The below content is an excerpt from my LSD comparison here, done in July 2022. I thought a visual aid might be useful to showcase the assets behind rETH.
- This is only applicable in the context of 16 ETH minipools. The data for average protection will change with 8 ETH and 4 ETH minipools.
- The data for average accumulated rewards and average node RPL collaterization ratio were accurate as of July 2022.
Rocket Pool does not purchase insurance or have a fund. Due to its permissionless and trustless nature, Node Operators (NO) post collateral as insurance. Liquid ETH deposits are matched 1:1 with Node Operator’s ETH as collateral, as well as 10-150% worth of RPL.
The diagram below shows the assets behind each Rocket Pool Validator.
Assets will be used to buffer penalties in the following order (from top-down in the above illustration):
- Staking rewards - combination of 0.099 NO reward ETH and 0.073 rETH reward ETH
- 16 NO ETH
- 1.6 ETH to 9.38 ETH worth of NO RPL
- LSD (rETH) user’s 16 ETH deposit
Even lesser rewards will be deducted when withdrawals are enabled. But essentially, rETH has (9.38 + (16 + 0.1724/2)) / (16 + 0.1724/2) = ~158% of slashing insurance per validator. This variable amount can go as low as 110% if the average RPL collateralization is at a minimum of 10%.
- Inactivity Leak:
- Protection of up to 25.38 ETH per validator (~79%)
- Validator Ejection at 16eth:
- Protection of up to 99.47% of the network value
- Other than outstanding rewards, there is 0 loss to rETH holders in this scenario as it is fully borne by the permissionless node operators.
- Total validator loss (black swan, highly unlikely):
- If an entire validator is lost, Rocket Pool only protects up to 9.38 ETH (~58%) per validator using RPL. The pool will suffer a socialized loss of ~6.3 ETH out of 16.172 ETH worth of rETH issued, per validator lost.