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Rocket Pool Deep Dive

The recent collaboration between Vesper and Rocket Pool further incentivizes Liquid Staking Derivatives and lowers the barrier to entry for those wanting to contribute to Ethereum’s Proof of Stake system.


What is Rocket Pool?

When it became clear Ethereum would be upgraded from Proof of Work (PoW) to Proof of Stake (PoS) in 2016, many users quickly realized the complexity of running a node or becoming a validator. Whether because the knowledge barriers were too high, or the price tag was too much, it was out of reach for most users. Thus, Rocket Pool was born.

Designed to support stakers of all levels, Rocket Pool set its sights on building the standard protocol layer for ETH2. By enabling anyone to stake ETH (small or big), they have furthered the utility of idle tokens and created a permissionless, trustless, and non-custodial environment, inclusive of everyone.

Liquid Staking Derivatives: How does Rocket Pool work?

Rocket Pool serves two primary audiences, those who wish to run a node, and those who want to stake ETH. Both offer great incentives, but it is up to you to decide how you want to utilize your ETH and get involved.


When users first deposit ETH into Rocket Pool, they receive rETH, which starts earning them rewards immediately. If, however, you wish to utilize rETH further, you can navigate the broader DeFi landscape and deposit it in other applications, such as collateral on loaning platforms.

The highly competitive aspect of rETH is that anyone can do it in a single transaction. It provides a seamless experience so users can participate easily. Typically, running a validator on ETH2 costs 32 ETH, but with Rocket Pool, you can get involved with as little as 0.01 ETH.

The reward structure is based on the performance of the entire decentralized network of node operators; therefore you can expect rETH to grow in value over time. This will put your crypto assets to work while simultaneously helping to secure the entire ETH2 network, which is great for all parties involved. Furthermore, if you decide you have had enough and want to withdraw your ETH, you can do so at any time. This is unlike outside the Rocket Pool protocol, where you must lock up tokens for an extended period.

Unfortunately, with Proof of Stake comes the addition of node slashing, a penalty determined by the protocol for violating the rules. It achieves this by reducing the validator’s stake, without affecting other nodes following the protocol. With Rocket Pool, however, node operators are required to stake RPL (Rocket Pool’s native token); therefore any penalties that occur will be covered by the RPL collateral. It’s this type of insurance that puts them ahead of the curve.

Node Staking

For those enthusiasts who want to take it to the next level, Rocket Pool offers node staking. Not only will you achieve a greater ROI and be charged zero fees, but you will also be able to accomplish this with 16 ETH (soon to be 8 with the Atlas upgrade) compared to 32 ETH. The protocol will assign you 16 ETH from those in the rETH pool to make up the rest.

Source: Messari, Rocket Pool

Once you become a node operator, you can earn rewards on your deposit, plus a 15% commission on liquid staking deposits.

As mentioned above, node operators must also deposit RPL (currently 10% of the ETH value and capped at a maximum of 150%) as collateral to offset any penalties they may incur. You can earn a nice payday by providing collateral, as users are rewarded with RPL based on the amount they provide. The penalty process is quite simple:

  1. Penalty occurs
  2. User finishes staking with less than 16 ETH
  3. Collateral is sold at auction
  4. Proceeds are given back to the protocol which compensates for the missing ETH


Rocket Pool’s governance is split into two components, the Protocol DAO (PDAO) and the Oracle DAO (ODAO). Both play different parts but are equally as important. This type of DAO framework is essential to the progression of DeFi. If you are searching for a verified model, then look no further than Rocket Pool.

Protocol DAO (PDAO)

The PDAO is Rocket Pool’s community of enthusiasts who have helped contribute to its success. They are responsible for how the rewards, auctions, inflation, nodes, network, and deposits operate. Its unique process incorporates both on-chain and off-chain elements to provide the ability to:

  • Advance and back governance proposals
  • Utilize the PDAO treasury funds
  • Potentially alter specific protocol configurations

The Rocket Pool forums are where ideas can come to life and users can truly get creative. To ensure the validity of a proposal, it will first need to go through a voting process where only those contributing to the protocol can vote. A node operator’s RPL stake will qualify them for voting power, preventing typical problems with DAOs, such as whale influence and vote buying. Those who don’t have the time to engage can delegate their vote to someone else to vote on their behalf, thus combatting low participation.

Oracle DAO (ODAO)

Source: Rocket Pool

The ODAO consists of oracle nodes, similar to regular bonded nodes. However, they differ in their duties. Oracle nodes are on-chain and allow the DAO members to perform additional actions in return for a reward. These tasks can range from staking to ETH2 oracle duties. Whereas regular bonded nodes participate in staking, as discussed earlier. All duties reported back require a majority consensus, therefore, if the protocol is not agreed upon by more than 50%, it is rejected. This helps to prevent malicious behavior and generally protects the integrity of the data. Participation in the ODAO means contributing to two primary duties:

RPL:ETH Ratio — As a node operator, you must provide a minimum of 10% of its value in RPL as insurance to the protocol. The RPL:ETH ratio must be disclosed and agreed upon by over 50% of the Oracle DAO members to ensure the correct amount of RPL is provided. The more RPL you deposit as insurance, the higher the RPL rewards you will earn.

Minipool Validator Balances — The Rocket Pool protocol contains validators referred to as Minipools. Each Minipool comprises 16 ETH from the node operator and an equal amount, 16 ETH, from the deposit pool. To assess the performance of all validators, the Minipools must be monitored. This enables users holding rETH to exchange it for ETH and rewards at the correct exchange rate.

ODAO members must make sure they are also completing daily tasks, such as marking validators and ensuring the protocol is alive. This means ensuring the protocol is always staking as much ETH from the deposit pool as possible to reward rETH holders.

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