Summary: Rocket Pool is a decentralized Ethereum staking protocol reducing the entry barrier from 32 ETH to 0.01 ETH. It introduces rETH tokens representing the staked ETH and accruing value over time. The recent Atlas Upgrade brings 8-ETH bonded minipools and Beacon Chain withdrawals. Unlike the more centralized Lido, Rocket Pool offers more user involvement and customization, though it's a bit complex to understand.
What is Rocket Pool?
Rocket Pool is a pioneering, fully decentralized Ethereum staking protocol. It allows anyone to participate in the Ethereum Proof-of-Stake consensus, reducing the minimum staking requirement from 32 ETH to as little as 0.01 ETH. The protocol operates through a network of decentralized node operators who contribute to validating transactions, and they only need to deposit 16 ETH to create a validator, unlike the standard 32 ETH requirement.
The other half of the 32 ETH requirement comes from a staking pool funded by other users, who in exchange, receive a unique liquid staking token known as rETH. This token represents the amount of ETH staked and when it was staked. As node operators earn rewards from their validation efforts, the value of rETH gradually increases relative to ETH, allowing holders to benefit from the staking rewards.
How Does Rocket Pool ETH Staking Work?
Rocket Pool's Ethereum staking mechanism is unique in that it decentralizes and democratizes the staking process. Here's a brief outline of how it works:
- Minipools Creation: Rocket Pool validators contribute 16 ETH, and the other 16 ETH is sourced from the user-funded staking pool.
- Lower Staking Requirement: Users can stake with as little as 0.01 ETH, enabling broader participation.
- rETH Tokens: Users receive rETH tokens when staking ETH. These tokens represent the staked ETH and accrue value over time.
- Staking Rewards: The value of rETH tokens increases relative to ETH due to the staking rewards earned by node operators.
- rETH Redemption: Users can exchange their rETH tokens back to ETH directly with Rocket Pool, benefiting from the accrued staking rewards.
- Penalty Risk Mitigation: Any penalties incurred by node operators are deducted from their own earnings, protecting rETH holders. Losses due to bad node operations are socialized across the network.
By offering a secure, low-barrier, and decentralized staking solution, Rocket Pool enables broader participation in Ethereum's proof-of-stake consensus mechanism.
What is the Atlas Upgrade for Rocket Pool?
The Atlas Upgrade was a protocol change that occurred in April 2023 that significantly overhauled the Rocket Pool protocol. It brings a fresh wave of features with the upcoming Ethereum "Shapella" upgrade, enabling Beacon Chain withdrawals. Node operators can withdraw their locked ETH on the Beacon Chain, either partially or fully.
Additionally, the Atlas Upgrade introduces 8-ETH bonded minipools. With just an 8 ETH bond, node operators can create minipools that are matched with 24 ETH from the staking pool, decreasing the capital requirement for running a validator and raising rewards for both node operators and rETH stakers.
Is Rocket Pool Safe?
Rocket Pool is widely recognized as one of the safest liquid staking protocols for Ethereum, as evidenced by its substantial total value locked (TVL) of $1.9 billion. A comprehensive security review of Rocket Pool was conducted by ConsenSys Diligence in April 2021. This audit identified several critical issues, such as the potential for a DAO takeover during deployment, opportunities for sandwiching on price updates, and an incomplete implementation of the member challenge process. However, it's crucial to highlight that the Rocket Pool team has addressed and rectified many of these issues, further bolstering the platform's safety.
What are the Rocket Pool Rewards?
Rocket Pool users can earn rewards in several ways:
- ETH Rewards: When users stake their ETH in Rocket Pool, they earn a return on their stake, approximately 8.30% APR at the time of your report. This rate is variable and depends on the overall network conditions.
- rETH Rewards: The value of the rETH tokens that users receive for staking their ETH gradually increases over time. This is because the rETH tokens represent a share in the total staked ETH pool plus any accrued staking rewards. These rewards are sourced from Beacon Chain rewards, priority fees from block proposals, and Miner Extractable Value (MEV) rewards from block proposals.
- RPL Rewards: Node operators who provide RPL collateral can earn additional RPL rewards.
- Commission from Staking Pool: Node operators who run nodes on the Rocket Pool network also earn a commission from the staked ETH in the pool.
These rewards incentivize both ETH stakers and node operators to participate in the Rocket Pool network, contributing to its decentralization and overall security.
What can I do with rETH?
rETH, as an ERC-20 token, opens up several opportunities for use within the Ethereum ecosystem. Primarily, rETH can be traded on decentralized exchanges like Uniswap or Sushiswap, and due to accruing staking rewards, its value can appreciate over time. Moreover, users can provide liquidity to rETH trading pairs on decentralized exchanges, earning trading fees. Crucially, rETH can be used to earn additional yield in many DeFi protocols such as Aura Finance, Convex Finance, and AAVE, further enhancing its utility and profitability for holders.
Rocket Pool vs Lido
Lido and Rocket Pool are both decentralized Ethereum 2.0 staking solutions that allow users to stake their ETH without needing to run their own validators. Lido Finance operates in a more centralized manner, with a set of node operators being professional staking providers. When users stake their ETH with Lido, they receive stETH, which is a token representing their staked ETH and accrued rewards. stETH can be traded or used in other DeFi protocols.
Rocket Pool, on the other hand, provides a more decentralized approach. It allows any ETH holder to become a node operator by running a smart node. It also supports partial staking where you don't need to have the full 32 ETH to stake. Users who stake their ETH receive rETH, which, like stETH, represents their staked ETH and earned rewards. Rocket Pool's system also involves a unique insurance mechanism via its native RPL token.
Overall, Lido is more streamlined and simpler for those wanting to stake, while Rocket Pool offers more options and involvement for its users but might be a bit more complex to understand.
In conclusion, Rocket Pool has successfully reshaped Ethereum staking by offering a decentralized, inclusive, and rewarding protocol. By lowering the staking requirement and introducing minipools, it has democratized participation in Ethereum's proof-of-stake consensus mechanism.
The innovative rETH tokens and the Atlas upgrade have further enhanced the protocol's capabilities, providing user-friendly and low-risk opportunities for both ETH holders and node operators. Overall, Rocket Pool demonstrates how progressive protocol design can encourage broader participation in network consensus while offering tangible benefits to its users.