Rocket Pool — Staking Protocol Part 3
Welcome to Part 3 of the Rocket Pool Staking explainer series! As Rocket Pool prepares for the mainnet debut, it’s important to break down the dynamics for ETH2 staking on a decentralised, trustless and community-owned staking protocol.
If you haven’t read part 1 or read part 2 yet, we’d highly recommend it as it gives a great overview of what a decentralised trustless staking protocol for Ethereum is, which types of users can become a part of it, and how the DAO’s operate inside it.
Rocket Pool Liquid Staking Protocol Series
- Part 1 — Overview and Users of the protocol
- Part 2 — The Protocol and Oracle Node DAO’s
- Part 3 — RPL & Tokenomics
- Part 4 — Launch Details, oDAO Members and more
This article will be focusing on the tokenomics of Rocket Pool which have evolved alongside Ethereum staking over the last few years to provide open access to Ethereum staking. Rocket Pool’s current economic design is the result of many years worth of work building tokenomics to align incentives of all users in the protocol, insuring the value behind rETH against penalties/slashing events and allowing all users to control aspects of Rocket Pool through the Protocol DAO (pDAO).
The RPL token
Since Rocket Pool started back in 2016, the RPL token has been the backbone of the protocol. It has evolved alongside the protocol, Ethereum staking development and is now a multifaceted component of the protocol, providing direct incentives, insurance and governance.
It is deeply ingrained in the protocol and provides a level of overall utility not matched by many others in the space.
Inflation
While some may find inflation controversial in a space surrounded by fixed-supply tokens, this is absolutely necessary for any protocol like Rocket Pool that is not rent-seeking but still needs to reward its participants for working in the protocol’s best interests.
As Rocket Pool does not charge any fees, any participant rewards, that value would need to be taken from somewhere else in the protocol, creating an imbalance where some participants are rewarded at the expense of others — not a viable, long-term strategy for any successful dApp or protocol.
The initial inflation will be 5% pa and will be split up amongst the key protocol players outlined below.
Migration
The current RPL token has replaced an older version effective 9th November, 2021 and can be acquired via a one-to-one swap at any time. Node operators can execute this swap automatically when making deposits or staking RPL in the smart node CLI — very easy. For other RPL holders, the swap process can be completed here via a support decentralised wallet such as Metamask.
Tokenomics
Rocket Pool’s tokenomics were carefully designed by analysing the key players involved, and designing incentive mechanisms to work in the protocol’s favour that would also drive protocol adoption & growth over time — certainly a lot more work than just making a token, whacking it onto a dApp and calling it a day.
So let’s start by going over the various actors involved in Rocket Pool, what their role is, and how they should be incentivised to work in the protocol’s favour through the design of the tokenomics.
Node Operators
From hobbyist node operators to full on SaaS professionals, Rocket Pool allows you to earn a greater ROI staking ETH on a node inside the protocol vs outside of it.
rETH’s value and rewards it gains over time are based on the performance of these node operators as a whole. If they perform poorly or, even worse, get slashed and lose their deposit, then this slows down the rewards that are earned for users holding rETH.
So what if we had an additional incentive to provide a good service and to stake ETH on behalf of the protocol in addition to the ETH commission?
When depositing ETH, node operators must also now deposit a minimum amount of RPL to act as collateral in the case they incur any of these penalties.
When a node operator provides an amount of RPL as collateral in the form of an insurance promise, they are rewarded with RPL rewards from the generated inflation respective to the amount of collateral they provide. The minimum collateral required is currently 10% of the the node operator’s ETH value and capped at a maximum of 150%.
This means with these new tokenomics, a good node operator can earn rewards on their own ETH, a commission in ETH and RPL rewards and it also helps build confidence in rETH due to the added security provided by the RPL collateral. A three way benefit!
Oracle Node DAO
The Rocket Pool protocol has two types of nodes, regular bonded nodes mentioned above and oracle nodes. The latter node operators make up the Oracle DAO.
Oracle nodes 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 oracle duties for the protocol and are rewarded for doing so. These duties include reporting validator balances from the beacon chain, RPL:ETH ratios and more.
However, oracle DAO members must be motivated to perform their daily oracle duties well, and be compensated for the daily costs of reporting validator data on-chain to the smart contracts. So how do we do this via Rocket Pool’s tokenomics?
To join this DAO and ensure good behavior, a new member must be invited and post an additional significant RPL bond that acts as a good behaviour bond. Should they try to act maliciously, other DAO members can propose to boot them from the DAO and wipe out this bond if required.
Reporting daily oracle data can also be expensive, so how do we make their interests aligned with this position that includes daily expenses? All members are rewarded with a portion of the RPL inflation to cover expenses and to incentivise them to maintain their position in the DAO. Should they act maliciously or just be lazy, they put their paycheck and notable bond position at risk.
Protocol DAO Governance and Treasury
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.
Many aspects of the protocol are configurable and the pDAO is the driving force that is able to propose changes to these settings and pass them should the majority wish it.
The Protocol DAO will also need to ensure development of the protocol can continue to happen in a decentralised manner. The tokenomics ensure that a portion of RPL inflation can be used to fund the DAO treasury, from there governance can be used to pass proposals related to development and fund them at the same time.
RPL Token TL;DR
Well that was a lot to take in, so here’s a quick summary of the facts and numbers involved in the tokenomics:
- RPL has migrated to a new token version that can be swapped for at any time.
- RPL inflation is used to incentivise key players and fund future decentralised development.
- RPL inflation will initially be 5% pa and will be split up amongst:
— Node Operators staking RPL as insurance collateral (70%)
— Oracle DAO members providing various oracle data (15%)
— Protocol DAO Treasury to fund decentralised development (15%) - RPL inflation rate can be changed by the Protocol DAO in the future.
- RPL staking amounts for node operators to earn RPL rewards from inflation is currently 10% of the node operator ETH value and capped at a maximum amount of 150%.
- RPL mechanics are used in multiple key places to drive the protocol:
— rETH value protection with node operators staking RPL as insurance.
— Oracle DAO member good behaviour bonds.
— Protocol DAO Governance.
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 25 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!
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.
Take a look at the Rocket Pool website | Join the Rocket Pool community on Discord | Stay up to date with the latest news on Twitter | View all links on our Linktree
