DRAFT Optimism Grant Proposal - [GF: Phase 1 Proposal] Rocket Pool

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I have written a draft proposal to request a grant of OP tokens to incentivise rETH liquidity on Optimism. I completed this very quickly so it is by no means perfect, and any suggestions or feedback is welcome. I am happy for others to build on and contribute to this proposal. Let me know your thoughts.

For the sake of starting discussion, the requested amount of $OP (1,000,000), and the allocation of this to three different pools (50% $OP - A main Curve rETH/ETH pool / 15% $OP - An Uniswap v3 rETH/USDC pool / 35% $OP - Velodrome rETH pairs with ecosystem tokens and OP itself), were based on Lido’s proposal. These parameters should be reviewed in the context of Rocket Pool and rETH to ensure they are appropriate.

[GF: Phase 1 Proposal] Rocket Pool

Incentive Proposal

Project Name: Rocket Pool

Author Name: halzen, _____

Number of OP tokens requested: 1,000,000

L2 Recipient Address: TBD Multi-sig

Relevant Usage Metrics: (TVL, transactions, volume, unique addresses, etc.)

For general usage metrics, please refer to https://rocketscan.io/.

Optimism Alignment:

Rocket Pool facilitates liquid staking, and the ability to become a node operator with less than 32 ETH, without compromising on Ethereum’s core values. Rocket Pool is open source, decentralised, permissionless, client diverse, and non-custodial.

Node Operators:

The Rocket Pool protocol currently has 1,261 permissionless node operators, which clearly makes it the most decentralised liquid staking protocol.

rETH stakers:

Liquid stakers deposit ETH to Rocket Pool and receive rETH in return. In the event of a slashing, the node operator’s 16 ETH, and then their RPL collateral are penalised first, to protect rETH holders from this risk.

Benefits:

In light of recent discussions regarding self-limiting of staking pools above a certain threshold of staked ETH market share (15%, 22%, 33%), it is net positive to promote the growth of a decentralised liquid staking protocol below this threshold level. Promoting rETH liquidity on Layer 2 provides users with access to a liquid staking derivative (LSD) for ETH whilst also maintaining and supporting the decentralisation and security of Ethereum, and thus also Optimism. It further democratises access to ETH staking, by providing opportunity for users that cannot afford the transaction fees necessary to acquire rETH on Layer 1 mainnet.

Proposal for token distribution:

OP tokens will be utilised to incentivise adoption of rETH across the Optimism Layer 2 ecosystem through a targeted liquidity mining program.

How will the OP tokens be distributed?

rETH liquidity should primarily be targeted against ETH, in addition to the other major trading pairs on Optimism. Accordingly, we propose the following allocation of $OP for liquidity mining rewards:

  1. 50% $OP - A main Curve rETH/ETH pool
  2. 35% $OP - An Uniswap v3 rETH/USDC pool
  3. 15% $OP - Velodrome rETH pairs with ecosystem tokens and OP itself

How will this distribution incentivize usage and liquidity on Optimism?

Liquidity for LSD’s is fundamental to achieving adoption, volume and TVL in the context of rETH liquidity pools on decentralised exchanges, and also to drive growth in other applications that integrate with rETH, and Optimism as a network. There is already 1,387 rETH on Optimism, and it is well positioned to incentivise further adoption. Additionally:

  1. The ecosystem is becoming increasingly aware of the issues of centralisation, lack of client diversity, and concentration of staked ETH among a small number of staking providers. Increasing liquidity for rETH will attract users to Optimism, as it will provide an affordable route to access a decentralised liquid staked ETH token.

  2. Liquid staking derivatives are an essential money lego in any DeFi ecosystem, and promoting rETH liquidity increases the utility of Optimism applications for end users.

  3. rETH demand and adoption is growing, including recent integrations with Ribbon finance, and the final stages of integration with MakerDAO as a collateral option. We anticipate demand will continue to grow, and incentivising liquidity on Optimism will allow Optimism to capture this growth too.

Why will the incentivized users and liquidity remain after incentives dry up?

Liquidity begets liquidity. The promotion of rETH liquidity on Optimism facilitates the possibility of further integrations, which create new usecases that drive further demand for rETH within the ecosystem and continue to promote liquidity. This has been evident on layer 1 mainnet, where current integrations are now being approved following the increased liquidity of rETH. We expect the incentivised liquidity to accelerate integrations which will allow rETH to be used as collateral in lending protocols, and as a yield bearing token in LP positions and other money legos in the defi ecosystem. The inherent staking yield for rETH means it is well positioned to sustain demand, and foster ongoing sticky liquidity and TVL on Optimism.

Over what period of time will the tokens be distributed?

The OP tokens allocated will be distributed over a 6 month period, commencing two weeks after the allocation of $OP grant tokens.

How much will your project match in co-incentives?

Rocet Pool will match OP liquidity mining incentives with RPL for the same pools for ______.

5 Likes
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Thanks for getting this started. My initial feedback would be to request in the range of 250k to 500k OP instead of 1M.

Also, since rETH does have a smaller circulation, I think only incentivizing 1 liquidity pool would be best, maybe 2 - Curve as the focus with Velodrome as the potential other.

(a different approach would be going back to this xToken proposal and using this as a cheaper L2 test: Uniswap V3 rETH Incentives - maybe making this a joint proposal with a protocol already on OP can help)

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Just sharing my 2 cents and some frustration, I have been with Rocket Pool since the early days and even started running my on Node recently but it’s quite disheartening to see how poorly we are doing with out integrations. We’ve been lagging behind Lido in Defi adoption in an embarrassing manner, either because of NO/Validator bottleneck or right now, with very low rETH demand. LEBs and SaaS would help the NO/Validator bottleneck but for rETH demand we have no choice but to improve integration.

Lido has absolutely dominated us on every demand aspect but I believe it’s not all lost, while Lido may have dominated the L1 chain, we still have an upper hand with L2 adoption simply because lido’s stETH/wSTETH is not present there and we are. But this can flip very quickly, Lido have already started their OP Grant proposal

We should focus on improving our L2 liquidity & to reach out to L2 dapps for integration, notably GMX, Curve, Balancer, AAVE, Defi Saver, Jones DAO, dForce, Dopex, Impermax, Premia, Qi Dao, Synthetix, Velodrome and Hop Protocol to name a few.

L2’s are key to our adoption and hopefully Dev team can chime in and help with the proposal.

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Even if we request for a 6 month vesting, it’s probably wise to give out incentives over a longer period of time - ie, try to sustain up to 1 year incentive if possible, and adjust the incentives based on target TVL. Eg. $500k with 5% incentives = $25,000 worth of OP over a year.

I think we should go for 1m if possible. rETH should be supported as a public good (as we have decentralisation from ground up), and good rETH liquidity makes OP an attractive L2 to stake in.

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Hey @halzen627, thank you for putting together the draft prop.

Relevant Usage Metrics
I would add:

How much will your project match in co-incentives?
Here I would say that a Rocket Pool governance vote will raised shortly to determine whether co-incentives will be issued from the Rocket Pool treasury.

Apart from that it looks great.

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Thanks langers, sounds good. I could probably add some other links too eg regarding the maker integration and their risk analysis report, and anything else appropriate.

Happy for this to be submitted to Optimism governance by the team if that’s better, and to incorporate any other feedback/contributions from the team or community.

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We (xToken) would love to help with this. Our platform is deployed on Optimism and should work out of the box for rETH!

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Good idea on the other references.

I will add those and submit it this morning.

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@langers Awesome, that’s great. Just a heads up that the proposed parameters for $OP requested and how it will be distributed were taken from Lido’s proposal, and may or may not need to be altered for our own purposes. I don’t have a strong opinion on that, just thought I would flag it with you. :+1:

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I have two questions.

  1. does Rocketpool deploy only RETH assets on Optimism, or the whole protocol?
  2. How does Rocketpool deployment on Optimism help OP ecology
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1 - In terms of this proposal, it’s discussing rETH. Having the whole thing on L2 may not be possible (as validators are actually an L1 thing), but I believe there was some work looking at claiming rewards on L2.

2a - how are LSDs good for an ecosystem - Liquid staking derivatives like rETH help simultaneously secure Ethereum mainnet and provide yield for users, while still filling most of the same niches that ETH fills. For example, ETH is a commonly used collateral for loans because of its status as the native L1 currency; for a case like this rETH will be similarly useful while having the advantage of increasing in value over time (which means a better LTV over time and thus healthier loans). I would love to see dapps on Optimism default to using an LSD in most places that we’ve seen ETH thus far. In short, you get the benefits of ETH, plus a bit :slightly_smiling_face:

2b - why is rETH a good LSD - RP is fantastic for decentralization. We have over 1200 node operators. Anybody can become a node operator (woo permissionless). The dev team goes out of its way to make client diversity easy for node operators. The community is pretty awesome, which actually also helps more people operate nodes - the #support channel in discord in particular makes it a lot less scary for folks that are newer to servers.

I’ll also address the other part of “why rETH”, which is to look at the alternatives. The most common LSD, by far, is Lido’s stETH (and its wrapped version wstETH). As most know by now (google if not), Lido has a truly scary share of all staked ETH, a small permissioned set of validators, and incredibly centralized governance (due to the concentration of LDO in a very few hands). I’ll give room for folks to do their own research and draw their own conclusions.

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Hi @Brook_CIAN. I replied in the discord, but I’ll add my comment here as well to keep the discussion together. I think @Valdorff said it well. This was my original response:

Thanks for joining the discussion! Rocket Pool is strongly aligned with the values and vision of Optimism, which is why rETH was, from memory, the first liquid staking derivative available on Optimism. I strongly believe the collaboration will be mutually beneficial for a number of reasons:

  1. It will provide Optimism users with access to the most decentralised liquid staking token on the market, with the strongest inherent insurance protections. This is beneficial for Optimism users, by democratising access to this asset.

  2. It will serve to protect the ecosystem broadly at both the L1 and L2 level, to act as a counteracting force to the risks of centralisation and Lido dominance of the liquidity staking market.

  3. It drives demand for rETH on Optimism, increases liquidity and TVL for applications that integrate rETH, and creates further opportunities for rETH (and other money legos that build on rETH) to foster innovative new integrations.

  4. It positions Optimism to accelerate the growth of its defi ecosystem, and the network as a whole. Optimism is currently lagging in TVL in comparison to Arbitrum, and collaborations like this are, in my opinion, the best way for Optimism to rectify this and become the predominant L2 in the ecosystem.

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Thanks for the reply, your answer didn’t actually convince me, and I’d actually like to see Rocketpool grow.
But rocketpool is just a liquid staking protocol, and it’s hard to bring direct help to Optimism at this stage.
At the moment it seems that the only thing that rocketpool can do to help Optimism deployment is to bring some TVLs to Optimism, but these TVLs are left completely dependent on incentives and will all leave once the incentives stop, which is not what Optimism wants!

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Thanks for taking the initiate to get this going,

I’m inclined to agree with @DaserDog that we should request a lower amount which would have a higher chance of being accepted. While encouraging the use of alternative LSDs to stETH is certainly a public good it would be hard to justify this size of distribution based on the current amount of rETH on Optimism.
I would suggest around 400k which by my quick & dirty napkin math would allow around 4% worth of incentives at triple the current (admittedly low) amount of rETH on Optimism over a year.

Unlike Lido we wouldn’t have to compete with any of our own incentives on mainnet so a little would go a long way as far as attracting liquidity, especially with the reduced cost of providing liquidity on Optimism for smaller actors.

As far as allocation, as I mentioned on discord I think the USDC pool would be an inefficient use of resources compared to straight ETH/rETH, but if we do allocate to a stablecoin pool, it should really be a decentralised option such as DAI.

I would echo that we shouldn’t split ourselves too thin between a plethora of pools but I don’t have a strong opinion on the actual distribution, more established options would likely attract more liquidity per $ of incentive due to perceived safety but this may be balanced out by co-incentives on the smaller platforms.

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Hi @langers. I believe the next round of voting for Optimism grant proposals will go live July 21, so we will need to update the DRAFT proposal to READY by then if we want it to be included in that round. I was wondering if the team has a position on how we should amend the proposal in terms of:

  1. Amount of OP requested (it seems like a slight reduction would be well received) and/or the length of time incentives are distributed.
  2. Whether we should indeed focus solely on rETH/ETH liquidity for this proposal rather than other pairs
  3. Whether to incentivise on Curve (more established option, however inefficient with drifting rate of rETH) or Balancer x Beethoven X (less established option, can use rETH oracle price to avoid drifting issue, takes protocol fee on rETH yield and then incentivises rETH as a “core pool” with veBAL voting, aims to pair rETH with many assets over time).

I am partial to (1) reducing the amount of OP requested to e.g. 500k-750k, with higher range of allocation possibly distributed over a longer period of time; (2) simplifying the proposal to only incentivise rETH/ETH liquiditiy; and (3) choosing a solution that doesn’t have a built in flaw/inefficiency with the drift issue. I think the Balancer x Beethoven option could potentially be a good one, given their long term ambitions and alignment with promoting rETH liquidity across many pairs. Although I am happy to defer to others regarding these decisions, and just thought I would mention it so we can aim to progress by the next voting round :+1:

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I liked @DeFi_LATAM_Joxes’ thought of modifying the request to 600k for 4 months, with a request that around the 3 month mark there’d be a review and possible extension. This rate is 90% of the original rate, but makes it less of a risk/commitment on their end.

Not really informed enough to comment on pros/cons of Curve/Uniswap/Velodrome/Beethoven and what the distribution looks like, though it does seem like a simplification would be looked upon favorably.

1 Like