2024 Tokenomics Rework Drafts

Growth
41

I finished going through the report and added my thoughts to a google sheet, summary below:

Agreements:

  • Lido is limiting their CSM/ETH Only growth to be 1% of their TVL to start, I think we could consider a slower ramp up of “ETH Only”
  • Careful thought should be applied to UVC to see how we can minimize changing of variables/automate the process w/heuristics. Maybe clearly state the priorities of UVC in the RPIPs
  • As we lower our bonds/increase leverage, forced exits/rETH protection becomes more important
  • We should seek legal counsel on the implications of “burn”, and seek alternative solutions if it is deemed to increase risk of classification as a “security”
  • Hopefully we can make some compromises/engage in productive discussions on potential solutions and come to a relatively unified proposal. Atomize RPIP votes where possible (e.g., sublinear bonding)

Important discussion/potential disagreements:

  • What is community sentiment around existing tokenomics models (how “accepted” is it), maybe do a poll? I expect it to be widely known and widely rejected
  • Clarification of misunderstanding around my proposed tokenomics valuation models, DAO (both pDAO treasury and oDAO is accounted for)
  • RPL requirement also holds back solo/home stakers who would be really valuable to RP. I disagree that RPL can be used as a barometer for decentralization. I think centralized actors will also be slower to enter RP
  • Recognize centralization factors of existing tokenomics (“whales/institutions” work around RPL requirement through marriages/NodeSet with Houston upgrade, but marriages are harder for small/independent actors)
  • Ethereum will wrestle with centralization of stake concerns, and so will RP. This is inevitable, and I don’t think “RPL requirement” magically solves this
  • If survival depends on reducing min RPL requirement, or lowering rewards for staking RPL (reduced emissions/lowered collateral requirements), how is that a sustainable alternative path to our proposal?
  • How will we know the appropriate RPL requirement/collateral requirement/RPL emissions? These are arbitrary variables that historically have been static. If they become dynamic (UVC), how is that any better?
  • Do most people view “burn” and “distributing rewards” as ~equivalent value capture mechanisms? (e.g., 1 unit of burn equates to roughly 1 unit of increase in principal of the asset)
  • How does NodeSet feel about zero burn and all RPL value capture going to distributing ETH rewards to “voter share” (or a similar alternative where RPL stakers earn higher commission compared to Eth Only?)
  • How would a “value-accruing” wrapper work and how is that any better than our proposal?
  • Sublinear bonding/forced exits likely would be a “Saturn 2”, how do you feel about discussing/researching separately? (Lido hasn’t even started research yet since they view things as “too far away”)
  • Validator queue concerns are important. Could we solve this with having multiple queues and minimum queue rates (e.g., base pool queue moves 3x faster than satellite pool queue, maybe RPL stakers faster too?)
  • Can you flesh out your proposals more? (Including impacts to token valuation models, and more specific details on how RP should adjust variables in the future?)
  • Maybe we can compromise and postpone “burn” decision until the future? (instead only give to “voter share” to start). Burn is less meaningful in the short term anyways while TVL is smaller

Strong disagreement/suggest correcting report:

  • RPIP30 section distracts from more important topics in the rest of your report. Consider removing this section or greatly reducing it
  • Explicitly state the assumptions around existing tokenomics valuations (67% RPL exposure requirements, Expectation that all NOs will always topoff their collateral).
  • Please explicitly state that I find the existing tokenomics valuation assumptions to be critically flawed, the report frames the numbers as though I agree with them (since it references my model valuations)
  • Add some examples of the impacts to valuations that result from lower RPL requirement/folks not topping off collateral, and add justification for why it could be “temporary” and details for adjusting it back and forth
  • Explicitly note how parties can overlap/earn multiple splits of the revenue (instead of being split up between 3 independent parties), e.g., voters earn NO_share + Voter_share + RPL_holder share
  • Remove multiple places where there was misunderstanding that my valuation model didn’t account for DAO funding (this is incorrect)
  • Remove the point that our proposal is flawed since it has to account for funding the DAO/Governance/Team (as though the existing tokenomics don’t need to?)
  • State the assumptions you made around growth for existing tokenomics (instead of framing it like our proposal assumes growth and yours doesn’t?)

Full writeup can be found here:
https://docs.google.com/spreadsheets/d/1jeaNKX9lTgrlme1_d7HqwURrcYlZnRvet8o6z2M7KJA/edit#gid=862970710

4 Likes
42

FYI - posted this in its own thread to allow easier one-topic chat, but wanted folks following this thread to be aware:

43

I agree with these RPIPs;

RPIP-42: Bond curves
RPIP-43: Megapools
RPIP-44: Forced exits
RPIP-46: UVC
i’d prefer ossified comissions, or very hard to change parameters, but i am OK with UVC as long as the quick changeable shares parameters are only between voters and eth only NOs.

i don´t agree with these RPIPs;

RPIP-45: RPL Burn
If we are fighting for NOs (RPL fans and RPLs averse) i believe we should fight for them maximizing the incentives in ETH flows terms.

RPIP-47: Forced delegate upgrades
Not aligned with decentralization ethos. Also, people make a big investment choosing a particular staking solution, and it could take more than 2 years to see any return in the capital. ( like people entering the protocol in the peak of net negative pump and dump rally of the ratio, like after atlas and potentially in the imminent burn implementation).
It is not fair that anyone be forced to exit in a position of losing money because the community change its mind in the solution if the investor still believe in the current logic of his mini/megapool.

2 Likes
44

a median result of “barely positive” is disastrous optics imo.

This is only for the case of LEB4, which isn’t even possible right now. We could always highlight the case for nETH of > 8 ETH, and LEB 4 is just an optional bonus.

The closest okish thing I could imagine would be something like requiring smoothing pool participation at low count

Perhaps a downside to my solution is that you can’t make this fee optional. If you make it optional then people who plan on stealing MEV are simply going to opt out of it.

The only way I’d see the smoothing pool continuing to work is if the SP covered all losses to RP due to MEV theft [from participants of the pool]. Basically the SP would have to cover the unsmoothing fee, and could then continue to pay participants as they want. Which, now that I think about it, would be fine because the SP would make extra from getting to keep more MEV.

it’s not clear to me why having more RPL stake is “more fair”

In cases when there are limited resources (like pETH), someone is going to get it and someone is not. Everything is “unfair” to someone. Why is it more “fair” to give priority to people that got into the queue earlier? When we have to choose who gets resources and who doesn’t, I think it’s more fair to reward people who have more RPL staked, thus supporting the development and operating costs of the protocol.

I think it’s also just more “fair” because it’s a transition from the current system, which is exclusively gated by RPL. A steady phase out of the current system into the new system is better than changing everything at once.

the market take on DAO response vs “magic algorithm makes good decisions” is best shown by comparing early DAI and RAI

Discussion in discord.

Sometimes the right move is qualitatively different, not purely quantitatively different.

I agree with this. I think the answer is that we do both. A PID can’t do that thinking, but it can respond when the pDAO does that kind of thing. If we design the PID correctly, it can proactively respond to a portion of the change before needing to wait for the market (feed-forward)

45

I finished going through all of the community feedback and I think I was able to distill all the concerns into a simple list. I also broke down the topics by category so we can focus discussions on contentious topics (rather than the ones that are universally supported). If you have any concerns or ideas not captured in the sheet please let me know and I can update the sheet:

https://docs.google.com/spreadsheets/d/1qmGBCPAX-IqcFFjUzBib2Z_NKo_Yh5U00zKnGpyNak4/edit#gid=2075711742

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46

i should take some time to read, but i think you don’t even have to seek legal counsel, “burn” and/or rain eth to aLL RPL holders will make the token classified right now as “utility” 100% a security.
all the exchanges, binance, coinbase ecc will likely delist it

3 Likes
47

Just my 2 cents after reading everything…

As an ‘investor’ I see a protocol that has never found a way to get its act together and act towards market demand in a timely manner.

All the talk of getting it right, yet no real willingness to Act swiftly when thing really, really need to happen. Instead a core team that delays an update by a month that is a complete sideshow. No clear action by the protocol that seems like its a force forward.

My community member hat says ‘so many intelligent people having good reasons and arguments’.

Yet after months of thinking and debate, nothing happened.

If nothing changes now, everything is lost. What this community needs is faith that things can be changed on a timescale that’s <3 months, on a continuous basis.
Demonstrating this, for this tokenomics change, is more important than the change itself. If it’s only 70% right, so be it.

It’s time for swift action, not for endless debate. If swift action cannot be taken, this community shows it is a lost cause.
People expect action. Not to get it right completely.
A further month delay of a sideshow upgrade examplifies the incapacity. The reasons don’t matter.

Enough with kind words. Just the harsh market reality that somehow is refused to be faced.

Make things competitive yesterday, or be lost.

I love this community and at one point RPL was over half my net worth. Never sold and not in a position to actively contribute much to the community en large. Just baffled at the slow pace of everything for… Ever.

THIS is the fundamental change that needs to happen. Show everyone that acting FAST is possible. It’s the only way.
Ditch the perfect. Show confidence in rapid iteration instead.

Updating in 6 months and have it ‘perfect’ is a failure. Understanding this is essential.

48

As a non-investor, node operator, I see a protocol that has to juggle not only investors but also node operators.

All the talk about getting it right is reassuring for me.

So it’s clear that with so many different approaches to a problem, it takes time to come up with the right decision.
I am a software developer and it always has payed out to take time to think about the architecture before just blindly coding. So I appreciate the approach Rocket Pool is taking. There’s NOs, RPL, rETH, smart contracts, smart node and now even NodeSet, so many parts to the whole.

Updating in 1 month and have it only 70% right is a failure. Understanding this is essential.
If the new tokenomics don’t suit existing NOs, they will be gone. And they (probabaly) won’t look back to check if maybe in 5 more months the “70% right” has changed again. And why would they? Constantly changing tokenomics are not attractive.

6 Likes
49

yeah, I’m DEFINITELY not a expert or even particularly knowledgeable, but it seems like there is no 100% in securities cases. Some things I think about:

1) if using a buy/burn method, does the percentage of staked RPL matter?

If 10% is staked, 90% of rewards go to holders rather than folks ‘doing work’ (voting, running validators, etc). The structure would be: hold RPL and it will appreciate.

If 90% is staked, only 10% of rewards go to holders, and that portion seems incidental rather than ‘the intent’. The structure would be: run a validator, stake RPL for governance power and your RPL will compound.

2) Does the independence of the pDAO matter?

Most DAOs are ornamental; the rpDAO has both good decentralization and good independence from the team. If the team was making this choice unilaterally that could raise risks of regulation, but the team is more or less along for the ride on this one. Thus, the people changing the rules are the people who own the token AND are actually doing the work.

3) Do these changes actually raise us into a higher risk category?

The current reward structure is mostly based on price appreciation from other people buying. If you look at a person holding RPL from crowdsale they may have earned 3000% in appreciation, whereas someone who bought the moment staking was available would have earned maybe 50% in RPL inflation (and lost money overall). There are many RP investment theses stating how the price should rise because other people have to buy RPL to run minipools. So the vast majority of rewards flowed to early holders based on current tokenomics.

If instead even 50% flowed to passive holders (ie 50% unstaked in buy/burn), that seems like a model that may raise less regulatory risk (I do personally think we should shoot for 80-90% staked).

4) Does being listed on the exchanges matter?

First, given the number of outright scams/schemes on exchanges this seems unlikely. But let’s say we got delisted because of fears/major market cap coin. Anyone ‘using’ RPL for any intended purpose that we can think of will need to be much more crypto aware than just using a DEX: running a validator, voting on-chain, using a borrowing market, being an LP provider.

The reason to have it on a CEX is so that people can have it in their portfolio to passively appreciate, and if we desire this strongly enough to make decisions around, the token does feel more security-like.

An exception may be people who simply buy the token and send it to a SAAS provider.

5) Does the fact that RPL is already distributed matter?

An ICO is usually offered from a very centralized team with a roadmap for how to bring the token value, where investors are asked to fund early work with the anticipation of returns. Importantly the initial value goes to the centralized group.

Here, nothing is being sold from a centralized group (unless there are special OTC sales), everything happens between two anonymous users so no “investment contract” can exist there (see XRP lawsuit)
.
At this point tokenomics is being driven largely from the ‘investors’, and we are not attempting to sell the idea to anyone outside of the current owners.

There is certainly some concern with centralization of several larger holders (Team wallet, patricio, etc), but thus far these have not really been involved in discussion of the tokenomic changes nor have I seen any evidence that they are leveraging these discussions to liquidate their holdings.

6) does marketing matter?

Most investment contracts start with a centralized group advertising (in one way or another) a product which is intended to increase in price. In our case, it’s very hard to imagine an advertising campaign to increase the number of people buying RPL; the DAO has made no attempt thus far to ‘sell’ RPL to anyone. With new tokenomics, like the old tokenomics, the value is (or is not) self-evident. When we do discuss the changes with outsiders, it is probably safest to primarily extoll the change in value to RPL stakers, not holders.

Just to be consistent, ‘buy parties’ may not be the best idea particularly if organized by major figures in the pDAO.

However, the basic fact remains that we are making these changes to make the RP products (smartnode/SCs) more saleable to NOs and rETH more saleable to stakers. We should focus our marketing on those groups.

Overall, my uninformed take is that the changes will somewhat decrease the risk of RPL being labeled a security compared to status quo; we may further decrease this by ensuring that our incentive structure favors active participants instead of passive holders, that we (the DAO) and the team don’t advertise RPL as an investment, and that the DAO remains largely independent of the core team and large holders in making these decisions.

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50

Merged in RPIP-49: 2024 Tokenomics Rework Info !
Excerpt:

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image1003×300 26.3 KB

Hey folks! I believe this version is the first “feature complete” draft. It may well have errors, etc. It is certainly not polished. The request now is for “nerd eyes” to help review the specification sections :nerd_face: :eyes:. Of most interest are holes in the logic, inconsistent definitions, etc. Please review the latest draft at GitHub - Valdorff/RPIPs at spring2024-tokenomics-rework-draft5 so you’re working off the latest.

The best places for feedback are either:

5 Likes
51

I want to be consistent with my feedback on proposals so I will evaluate this proposal as I did for Evan’s and the 1kx proposal using the product’s goals:

  • Competition
  • TVL
  • Principles
  • RPL Value

Competition

This proposal lowers the ETH bond from 8 to 4 ETH (and subsequently 1.5 ETH). Additionally, it enables ETH-only node staking by making RPL staking optional. The 14% commission paid by rETH holders is separated into, up to 3 streams: node operators, RPL node stakers, and RPL value capture.

The proposal enables competition with solo staking and Lido CSM by reducing the ETH bond and supporting ETH-only staking. The node operator commission rate would be key to competing on an ETH return basis. A node operator commission of 6.5% would be enough to compete with Lido CSM directly.

The proposal also supports adapting the commission rate to the competitive landscape or rETH demand over time. Although I have to admit to having strong concern over implementing short time window demand commission changes.

TVL

The proposal will certainly increase Rocket Pool’s TVL; by reducing the ETH bond we access further node operator supply - lowering the barrier-to-entry for more home stakers. Anecdotally RPL has been seen as a blocker for potential node operators. By having an ETH-only option the proposal widens the spectrum of potential node operators, encompassing operators that are adverse to holding RPL (a relatively volatile token).

Rocket Pool currently has an issue where if RPL’s price drops, node operator returns are adversely affected, particularly when under the 10% RPL bond requirement and RPL rewards stop. To maintain productive RPL a node operator may choose to withdraw their ETH, thus affecting TVL. The proposal removes this effect by having no minimum RPL bond requirement. Node operators can avoid RPL volatility by staking ETH-only or they can stake RPL and access higher commissions.

Principles

It has been raised that by not requiring RPL as a collateral, we are removing the disincentive for large corporations to use Rocket Pool and so our validator set will become more centralised. I do think this is a valid concern but RPL does not make us immune from this outcome. There will always be a power law of stake in Rocket Pool and Ethereum itself, what makes us decentralised is lowering the barrier to entry so that we are accessible to home stakers. A long tail of home stakers ensures that Ethereum stays open, permissionless and credibly neutral.

What is also important is governance capture. With a minimum RPL collateral requirement, a large node operator would, by default, capture governance. By decoupling RPL as a collateral we lessen the risk of governance capture.

RPL Value

This proposal completely removes the RPL collateral requirement from the protocol. The RPL requirement has been part of the tokenomics since launch and so this is a substantial risk. RPL remains a governance token.

Removing the RPL requirement without mitigating the risk would be extremely detrimental to RPL’s value proposition.

The proposal aims to mitigate this risk by:

  • Replacing RPL rewards with ETH commission rewards
  • Reducing RPL inflation from 5% to 1.5%
  • Potentially introducing an RPL burn (deflation) or RPL LP (buy pressure) mechanism

The additional ETH commission you receive as a node operator, for staking RPL, depends on Rocket Pool’s TVL (more revenue from rETH holders) and how much RPL is staked overall (proportional share). As Rocket Pool’s TVL increases, due to reduced bond and ETH-only, it increases the carrying capacity for RPL staking, essentially it becomes lucrative to stake RPL compared to staking ETH. When Rocket Pool’s TVL inevitably flattens or reaches our self limit, it is likely that RPL stake will reach an equilibrium. This dynamic should ensure that the RPL value proposition is still aligned with Rocket Pool’s success.

Although this approach looks good in the long term, there is a short term risk to RPL value. To migrate to megapools node operators have to exit their ETH/RPL and reenter.

Currently we have 10mil RPL staked within the protocol. 6.5mil RPL is effectively staked (> 10% and < 150%). Around a 1/3 of our node operators are under the 10% collateral minimum. There is a substantial risk that node operators will withdraw their RPL and rebalance because RPL is no longer a mandatory collateral. The incentive to restake RPL needs to be high enough that we can retain as much RPL as possible. The sharp increase in megapool TVL due to the Saturn launch should provide enough carrying capacity to ensure an incentive to restake RPL but some loss of RPL stake is likely. I have conducted my own modelling on this but I feel it is an important aspect to get right to limit the short term risk to RPL value.

RPL burn is interesting because it may offset inflation and mean that liquidity providers are more profitable - leading to a more efficient market. RPL LP again leads to hopefully the same efficient market result as it provides steady buy pressure.

Conclusion

Overall I believe this proposal does a good job of hitting the product goals but the devil is in the detail. There are parameters and policies that will influence how effective the proposal is.

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