I have Rocket Pool tokens (RPL) in my portfolio and I will be staking with Rocket Pool (RP) for the reasons I will state in this article. I have few biases and I thought you should keep them in mind while reading:
- I hate banks and monopolies. I came to Ethereum to avoid them and that is why I use decentralised services whenever possible. I don’t want to be responsible for turning beautiful Ethereum, powered by ordinary people, into something that a few companies have control over. That is something that honestly keeps me up at night.
- I don’t trust anyone on blockchains. If a service relies on me trusting it to do its thing, I will not use it. Ethereum (unlike some other blockchains) has smart contracts and they are meant to be used. 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 the 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 the 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 is less than that and they would be just as motivated as people with more Ether. Different countries have different standards and a handful of ETH in some countries is a small fortune. Also, nobody thought that Ether would jump in price as much as it did, but it will prevent some users from participating.
The only solution which would enable people with less than 32 Ether to stake is to send their ETH to a person who will run the node (node operater) and hope that this person sends them back ETH with interest. This breaks the whole trustless system, and puts you at a big risk of never seeing your Ether again. 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 the following reasons:
- Power is being given to centralised players who will, with time, have enough ETH to command the network. I personally came to Ethereum to avoid banks, not to prop up new ones.
- The risk of losing your ETH is high. You have no idea who is managing it or how. Power outages, malicious operators, intermittent internet connection all 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 the 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 the 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 the Ethereum community:
- Here is David Hoffman talking about it On Wolf of All Street Podcast:
- Here is Anthony Sassano discussing the importance of decentralisation and how Rocket Pool plays in this:
- Here is celebratory video coming from the 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 0.01 ETH). 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. The 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 as safe as it can be in crypto. Link to medium article made by devs (RP is currently in beta, but the 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 a local node with 16 ETH. The other 16 ETH comes from regular stakers as mentioned above. 16 ETH 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 from their staked ETH, RPL rewards and by taking a cut from regular stakers), RP is helping Ethereum maintain healthy decentralisation. If you have 16 ETH, I would encourage you to read the 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 the 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. The 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 the 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 the benefits of an 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 validators themselves and make bigger returns than they would by running a standard node (because of RPL slashing protection and RPL rewards). Put yourself in the position of Coinbase, Argent, or Binance who would like to give their users options to stake Ether, what would you choose:
- Run your own node directly and risk losing funds if something goes wrong
- Delegate this to another 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 returns 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 the sheer number of node operators by individuals and companies who need to collaterise 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 deeper, 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 16 ETH
- 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 the Ethereum community including the 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