Rocket Pool debates token fix amid staking competition
Rocket Pool, the second-largest protocol in Ethereum’s $44 billion liquid staking business, is eyeing a dramatic change to its design and governance token RPL amid increasing pressure from arch-rival Lido and a new class of competitors.
The change has garnered overwhelming support from members of the digital cooperative that runs Rocket Pool in an informal, online poll.
The changes are meant to meet the apparent demand for Rocket Pool’s $1.8 billion liquid staking token, rETH.
That token is meant to trade near the value of Ethereum, as each rETH token is backed by one Ether. But it has consistently traded at a premium, with Rocket Pool unable to attract enough “node operators” to meet the demand for rETH.
On Monday, Ethereum was trading just about $3,300. Rocket Pool’s rETH was trading above $3,700.
At the same time, deposits to Rocket Pool have flatlined this year, hovering around 1.2 million Ether — worth about $4 billion at Monday’s prices.
Lido, meanwhile, has extended its lead. Ether deposited in the liquid staking giant has grown 4% since January 1.
And a new class of staking protocols built around Andreessen Horowitz-backed EigenLayer has emerged in the past year, quickly gobbling up more than 8% of the multibillion-dollar market, according to data collected by pseudonymous data analyst Hildobby.
“They collectively lit a fire under our butts, as a community,” longtime pseudonymous contributor Valdorff said during a presentation in March, in which he detailed the proposed changes to RPL.
Rocket Pool has long considered itself a David to Lido’s Goliath — the small upstart attempting to grab market share from a protocol that had monopolised liquid staking, the process of locking up one’s Ether to secure the network in exchange for a modest annual reward.
Several years ago, Ethereum researcher Danny Ryan warned that most Ether could eventually end up in a single liquid staking protocol.
If that were to happen, the people who govern that protocol would have outsize influence over the blockchain, with the ability to confirm and order transactions as it sees fit.
Given Lido’s dominant position in the liquid staking market, it has borne the brunt of that fear. Moreover, its node operators must meet certain criteria, limiting their number — there were only three dozen on Ethereum as of Monday — and, in theory, making it easier to collude.
Rocket Pool’s “permissionless” design, on the other hand, means that anyone can become a node operator. As such, the protocol sports more than 3,000, making collusion exceedingly difficult.
But Lido, eager to shed its reputation as a permissioned, centralising force, has been pushing its own set of changes to foster decentralisation.
Rocket Pool’s ability to meet user demand for rETH is limited by the number of node operators it can attract, however.
Rocket Pool hasn’t had a net gain in node operators during a single week since January 22, according to data on Dune.
That’s in part because Rocket Pool forces node operators to acquire RPL.
The RPL is used as a bond — to be seized in case of poor performance that risks users’ Ether — and as an incentive: So long as a node operator maintains a sufficient bond, at least 10% of the Ether they’re borrowing from the protocol to run their node, they are also rewarded in RPL.
But many node operators haven’t seen enough value in the token to maintain that bond. And some have left the ecosystem entirely.
“What many thought was a good idea in 2017 has not turned out exactly as anticipated as protocol size has stalled and even reversed,” Valdorff wrote in a summary of the challenges facing Rocket Pool.
According to the proposed revamp, Rocket Pool would eliminate the requirement that node operators put up an RPL bond. Those who still do, however, will still be able to vote on matters that come before the DAO and will still be eligible for protocol rewards.
Of the 113 votes cast in the informal poll gauging the proposed changes, only two were in opposition.
One sceptic said they hadn’t seen a counterargument that could help them make an informed decision.
“The only information I have seen shows the benefits and biases towards moving forward,” they wrote.
Solo staking advocate Yorick Downe dismissed that concern.
“You likely won’t ever find an argument for doing nothing,” he wrote in response. “RocketPool is node operator limited and is not growing.”
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can contact him at [email protected].
