Learn how I used money from my retirement account to buy 32 ETH and set up a solo Ethereum validator node (a server that helps run the Ethereum blockchain and earns an ETH reward for that work).
Here's a diagram that shows the flow of $USD and ETH. I'll go through this in more detail below (in Step 3).
This article will probably be useful to you if:
You are motivated; probably by one or both of these:
This is of course NOT financial advice. It's just my story. Nonetheless, I hope that it will help you, dear reader, by serving as a starting point for your own research. As they say, DYOR (do your own research).
Setting up a solo validator is a great way to help secure the Ethereum network, and earn some ETH. But it requires an investment of 32 ETH, which most people (myself included) don't have lying around. Using 401k retirement funds seemed like a great way to accomplish the funding part of this project.
But Simon, you may be asking, why not put your 401k in stocks and bonds like most people do?
Here's why: I'm excited about Ethereum for many reasons (which Vitalik summarizes nicely here). Because of that excitement, I'm bullish on ETH. I think that, in the long term, ETH will go up. There have been several boom-and-bust cycles in the crypto market so far. Assuming that continues, there will be multiple opportunities to cash out during a bull period before my retirement. (Again, this is not financial advice, just my opinion.)
Okay, let's get down to brass tacks, as they say. I've broken this into three steps:
IRA: I picked The IRA Club, because they had the cheapest rates I could find. I opened a Traditional Self-Directed IRA. Then, I asked them to create a Checkbook LLC for me. Fees were like a couple hundred to create the IRA, a $1,000 one-time fee for the LLC, plus a few hundred dollars in annual fees.
DYOR: Here are some other companies I considered before choosing The IRA Club:
Checking: I opened a business checking account in the name of my Checkbook LLC with a local credit union. I'm a fan of local credit unions since they're non-profit and generally cheaper than banks. Here's a website to help find credit unions near you: mapping.ncua.gov. In search of low wire fees, I tried a few FinTech non-banks-acting-like-banks too, but I wouldn't recommend them. I'll share them here for completeness:
CEXs: I opened institutional accounts with several centralized exchanges:
But Simon, you may be asking, why open accounts with multiple CEXs?
Because I wanted to have the flexibility of multiple fiat-crypto on-ramps & off-ramps available. And because I wanted to compare their prices and fees.
Simon, you may be asking, why did you choose these three CEXs?
I looked for CEXs with the best reputation and commitment to serving U.S. institutions. I don't want to use services from companies that could go bankrupt (like FTX did), or stop serving institutions (like crypto.com did). Some might consider using binance.us, but I decided not to for now.
Server setup. Running a validator node requires some work. I'm still ironing out my plans for this. I hope to share my final plans in a future post. But for now, I can tell you that I'm considering:
Now we'll go through all the steps on this diagram in detail:
I rolled over $USD from my 401k to my self-directed IRA. I had to fill out a form with IRA Club to start the process.
If you don't have enough $USD for 32 ETH, you might consider some alternatives that let you stake a smaller amount, like:
I transferred $USD from my self-directed IRA to my LLC's checking account. I left enough money in the IRA to cover annual fees and such.
I had two options for how to make this transfer: mailed check or wire transfer. Let's consider the pros & cons:
I will stake my 32 ETH. A lot of work came before this to get my server all set up. (I'll write a separate post about that.)
One alternate idea I'm considering: instead of selling the ETH rewards periodically (steps 9-12 above), I could stake the ETH with an LSD (liquid staking derivative) provider like Lido. LSDs are a tokenized representations of staked assets in a blockchain network. They allow users to take advantage of validator staking rewards, even if they have less than 32 ETH to stake. But they take a percentage of the ETH staking rewards for their service (10% fee with Lido).
Following this strategy, once I earn enough ETH rewards to get a second chunk of 32 ETH, I could set up a second validator node. Or, maybe by the time that happens, Ethereum will have incorporated EIP-7251, which will increase the max ETH staked limit from 32 ETH to 2048 ETH. That will allow me to compound my ETH rewards in my one validator node, without having to use an LSD like Lido.
Thanks for reading! If you have any questions or suggestions for improving this article, please send them my way (hi@yamlike.com). Cheers.
Shout-out and thanks to Rodrigo Vasquez, James He, Dale Dobeck, and Seth Akkerman for review and feedback on this article.
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