An exploration into trending LSD: Rocket Pool

Rocket Pool (RP) is the base layer protocol for decentralised, community-owned and trustless ETH2 staking. Established in late 2016, Rocket Pool has become another important player in LSD. Although it provides similar products to Lido, there are considerable differences in its architecture, growth strategies and design of native tokens.

From a user’s perspective, ETH holders can stake any amount (min. 0.01 ETH) of their tokens in exchange for rETH, which will be automatically distributed to validators in a non-custodial manner. rETH can be circulated and traded to tokens like ETH in RP or DEXs. The value of rETH varies with the number of ETH + ETH staking rewards in the network. The conversion rate of ETH:rETH has been increasing, and is 1.0538 (Dune, 09/01/2023). The staking APR is ~4.39%.

From a node operator’s perspective, anyone can join the RP network by depositing 16 ETH + another 16 ETH from all non-node stakers to create a new validator called “minipool”. In addition, “minipool” operators are required to stake RPL tokens worth at least 1.6 ETH (i.e. 10% of 16 ETH) as a “reserve” for potential punishment. Within the upper limit of 150% worth of staked ETH, the more a node operator stakes, the more RPL rewards they can obtain. These operators can obtain a 7.29% APR for ETH with varying RPL rewards.

The commission rate varies based on supply and demand. Node operators can earn a percentage of rewards earned on that 16 ETH assigned by the protocol.

Use Cases

• Governance for Protocol DAO
• Collateral for “minipool” operators & a form of insurance.
• When the operators are severely punished by Ethereum while fulfilling their validation duties, resulting in their collateral falling below 16 ETH, this RPL collateral will be auctioned for ETH. Thereby compensating for the loss of ETH for RP.
• Rewards to node operators and DAOs (inflationary).

Token: $RPL

TVL: ~$1.06b

Market Cap: ~$886m

FDV: -

Tokenomics

1. Initial Supply: 18,000,000 $RPL

2. Initial Inflation Rate: 5% p.a. (Can be adjusted by Protocol DAO)

• RPL Staking as insurance collateral by Node Operators (3.50%)
• Rewards for Oracle DAO members providing various forms of data (0.75%)
• Funding for decentralised development by DAO Treasury (0.75%)

3. Tokenomics

Comparables

Bullish Fundamentals

• Decentralised in the sense that everyone can be a node operator. No trust assumption is needed compared to Lido’s Validators.
• Low inflation rate of RPL (5%), further relieved by the staking requirements for nodes.
• RPL was listed on Binance on 09/01/2023

Bearish Fundamentals

• Limited scalability with less capital efficiency.
• The protocol does not share profit with $RPL holders.

Closing Remarks

Rocket Pool is a decentralised protocol for ETH2 staking that allows users to stake any amount of their ETH tokens in exchange for rETH. While similar to Lido, Rocket Pool differs in its architecture, growth strategies, and native token design. The tokenomics of RPL includes a low inflation rate and various staking mechanisms for node operators, but the protocol does not share profits with RPL holders. Despite limited scalability and capital efficiency, Rocket Pool was listed on Binance in early 2023.

References

• CoinGecko. 2023. Cryptocurrency Prices, Charts, and Crypto Market Cap | CoinGecko. [online] Available at: <https://www.coingecko.com/> [Accessed 22 February 2023].
• CoinMarketCap. 2023. Cryptocurrency Prices, Charts And Market Capitalizations | CoinMarketCap. [online] Available at: <https://coinmarketcap.com/> [Accessed 20 February 2023].
• DefiLlama. 2023. DefiLlama. [online] Available at: <https://defillama.com/> [Accessed 26 February 2023].
• RocketPool.2023. Rocket Pool [online] Available at: >https://docs.rocketpool.net/> [Accessed: March 1, 2023].

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