Rocketpool Individual Staking vs Node Operator US Tax Breakeven Point

I’m trying to understand tax implications and tradeoffs when using rocketpool. As I understand it, there are two options for staking with RocketPool. You could be an individual staker and receive rETH as a claim on your ETH or a node operator and receive traditional ETH rewards + RPL tokens.

As an individual staker with rETH, the token itself will appreciate while your ETH is staked so when you sell, it’s taxed as capital gains. As a node operator, each ETH (and RPL) reward will be taxed as income when received and then cap gains when sold.

If my understanding above is correct, it would seem that individual staking is far more tax efficient while also being more flexible in that you could use rETH in various defi applications. Is it possible that the tax efficiency and flexibility of rETH is actually more profitable than node staking (say, hold rETH forever and then use it for collateral for a DAI loan and throw it in a yearn vault)? The big question mark is what the RPL token does for node operators.

Has anyone modeled this in a spreadsheet with current loan rates, yearn interest, and us tax rates?

What do you think?

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  1. This is an interesting question!

    I think that the big difference is that node operators don’t need to sell their ETH stack. You are correct that they would need to pay income tax on their rewards as well as capital gains if they hold them for any length of time. I am relatively confident though that they would not need to pay capital gains on the ETH they lock up.

    Disregarding taxes, node operators get the commission as well as RPL rewards (which I think will be massive).

  2. I think you’ve already got a really good understanding of the implications of the two approaches.

    Node operating won’t trigger a taxable event as ETH is still ETH, but you need to deal with the ETH and RPL rewards as income and they’re taxed as such. These will be continuous and on a 6 minute basis of ETH and 1 month basis for RPL. There will certainly be some accounting software that deals with this down the line, but it will be a bit of a headache when compared.

    Converting from ETH to rETH is a taxable event, as rETH is unlikely to be viewed as equivalent. So you will suffer the CGT upon swapping, but due to the token properties the next CGT is on disposal and you don’t receive incremental rewards outside of the token (they’re baked in).

    Hard to say what the bonus strategies will be in terms of collateralizing for a loan and yearn interest, but it’s certainly true that you’ll have the additive effect of this ontop of the staking rewards. It’s gonna be good.

    Edit: these views are my own, there’s no clear idea of how these things are viewed in the eyes of the taxman. I like to be conservative and say ETH -> rETH is a disposal, I don’t buy the arguments that it’s not.

  3. This is a pretty big road block for me. The taxes I would have to pay on executing a conversion to rETH would be much higher than my foreseeable rewards. I don’t plan on selling for fiat so this is a problem I need to overcome.

  4. Tagging onto this somewhat tangentially. How is it garunteed that reth will appreciate compared to eth? If reth gets listed on some exchange, is it possible the value will go down?

  5. If it is not part of your primary business, is block chain mining, staking, investing not all seen as capital gains?

    If you add staking to your income and charge the power consumption as cost for achieving that income, don’t you need to setup a business for that?

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