Rocket Pool — Staking Protocol Part 2
Welcome to Part 2 of the Rocket Pool Staking explainer series! As both Rocket Pool and the world of Ethereum staking conitnues to evolve, it’s important to break down the dynamics for Ethereum staking on a decentralised, trustless and community owned staking protocol.
If you haven’t read Part 1 yet, we’d highly recommend it as it gives a great overview on what a decentralised trustless liquid staking protocol for Ethereum is and which types of users can become a part of it.
Rocket Pool — Liquid Staking Protocol Part 1
Learn about the Rocket Pool protocol as we cover the interworking and architecture of the trustless, community-owned…
Our goal is to help all Ethereum users gain a better understanding of Rocket Pool. If you’re brand new to Ethereum staking, an experienced staker or even a high level staking as a service (SaaS) provider; this series will provide valuable insights into how you can use Rocket Pool.
This article will be focusing on the two DAO’s which are responsible for helping run a decentralised staking protocol. Each one has a unique set of responsibilities which we’ll detail below, as well as the type of members that might make up each DAO.
What’s a DAO?
DAO stands for Decentralised Autonomous Organisation. They provide governance or services in a decentralised manner using incentives which align with their interests in being a member of such an organisation. It allows members to pool and distribute funds in a trustless manner, and is at the heart of coordination in a Web3 landscape.
The Rocket Pool Protocol DAO(pDAO) is responsible for shaping the direction of the protocol and is run by RPL governance. Node operators’ effective staked RPL conveys pDAO voting power via a square root modifier.
New Rocket Pool Improvement Proposals (RPIP) can be made and voted on by Node Operators within Rocket Pool.
The Rocket Pool protocol has two types of nodes, regular bonded nodes and oracle nodes that comprise the Oracle DAO (oDAO).
Regular bonded nodes can participate in staking by posting a 16 ETH bond, which is then matched with 16 ETH from the deposit pool. These node operators can range from hobbyist to full on SaaS professionals, the appeal for them being that Rocket Pool allows you to earn a greater ROI staking inside the protocol vs outside of it.
This process is completely permissionless as anyone with 16 ETH and the appropriate amount of RPL collateral can join the protocol to become a bonded node operator and increase their rewards.
Oracle nodes that make up the Oracle DAO are largely the same and run the same smart node software. What makes these nodes special is an on-chain DAO where members perform extra duties for the protocol and are rewarded for doing so.
These decentralised duties are comprised from a variety of beacon chain oracle tasks. So let’s dive a little deeper into these important duties and how they help a decentralised staking protocol thrive.
Oracle DAO Duties
Ethereum in its current state is operating with two separate chains, the Execution Layer (EL) mainnet chain that everyone knows and loves, plus the relative newcomer, the Conensus Layer (CL, aka beacon chain) where validators spend their time earning rewards for people who have deposited into the main Ethereum deposit contract.
These two chains aren’t connected (yet) in a way that would allow a smart contract on the EL to know about the state of any validator on the CL — such as if that validator had been staking well earning rewards or performing badly by being offline regularly.
So how does a decentralised staking protocol for Ethereum based on the main chain, handle such a task when these two chains are separate?
This is where the Oracle DAO comes in. It helps bridge this gap and helps provide valuable oracle services for the protocol and all its users, both stakers and node operators alike.
Being a member of this DAO means you’re operating as a group. Any data reported back for any of these duties requires majority consensus. So if data reported to the protocol is not agreed upon by more than 50% of the members, it is not accepted. This helps prevent malicious behavior, nodes that go offline and helps to ensure the integrity of the reported data.
1) Oracle Tasks
There are several oracle duties required by the Oracle DAO members, but two main ones stand out, both of which are integral to the protocol. These are:
- Minipool Validator Balances — Each validator in the protocol is referred to as a Minipool. It contains either 8 or 16 ETH from the node operator and the rest from the deposit pool to make a 32 ETH validator. The performance of these validators needs to be monitored so the protocol can calculate the performance of all the validators in the decentralised network and allow users holding rETH to exchange it for ETH + rewards at the correct exchange rate.
- RPL:ETH Ratio — When depositing ETH as a node operator, you are required to deposit a minimum 10% of that ETH’s value in RPL as an insurance promise to the protocol. The more RPL you provide as insurance, the more RPL rewards you earn. To make sure this amount of RPL is correct, the current RPL:ETH ratio must be reported and agreed upon by > 50% Oracle DAO members.
The Oracle DAO consists of more than 20 members from peers in the community, ecosystem and industry. We believe these actors represent the values and ethos that Ethereum embodies. It will operate entirely as its own decentralised DAO through on-chain governance that can be audited by anyone.
New members must be invited by an existing member and post a sizeable RPL bond to ensure good behavior. Members will then be approved to join when consensus is reached by more than 50% of current members.
Members can apply to leave at any time and will receive their RPL bond back when consensus among members approves their departure.
If a member wants to replace their current node with a new one and transfer the RPL bond to that, they can choose to replace their membership account with a new one that will assume their role and own their bond.
Members that show malicious behavior (like attempting to report bad balances often or going offline on a regular basis) can be kicked by existing members when consensus is reached. They may also incur an optional burn penalty to their bond depending on the size of the offense(s).
Members can propose to improve the protocol with upgrades to its smart contracts. Should consensus be reached on an upgrade, it is passed and the contract is upgraded.
Members can propose to change settings of the DAO, from the quorum required for proposals to pass, to the RPL bond amount required for new members to join and more.
Oracle DAO membership is a paid position. As oracle nodes are expected to relay Consensus Layer oracle data back to the protocols contracts on the mainchain, they must be aligned for the long term with the decentralised staking ecosystem.
Members are required to stake a large amount of RPL to signal their alignment. This bond provides the potential for large economic loss if they act maliciously.
In exchange for these services, oracle nodes are rewarded with 15% of RPL inflation annually. This allows members to earn a return for playing this crucial role in the ongoing health and sustainability of the protocol.
In Part 3 of this series, we’ll go into depth on the breakdown of the RPL inflation schedule.
Why Use DAOs?
Coordinating the oracle node group via a DAO allows Rocket Pool to leverage several key mechanisms including:
- Managed entry — New oracle nodes can only enter the group after consensus is reached within the existing group, after proving that they meet certain criteria.
- Transparent consensus — All decisions must go through an on-chain proposal. Members can collectively vote to kick nodes that aren’t fulfilling their duties and the wider Rocket Pool community can always stay up to date on upgrades to the oracle node group.
- Permissionless incentives — Leveraging a DAO allows RPL to be directed to an on-chain pool of oracle node operators, rather than having to manually distribute rewards earned from performing duties.
Oracle Node Role Call
The Rocket Pool oDAO continues to grow and diversify over time to provide a fully decentralised network. If you believe you might have what it takes to be a member, be it in the form of a notable community member, ecosystem actor or a top-shelf SaaS provider, please reach out to us in our Discord for consideration.
Questions or just say hello!
Well 15 points to you for making it this far, that was a long one! If you have questions or want to know a bit more about us, why not swing by for a chat and say G’day! You can view our website or have a chat with us in our chat room that anyone can join. If chat rooms aren’t your thing, we’re also on Twitter!
About Rocket Pool
Rocket Pool is Ethereum’s most decentralised liquid staking protocol. Its 2,200+ worldwide node operators have staked over 440,000 ETH representing over 5% of all Ethereum staked.
Liquid stakers can participate by depositing as little as 0.01 ETH to receive the rETH liquid staking token. Rocket Pool is a fully non-custodial solution, and its node operators are economically-aligned to perform well for stakers.
Joining as a node operator is fully permissionless and requires just 16 ETH (instead 32). A boosted ROI is provided from both operator commission plus RPL rewards. For more information check out our node operator guide.
The Rocket Pool team have been in the staking space since its inception in 2016, which gives them a pedigree and track record without peer.