Justification for moving oDAO inflation to the IMC


Part of the recent charter process has been the reconsideration of the current inflation schema. As a result of discussions, a majority of the oDAO’s inflation was deemed best sent to the pDAO instead. However, this conversation explicitly left out what the pDAO was to do with the newly acquired funding. Based on conversation generated on this post, I will propose two new RPIPs:

(1) the pDAO should raise the RPL/ETH incentive cap in the IMC charter from 10% to 50% while also moving at least 25% of these new funds towards the IMC (in proportion to the current share of pDAO inflation) for incentivizing dense full range RPL/ETH (and/or RPL/rETH) liquidity; and,

(2) the pDAO should move at least 25% of these new funds towards the IMC (in proportion to the current share of pDAO inflation) for proper funding of a cross-chain rETH liquidity expansion.

Together, these changes will enable the committee to tackle some of the remaining challenges Rocket Pool faces. I hope to demonstrate why RPL inflation spent on these two areas will each individually create huge tailwinds for the Rocket Pool protocol in terms of 1. rETH minted, 2. growth of the node operator set, and 3. sustainability of the Rocket Pool protocol.


The IMC has been highly performant at meeting its existing charter goals. Slippage on rETH trades is incredibly low and new DeFi integrations are popping up consistently now. The IMC has also effectively served as the protocol’s incentivized business development arm as RPL rewards are a powerful bargaining tool.

Since the IMC began its liquidity program, we have seen the adoption of Aave e-mode, a large expansion in Maker CDPs, and a bevy of other protocols like Gravita, Raft, Morpho, and Hop. Hop especially is of note as it made rETH the first LST with fast bridging support between both L1<>L2 and L2<>L2.

This is to say that the IMC has been successful in managing its existing inflation and is deserving of a strong budget increase. At the same time, the IMC has strongly felt the restricting effects of the budget as we currently spend more than what we take in with the help of our reserves.

1. Full Range RPL/ETH Liquidity

There has never been a time when the illiquidity of RPL has been more pronounced than at the time of writing this post. The effects on the protocol are obvious. Without a reliable means of exiting a position, participating in the Rocket Pool ecosystem is greatly disincentivized which in turn greatly inhibits the growth and sustainability of the protocol. Historically, Rocket Pool has been blessed by benevolent whales who would provide large amounts of liquidity on Uniswap. Patricio (worthalter.eth) is most notable in this regard as he provided a bulk of the liquidity for years. Thomasg and Marceau are other prominent whales that have also contributed to providing liquidity. This was never a sustainable solution. The DAO cannot rely on random whales deciding it is in their own best interests to provide liquidity. The result is the current situation where having singular market participants leads to hard cliffs in liquidity.

There is currently a provision in the IMC charter to support full-range RPL liquidity, however, the vote for this was focused on making oracles safer to use. As a result, the expenditure was limited to 10% of the IMC spend. While this amount was appropriate to build protocol-owned liquidity and provide some oracle security, it is insufficient for incentivizing liquid RPL markets. With a sufficiently sized increase from the oDAO share, the IMC would be able to create dense liquidity pools. For reference, Lido incentivizes $21m worth of LDO/wstETH liquidity on Curve at 11% APR. Assuming a similar rate for RPL/rETH and having to pay for 9% of that APR (ignoring bribing calculations for simplicity) this is about $2m/yr in cost. The IMC currently has a budget of about $3m and so financing a comparable pool would be impossible currently. With the expanded budget, however, creating a similarly dense liquidity pool becomes completely feasible without hurting rETH liquidity to accomplish the goal. Currently, RPL only has $5m of active liquidity (much of the Uniswap v3 liquidity is single-sided RPL out of range) compared to >$30m in active liquidity for LDO.

Contingent on increasing the IMC’s budget, I propose increasing the cap on RPL liquidity incentives from 10% to 50%. Like the 10% previous limit, this number is somewhat arbitrary. It covers enough liquidity budget for a comparably deep pool to LDO. There likely is no perfect answer to what the cap should be, however, 50% ensures that at least half of our incentives remain focused on rETH liquidity. I encourage people to leave their opinions on what the cap should be if they disagree with 50%.

When markets are suitably liquid, DeFi activity for RPL will pick up. For example, a Chainlink oracle sponsored by the pDAO/IMC would cost only a tiny fraction of the inflation while providing a large amount of utility. Marc Zeller of Aave is a large proponent of enabling RPL as a borrowable asset once said oracle goes live to create novel staking strategies such as borrowing ETH and RPL against rETH to run minipools. The primary benefit of full-range RPL/ETH liquidity is enabling node operators to enter and exit more fluidly, however, it must be acknowledged that liquid markets will also enable some degree of leverage. It will be the IMC’s duty to enable liquid markets but not to encourage excessive leverage by over-incentivizing liquidity pools. Further, this proposal is not a prescription for an ideal liquidity strategy, rather it is a temperature check on directional support - the IMC may find that a combination of concentrated and full range liquidity is best.

As I mentioned earlier, increasing the liquidity for RPL is a win-win scenario for rETH holders and node operators alike. If funding comes from new inflation redirected from the oDAO, then rETH liquidity will not decrease. The increased ease of moving in and out of RPL will attract new node operators and allow the rETH supply to increase dramatically as larger bonds can be bought and sold on the open market. Lastly, having the pDAO take control of the RPL token’s liquidity will bring agency back to the DAO and provide independence from the whales who have historically enabled RPL trading. Ensuring liquid RPL markets is key to ensuring the survival of the protocol. It is in the protocol’s interest to incentivize staking, however, to mitigate sudden large capital losses for node operators, it is also crucial that the protocol incentivize liquidity provision.

2. Cross Chain Expansion of rETH

In many ways, it is a great time to be rETH. Protocols on every network are in my personal DMs looking to integrate rETH - from Optimistic rollups, to competing L1s, to zkEVMs. This is awesome! The entire multichain universe is appreciating the unique value set that rETH provides. At the same time, the IMC has a very limited budget and cannot afford to create liquid rETH markets on every chain – especially as the OP tokens run out and the fact that we did not receive an ARB drop.

Given the current budget restraints, the IMC is faced with the task of prioritizing certain L2s over others. There simply is not enough money right now to create deep liquidity pools on many chains. Currently, the IMC supports pools on Arbitrum and Optimism with a strong proposal from Polygon zkEVM and a plethora of further chains to consider. In an ideal world, the IMC is able to finance pools on each of these chains such that they could independently warrant Chainlink oracles and become center points for interdependent ecosystems. Such a future would increase the utility of the Hop integration that allows near-instant cross-chain arbitrage.

It is crucial to establish rETH on major L2s early. The future of Ethereum is looking more and more L2-focused and so to meet the most user demand, rETH must adapt to this rollup-centric future. There have been days when Arbitrum did more volume than Ethereum L1. Ensuring the long-term relevance of rETH will be predicated on establishing rETH as an L2 staple now. If rETH can become a regular for retail users, then the overall demand for rETH will skyrocket and provide a long-term slice of the staking market share.


The IMC has successfully met its charter-defined obligations of creating liquid rETH/ETH markets centered around the oracle value while also expanding DeFi access to rETH. I believe it is time for the IMC to take two steps further. The viability of these two goals will ultimately come down to what share of the oDAO inflation ends up with the IMC. With a 50% share of the oDAO inflation (or a doubling of the IMC budget) the IMC would be able to over double the current active RPL liquidity and also provide a massive boost to the cross-chain rETH ecosystem. If the pDAO decides that the IMC ought to receive more than 50%, then we would also be able to meet the prior two goals but also expand L1 rETH liquidity. Ultimately, the IMC will make effective use of every RPL that it receives. I encourage the pDAO to provide as much funding as possible so that the IMC can kick the Rocket Pool protocol into a new gear of growth while also solving painful issues that have represented existential issues for the sustainability of the protocol.

Based on the reception of this post I will create an RPIP that bundles an inflation change as well as IMC charter change on RPL/ETH liquidity


Would you vote no to 100% of oDAO funds?

I would prefer some or all of the odao tokens to be burnt.
It would not negatively impact the current tokenomics of RP, because NOs would still have access to the same amount of reward. The only difference I can see is, Dumping that inflation onto the market using oDAO, or as proposed dumping onto market using pDAO.
I don’t think tokens should be minted just to be sold, they should be earned thru supporting the network.

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The IMC is using RPL tokens to reward liquidity providers. Those are certainly supporting the network and they are free to use their rewards however they want. Just like node operators are able to sell the RPL tokens they earn.

I have a problem with these numbers. Right now, at least 6.75% of inflation are to be used for rETH incentives.

After this proposed change, this would go down to 5.5% and would have to cover the cross-chain aspect as well.

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The node operators aren’t receiving a portion of the tokens previously distributed to the odao. We may as well let the oDAO keep their share, if the only use case we can come up with is making those tokens available to buy, and flooding the market with more liquidity.

This feels like an oversimplification.

There are more parties involved than just oDAO and NO. Inflation changes have to take into account:

  • Holders of staked RPL
  • Holders of unstaked RPL
  • Liquidity positions
  • pDAO treasury
  • oDAO seats

Between these parties, inflation is 0-sum. If by “burning” you mean simply reducing overall inflation (since it makes no sense to mint something and then immediately burn it), that would essentially be arguing that the Holders are being overburdened by inflation.

Saying that it doesn’t matter who dumps the inflation- the oDAO or the pDAO through its various committees- misses the point of inflation in the first place. It’s a soft tax on speculators that helps build the protocol by incentivizing liquidity, paying for development, attracting new node operators.

Is your argument that increasing the NO share from 70% to ~83% more effective for the growth of the protocol than using the funds for additional liquidity and development? Is your argument that reducing overall inflation (“burning”) by the full amount (5% inflation becomes 4.35%) the most healthy for the protocol?

And whichever of these it is, why?


The general direction of this proposal looks good to me. Bolstering RPL liquidity and cross-chain rETH liquidity are both worthy goals. The numbers do seem a little RPL-heavy, though. Especially bringing the RPL/ETH incentive cap up to 50% means RPL liquidity becomes an equivalent goal to rETH liquidity. I think rETH liquidity should still be the primary focus, as the core protocol product.

Some additional questions/remarks on the proposed protocol-owned RPL/ETH liquidity.

  • Why choose fully POL here instead of incentives/bribes as has been our approach with rETH?

  • Full-range liquidity is less capital efficient than actively managed liquidity ranges (uni v3.) As you mentioned, maybe we should we consider partial ranges around current price as well with a portion of capital. Downsides are of course risk of going outside of range and requiring more active management by the IMC.

  • It’s not quite clear to me how relevant the comparison is to the size of Lido’s LDO/wstETH incentives and active liquidity. Shouldn’t this be about the liquidity required for our own goals (a more smooth/stable NO experience around obtaining and selling RPL?) Or do you reckon more liquidity is always better to that end?

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I think 33% is a good option – and I don’t expect the IMC to hit that number. This would mean rETH gets 7.4% vs 6.75% now and 3.6% for RPL vs 0.75% now.

Poor wording on my part. I didn’t mean to specify any specific program that the IMC must follow in spending toward RPL liquidity. I expect a mix of RPL POL and bribes as the IMC judges most effective long-term as has been our prerogative with rETH.

When I specified full range liquidity, I meant in the style of Uniswap v2 or Balancer – pools that cover the total possible price range and eliminate liquidity cliffs.

It’s not yet clear what this level is to me or how exactly we can measure it. I used LDO as an example since it is the most liquid token in our category of DeFi assets. I believe it is best to use these numbers as a starting point and re-evaluate based on node operator trading volume. We should also keep in mind the amount of RPL available in Aave now that can be borrowed and sold to create extreme market conditions.

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I don’t have any specific comments to make on the proposal, but I do want to throw my support in here, especially for RPL/ETH incentives. Liquidity depth for this pairing has been a problem for some time and volatility is only increasing as more RPL is staked. The sharp negative price action in the last few months has caused issues for NOs who entered recently and is likely making a poor impression on them as well as those watching from the sidelines.

We should at least attempt some experimentation to see if incentives help the protocol, since there is strong upside potential and limited risk.

Frankly, I think the IMC should receive 100% of the new rewards, and I think the IMC charter should be expanded beyond simply ensuring the peg remains stable. rETH demand is the chief growth mechanism for RP, and building relationships with other protocols helps RP’s standing in the industry.


Polls to gauge sentiment and move forward with a draft RPIP

How much inflation should the IMC receive from the diverted oDAO funds?

  • 0%
  • 25%
  • 50%
  • 75%
  • 100%
0 voters

How much should the IMC spend maximally on RPL incentives? Currently capped at 10%.

  • 10% (current)
  • 33%
  • 50%
0 voters

Why not an option for up to 100% RPL incentives? Is there a reason the IMC should be constrained in this regard? Simply because they may spend more doesn’t mean they have to.

FWIW, my opinion on the second poll is only lightly held, but I do feel more strongly that 100% should go to the IMC. The pDAO has significant reserves as it is and the GMC isn’t currently spending its allocation, so the IMC makes sense to me as the recipient of the reallocated oDAO funds. That can always be changed in the future if and when the GMC (or I guess the reserves) are using a higher percentage of their allocations.

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As an IMC member, I would like guidance from pDAO how to allocate between rETH and RPL.

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This seems like something that should change based on market conditions, not artificial limitations imposed by infrequent formal governance.

Guidance on how the allocation should change based on market conditions would work for me, doesn’t have to be in the form of a strict value.

I voted 75% and 10% respectively. I’d like us to actually use our 10% before increasing it. If I was told “no more votes for at least 6 months”, I’d probably choose 33% on the latter.

Not my area, but we have no other way to use these funds at this time at a time when our protocol desperately needs to grow. I still think the ‘default’ should be reserves, but I voted to divert 100% to IMC, 33% RPL; i would prefer a 6 or 12 month limit where that has to be re-ratified, rather then having these funds default to IMC in perpetuity. I’d certainly welcome some experimentation with protocol-owned liquidity within these numbers.

Fwiw, I’ve been holding back on suggesting an RPL-ETH plan to the IMC in anticipation of this budget increase and seeing the sentiment on cutting back RPL spend.

I think full-range RPL-rETH on balancer as a core pool would be good.

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