. That’s what makes a tax/FoT token unusual: the reduction happens inside the token transfer itself, changing how much the recipient actually gets.
  

This distinction explains a common misconception. It can feel like “most tokens deduct fees” because you always pay gas and often pay DEX fees. But at the token‑contract level, the default ERC‑20 (as well as other tokens) behavior is to transfer the full amount. Fee‑on‑transfer tokens override that default to implement a built‑in cut. (e.g., ERC‑20 doesn’t define any fee; frameworks note that automatic token fees are a custom extension.) 

Many projects market this as a way to “fund the ecosystem” or “reward holders.” In reflection designs, for example, a slice of each transaction is redistributed to all holders, hence your balance can tick up over time without staking. A well‑known early illustration is Reflect Finance (RFI): “1% fee on each transaction, instantly split among holders.”

Where they came from

The reflection idea spread during the 2020–2021 retail wave because it packaged a complex mechanism into a catchy line: “frictionless yield – just hold.” Early projects like RFI made the model legible, and over time trading tools adapted: modern aggregators (e.g., Matcha/0x) explicitly support buy/sell‑tax tokens and explain how they handle them. That broader support is why you keep encountering these tokens in the wild today. On Uniswap’s V2 FoTs are supported but trigger token warnings in the interface to caution users. Some DEX routers provide specialized SupportingFeeOnTransferTokens swap variants (e.g. PancakeSwap) to support trading such tokens without reverts.

How it changes the experience of sending or swapping

With an ordinary token, a transfer aims to deliver the full token amount to the recipient. Your costs show up as gas (separate) and, if you’re swapping, the pool’s fee is also baked into the price. With a taxable token, the token contract itself keeps a slice and forwards only the remainder. So the thing you notice is the net tokens received being lower than the raw amount you sent or the quote you expected. 

User interfaces that recognize FoT tokens usually warn that you may need a higher slippage allowance just to let the trade settle. Some retail guides suggest ranges like 10-20% in certain cases to prevent the trade from failing when the fee is skimmed. (High slippage also increases execution risk, so adjust carefully.)

Some DEX architectures also treat these tokens as exceptions. For instance, Uniswap’s docs state plainly that fee‑on‑transfer tokens don’t work with v3 router contracts. Hence, token teams sometimes resort to wrappers or custom routers to make them tradable there. That’s a strong hint that FoT is not “how most tokens behave,” but rather a non‑standard class that needs special handling.

Why people like them and why a little skepticism helps

The appeal. The pitch is straightforward:

• Hold and earn. Reflections can top up balances automatically as others move the token.

• Self‑funding. A slice of on‑chain activity can feed liquidity or a project treasury without separate charges.

What to watch:

• Clarity of what you actually receive. Because the deduction happens during transfer, quotes vs. net received can diverg. You’ll often need more slippage than with ordinary tokens to avoid failed swaps. Aggregators and help centers flag this explicitly for FoT tokens.
  
• Compatibility limits. Some major DEX versions (such as Uniswap v3 mentioned above) don’t support tax tokens natively, which can surprise users who expect every token to behave the same everywhere.

• Room for abuse. The same “switches” that route fees can be misused, e.g., extreme sell fees or allow/deny lists that make a token effectively unsellable (the classic “honeypot”). 

• Bookkeeping quirks. Reflections change balances without a typical incoming transfer. Tax tools describe special handling for “reflection/taxed tokens.”

Sources for further reading

• 1inch Help — What is a Fee on Transfer token? (definition, slippage implications).
• Matcha Help/Blog — Buy/Sell‑tax tokens and how the router handles them.
• Uniswap Support — Unsellable token scams (high sell fees, whitelist/blacklist).
• Koinly — Reflection, taxed and rebase tokens (bookkeeping notes).