I own RPL in my portfolio and I will be staking with RP for the reasons I will state in this article. I have few biases and I thought you should keep them in mind when reading this article:
- I hate banks and monopolies. I came to Ethereum to avoid them and that is why I use decentralised services whenever possible, even if it means paying more gas fees.I don’t want to be responsible for turning beautiful Ethereum powered by ordinary people into something that few companies have control over. That is something that honestly keeps me up at night.
- I don’t trust anyone on blockchain. If service relies on me trusting this service to do its thing, I will not use it. Ethereum (unlike some other blockchains) has smart contracts and it is meant to be used with them. I don’t need to trust you, we have smart contracts for that. Also, I am not a financial advisor. I am actually as far as you can be from it. I am just a developer in love with the idea of financial freedom for all, controlled by us, the people.
As we come closer to promised land of POS, a lot of Ether hodlers were left out in the cold. Unless you have 32 ETH, you can’t participate. And according to Ethereum devs this was by design. The whole point of staking is to secure the network. And only way you as a staker can be incentivised to do it properly is if you stand to lose a lot of money.
However, there are many technically inclined people whose entire life savings count less than that and would be just as motivated as people with more Ether. Different countries have different standards and handful of ETH in some countries is a small fortune. Also, nobody thought that Ether will jump in price as much as it did which prevents new users to participate.
Only solution which would enable people with less than 32 Ether to stake is to send their ETH to person who will run the node (node operater) and hope that this person sends them back ETH with interest. This breaks whole trustless system, and puts you in big risk of never seeing your Ether. Even if the node operator is trustworthy and has every intention of giving you your ETH+interest, if mistakes are made or if this node operator attempts something malicious to gain more Ether you will never see your ETH again.
Most of the services offering staking work more or less in this way. It’s an opaque magic box where you send your ETH and you get back tokenized representation of your deposit.
This is dangerous because of following reasons:
- Power is being given to centralised players who will with time have enough ETH to command network. I personally came to Ethereum to avoid banks, not to prop up new ones.
- Risk of losing your ETH is high. You have no idea who is managing it or how. Power outages, malicious operators, intermittent internet connection affect profit of a node and if you can’t see inside of the magic box you can only hope that you are receiving money and not losing it.
You can find a list of staking services here: https://beaconcha.in/stakingServices
However, this will not be comprehensive review of different staking services. As title boldly suggests, I will write today about why I think RP could be ultimate winner of staking.
Out of all of them, as a value investor and person who doesn’t trust anyone with my Eth, I see Rocket Pool as the only service which ticks all the boxes.
- It is decentralised
- It offers socialised losses (for regular stakers, not node operators).
- It is non-custodial and based on smart contracts( developers and node operators can’t just run away with your money)
- Smart contracts are open source
- Devs are serious about making this protocol the best it can be (it has been under development for a few years now). There is even [Vitalik’s tweet] from 2018 mentioning Rocket Pool.
- Code is reviewed not just once, but twice and by two companies: Sigma Prime and ConsenSys Diligence. After mainnet release, it will be reviewed again.
All of this, including support from Ethereum community at large makes me confident not just to stake my ETH with them, but to also invest in RPL which will in my opinion be a lot more valuable in the future.
This is one of the rare staking providers that has received widely positive support from Ethereum community:
- Here is David Hoffman talking about it On Wolf of All Street Podcast:
- Here is Anthony Sassano discussing importance of decentralisation and how Rocket Pool plays in this:
- Here is celebratory video coming from EthStaker community going into detail of tokenomics when it dropped:
But more on this later, let's briefly touch on how it works.
If you are a regular staker who just wants to earn interest on their ETH, then all you need to do is swap ETH for rETH and that is it (minimum is 0.01ETH). Remember when I talked about other services being opaque boxes? Well, as stated before, instead of you sending your ETH and hoping for the best, smart contracts (which are open source) swap your ETH for rETH. Amazing thing about RP is that even if you get assigned to a bad node, your deposit is safe because of “deposit safety” through socialised losses. That means that if a few nodes fail, everybody’s rETH will lose a tiny amount of value rather than one unlucky person losing everything which as far as I know isn’t offered by other services.
Your investment is safe as it can be in crypto. Link to medium article made by devs (RP is currently in beta, but process shouldn’t be that different on mainnet): https://medium.com/rocket-pool/rocket-pool-v2-5-beta-stakers-guide-b6e85145175e#fdfb
Node operators run locally node with prepared 16ETH. Other 16ETH comes from regular stakers mentioned above. 16ETH is small enough to enable more people to run nodes, but big enough to incentivise node operators to run their nodes as best they can. Because of the fact that anyone can run a node with RP (and earn money by rewards from their staked ETH, earn reward in RPL and earn by taking a cut from regular staker) RP is helping Ethereum maintain healthy decentralisation. If you have 16ETH, I would encourage you to read docs and see if running a node is your cup of tea. You can read more about it here
Another great thing about Rocket Pool is RPL token. This is a governance token with actual utility. It is a token which is used to provide additional protection to regular stakers from losses in the event of poorly performing nodes. Minimum amount of RPL you need to colaterise your node is 10%. You can read more on RPL here. That is the article discussed in third video linked above.
If Visa’s decision to go with Ethereum blockchain and not BSC has taught us anything, it’s that:
- Big companies love decentralisation. They love decentralisation because they don’t have to rely on one partner and depend on their whims. They can just plug into Rocket Pool and enjoy benefits of open community where somebody else is managing for them.
- Big companies love open source. They don’t have to pay for anything and they can run Rocket Pool validator themselves and make bigger returns than they would by running standard node (because of RPL slashing protection and RPL rewards). Put yourself in position of Coinbase or Argent or Binance who would like to give its users option to stake Ether, what would you choose:
- Run your own node directly and risk losing funds if something goes wrong
- Delegate this to other company whose code you can’t inspect or check
- Run your node with Rocket Pool where :
- you earn more because or RPL rewards
- your clients lose less when slashings occur because of RPL collaterisation
- you can inspect code yourself
So, you are a big company and you go with third option. Because of loss mitigation and bigger rewards you can offer your users higher return on their staked Ether than any other platforms. And most importantly, you won’t have egg on your face if your staking partners decide to run away with your money because they didn’t use smart contracts.
With time, this demand will drive the price of RPL up because of sheer number of node operators by individuals and companies who need to colaterise their node.
If you want to know more, there are three articles written by community members on reddit:
- The Rocket Pool Investment Thesis (Part 1)
- The Rocket Pool Investment Thesis - Speculative Edition (Part 2)
- The Rocket Pool Investment Thesis (Part 3)
If you want to delve even more you can go to following github repository. It has links to explainer videos, articles, our discord and more.
Link: https://github.com/isidorosp/awesome-rocketpool
Most important arguments for Rocket Pool:
- Open source and decentralised
- You can run a node with 16ETH
- You can review code if you like
- Socialised losses so you won’t lose everything if you get assigned a bad node
- Supported by many members of Ethereum community including EthStaker community (they support all staking solutions which adhere to Ethereum’s principles of decentralisation and open source spirit). For now, that is only RP.
- Rocket Pool token (RPL) is currently fairly cheap so if you would like to run a node with RPL, you should probably act now.
If you come to our discord because of this article and you want to be part of the cool kids club tell us by writing somewhere in your first message: “Brad, you still owe Xer0 20RPL”.
Thank you to freeb0rn, YorickDowne, stcention, superphiz and others for helping me correct mistakes