Hey @mike_1kx,
Thank you for the proposal. I think it is important that we explore all viewpoints and I appreciate you raising the centralisation concern. Ultimately this is what makes Rocket Pool stronger, by having the hard conversations.
I am going to focus on the 1kx proposal rather than the criticism raised against the rework proposal.
I will evaluate based on product goals:
- RPL Value
- Competition
- TVL Growth
- Principles
RPL Value
This proposal retains RPL’s current value proposition and augments it. To grow as a protocol, RPL would need to be staked linearly with TVL. By decoupling node operators, ETH providers, and RPL delegators, it increases the supply side market. It also augments RPL value by using the delegate share to provide an ETH return for RPL delegators and adds buy pressure from the protocol.
I do have some concern that the protocol will end up buying a lot of its own token due to under collaterised nodes. If RPL earns decent yield within the protocol without running a node we may exacerbate the liquidity issues that currently exist.
I am also not sure how RPL works as a governance token with delegation by default.
Competition
With this proposal, a node operator would not have to stake RPL for their first n validators but would subsequently require 10% of borrowed ETH collateral in RPL to launch validators either through providing it themselves or seeking delegation.
So for node operators with < n validators, we would be offering ETH-only node staking but larger operators would still have the RPL requirement. I believe that seeking RPL delegation would add considerable friction that Lido does not have.
I like the fact we are prioritising small node operators but I do worry that a considerable amount of our TVL comes from individual node operators that have a large amount of ETH. This maybe a consequence of trade off, but we would be uncompetitive in this space; these node operators would favour Lido and contribute considerably to increasing their TVL. I guess it would depend on the value of n.
As you mentioned, the free-collateral mechanism is gamable so it would depend on the trade off between holding 10% borrowed ETH collateral in RPL and the bond curve returns. It would be good to see analysis on this. My intuition says that a significant number of node operators would rather game the system and have marginally less yield.
This proposal allows node operators to set their own commission rate. So in theory they could set the commission rate higher than they would receive from Lido. In practice they will have to compete with other node operators to attract RPL delegation. The design intentionally minimises node commission, which is great for rETH but means our node commission may be noncompetitive compared to Lido. The worst case is that we end up in a race to the bottom and we price out node operator supply, particularly individual home stakers. I like the idea that market dynamics can find an equilibrium but practically we have to compete on both sides of our market. I tend to agree that a lower commission rate favours centralised operators with a low cost base. This could be solved by using minimum commission rates but you weaken the RPL delegation mechanism somewhat. For the free-collateral node operators, it looks like the recollaterisation amount comes out of their node commission, is that right?
I agreed with your previous proposal that rETH yield has not been discussed enough and should form part of the future vision.
TVL Growth
As you said, our TVL is currently constrained because we have to find enough technical node operators that have ETH and will hold RPL. This proposal breaks that link and means those providing ETH and RPL could be separate parties.
Currently supplying RPL to a node is not trustless but there are potential solutions on the horizon that help in that regard.
The proposal decouples the parties providing each of the collateral but it doesn’t decouple RPL from the protocol (by design). In the proposal, TVL would be defined (and limited by) the game theory between node operators and RPL delegators. Node operators may have more ETH to stake but unable to attract delegation, causing a TVL stall.
Although I would love to think that everyone that holds RPL is aligned, RPL can be bought on market and used as mercenary capital especially if it is attracting a good yield. Mercenary capital is a flight risk that can make our ability to scale less predictable.
Fluctuations in RPl price will continue to affect the protocol TVL adversely because of the 10% borrowed ETH collateral ratio. Low RPL prices push many people under the 10% ratio so they cannot deploy more ETH, unless they can attract RPL delegation, driving down commissions and potentially losing node operators.
Principles
When we first designed Rocket Pool, we considered delegated staking (on ETH side). The issue with delegation is that it ends up relying on identity. We have seen in our own delegate voting system that delegations are attracted to known entities only - this is even more true when the decision is financial (capital at risk or yield on the table). We chose to distribute stake across a network to avoid centralising stake on known entities. This is extremely important to ensure the protocol is permissionless and open.
Delegated RPL stake would end up centralising stake on known / probably doxed entities and would disadvantage small anonymous node operators. As others have said, even if the pDAO was the delegate of last resort we would not be able to tell the difference between a small operator and a large operator (spread across multiple nodes).
I do think that delegation will help us scale but I don’t believe it should be at the base layer. I think it is better that the base layer stay as permissionless as possible and delegation is achieved higher in the stack (Nodeset, RocketLend, etc).
By retaining the RPL collateral requirement the proposal does provide a disincentive for centralised entities to capture the Rocket Pool validator set. I wouldn’t say that it is a robust mechanism though, because it would still be very possible. In fact, if you do not decouple RPL as a collateral it ends up being worse. A centralised entity could capture the validator set and by default governance.
Conclusion
Thank you for proposing a solution that tries to retain RPL as a collateral. I do think it is a good exercise. I have also tried to see how we can maintain that consistency but, if I am honest, I kept hitting the same brick walls. This proposal is a well thought out solution but frankly the core delegation system I don’t see helping us compete or stay permissionless. I would be happy to hear your feedback and correct me.
It is my opinion that RPL as a collateral, does not allow Rocket Pool to compete or to scale. Removing RPL as a collateral is a calculated risk - I am under no illusions. Rocket Pool will likely attract very large node operators, some of them may be centralised entities. What is important is that we lower the barrier to entry for individual operators and remain permissionless. By doing this we attract the long tail of node operators that will ensure Ethereum is permissionless, open, and credibly neutral.