Marketing for Solo Migrations

Growth
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Hypothesis: there will be a significant number of solo stakers who would be happy to stake via RP, but just need a nudge to go through with the effort and cost of migrating.

Question: how can we efficiently incentivize this segment to migrate to Rocket Pool nodes?

Ideas

  • Doing @ken’s mega-arb to subsidize RPL collateral for migrators
  • Directly subsidizing collateral from the pDAO treasury
  • Giving migrators POAPs/NFTs
  • Giving migrators POAPs that are valid tickets in a raffle for RPL
  • Bankless blitz, ads via beaconcha.in, or other targeted advertising campaigns

What ideas do you have?

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This is just tangentially related to marketing, but you reminded me of a question I haven’t seen answered clearly yet. And it’s a prequisite for having effective solo staker migrations: what are the plans to account for existing reward balance in a solo validator when migrating it to a RP minipool?

Solo validators have typically accrued a large pre-existing reward balance. For LEB8 migrations, we have chosen to not account for these rewards and instead rely on skimming to withdraw the rewards before migration. This is not a viable strategy for solo validators as I will explain below.

Skimming (withdrawing the reward balance in excess of 32 ETH), and withdrawals in general only work for validators with 0x01 credentials. Migrating a 0x00 validator to a 0x01 is a one-time only thing. This is also the process that will be used to change a solo validator to a minipool (by pointing its withdrawal address to the minipool address.) Hence, a solo 0x00 validator cannot have skimmed first, and if we want to use this process to seemless migrate a solo validator to a minipool, we must account for existing rewards. Otherwise, the solo validator would give up a large amount of rewards during the conversion and would still be better off to manually exit and create new minipools.

@kane Do you have any insight on how this issue will be tackled?

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I can speak to the smart contract side:

  • When someone wants to migrate a solo validator to a minipool, they create a so called vacant minipool. One of the arguments when creating such a minipool is the current beacon chain balance of the validator.
  • The oDAO is supposed to confirm the submitted value during the scrub period (I’m not sure if the watchtower includes those changes yet or how this works in detail) and scrub the minipool if the value is incorrect.
  • If the minipool is not scrubbed, the surplus above 32 ETH is credited to the node operator as a refund balance.
  • Once the minipool receives ETH (presumably from skimming), it goes to the NO exclusively until the refund balance has been satisfied and after that it’s split with rETH accordingly.
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Thanks for investigating and summarizing this, @knoshua. Seems like a workable solution is already in place here then, fortunately!

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I’m sorry, are you really proposing to give migrators free RPL which I as a “direct” node operator do not get?

Hell no!!!

(The easy manageable smartnode and the additional rewards plus the smoothing pool… So many reasons to switch, why would we pay them?)

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For the same reasons that we spent money on Bankless ads and the IMC pays rETH holders: because market share is immensely valuable to Rocket Pool stakeholders, and we can get more of it by incentivizing growth.

My initial ideas aren’t all meant as serious suggestions, but meant to get the brainstorming ball rolling. The specific idea that spawned this thread was the raffle. For a small amount of spend we could run a marketing campaign targeted at solo stakers around the one-time event of withdrawals unlocking.

<soapbox>I’m not a marketing expert, but I think that’s representative of a problem: the Ethereum community, in general, rightfully values the tech but misses opportunities by underappreciating the ROI that a good marketing campaign can provide.</soapbox>

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Agree with your soapbox statement. A big part of the Ethereum community consists of builders that tend to want to let their products speak for themselves. It’s noble, and the polar opposite of the many crypto grifter and scammers, but history has shown that marketing simply is a necessity for success.

Speaking of Bankless, I think it’d be opportune to run a Q2 campaign or a marketing blitz coinciding with the release of Ethereum withdrawals. A refresher for awareness and things new in RP land, focusing on for example LEB8 and easy solo staker migrations (lower bar of entry.)

Another aspect for solo stakers is that a part of them are very ETH-focused, to the point of not wanting to hold any other tokens. The RPL requirement is definitely a barrier to this user group. Perhaps we could promote the RPL/ETH splitter contract more, e.g. by:

  • developing documentation around it
  • building tools to make it easier to use / integrate it with smart node
  • matchmaking services between RPL providers and prospective ETH-only node operators
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I’ve said this before… But I’m not convinced the splitter (and similar efforts) are good for the protocol. We currently have an enforced alignment for all NOs. With something like the splitter, the ETH-only person gets boosted ETH rewards without having any skin in the game - they get boosted ROI regardless of if RP is a flop or dominant. Fwiw, I don’t love the RPL-only side either. The current system causes depreciation for pure speculators and this dodges that entirely.

I understand it’s a stumbling block for folks. But helping people break the protocol’s design doesn’t makes sense to me.

(The current whale marriage is pretty specific. Both parties are known to be highly RP aligned and have plenty of skin in the game.)

Big picture, I like marketing spend targeting sólo migration in some way. It’s a good opportunity to get a big influx of quality ethereans.

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That’s a fair perspective. FWIW, I don’t think this type of alignment can be forced long term anyway, especially once supernode / staking as a service solutions start coming online. The protocol is permissionless after all. Also, I’d say there’s still some amount of alignment by just onboarding these RPL / ETH only actors into the ecosystem. They’re still using the protocol and contributing to its overall relevance.

But this still doesn’t mean we (as in: the core protocol) should be actively promoting these use cases, effort is better spent trying to win fully committed mind share.

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As a solo staker and RP NO, this will likely involve a lot of projection of my own desires and motives, but here goes:

What are the defining characteristics of solo stakers?

  1. emotional investment in securing the ethereum network:
For example, take this recent tweet from superphiz:

I can offer three alternatives that are FAR better than existing custodial solutions:

  1. Solo stake from home, if you can.
  2. With 16 Ether, set up a minipool
  3. With less than 16 Ether, stake by holding the rEth token.

Convincing a staker to leave the ‘gold standard’ will require a strong argument of why RP is better for the network (at least in this historical moment); there’s just not enough growth potential if we rely mainly on folks with 10.4-32 ETH.

  1. Relative risk-aversion: it’ll be an uphill battle to convince stakers to adopt a model that has significantly higher risk (risk of total loss of funds with any generation/storage of new seed phrases, smart contract risk, RPL value risk, gas costs, tax headaches etc etc).

While I love me a good POAP and raffle (and I would donate to poapathon to fund one), we are talking about hundreds of thousands or millions of USD$; I think it is unlikely that we could offer enough direct benefit to migrators to overcome the above concerns without bankrupting the pDAO (although would be bullish for #trading)

What I think is going to be necessary:

Seamless transition from solo staker to RP NO from a coding and UI standpoint

community has fairly low control, hopefully team has this covered, and will release specs soon so we can start preparing potential migrators.

Documentation/appeal on the ethical and intellectual level. This is where I would channel most of our funds:

Infographics and easily digestible summaries of RP strengths. Migration guides aimed at different levels of technical expertise. Audit history and smart contract security. Spelling out the ways RP helped beaconchain diversity and what it is doing for EL diversity compared to the network average. Smoothing pool. Retrospective public goods. The list of strengths of RP go on and on. Encourage interpersonal outreach to aligned groups, although too much proselytizing will be unwelcome. Fitting RP strengths into a 30 second ad is impossible, so I am suspicious that lump payments to Bankless are NOT cost effective compared to many smaller ‘thank you’ payments to our community members for doing what they do best.

surge plan for #Support:

There may be many non-tech folks looking to migrate, and we need to be prepared for a lot of questions. Discord support bots, dedicated thread for this purpose, amping up ‘tech support’ for a few weeks with either payments or other ‘thank you’ gestures, etc.

Chipping away at the RPL problem:

Outside of our community, RPL is viewed with significant skepticism. Maybe 1% (my rough estimate) of new ETH staked since RP launch required purchase of RPL; i think that’s a small percentage of even the solo staker pie. My conclusion is that most solo validators do not want RPL exposure, despite increased APR.

Most solo-stakers do not have RPL exposure currently and likely have been accumulating ETH from a much lower cost basis. According to @valdorff’s analysis, LEB 8 offers 9% better returns than solo stakers (ignoring RPL value or emissions); if you take into account capital gains to sell ETH to RPL, this drops to about 5% value over solo. This is so minimally elevated that, given the additional risks (for a risk averse group) and gas costs/etc, it seems unlikely that many will migrate for the ETH benefit alone. In fact, it is a rounding error away from the current benefit for LEB16 (ie, 5% or 2.7% with capital gains) for which uptake is lacking.

The argument has been that anyone with a bullish or neutral outlook on RPL would benefit from running minipools; that seems insufficient to me. We don’t need moon math, but I think turning RPL bears into RPL neutrals should be a key part of outreach. We need to defend the purpose and value of the token.

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First I’ll put up a list of disagreements :joy:

  • I think your missing making money as a driver of solo staking. I’d also expand the securing the network bit to supporting ethereum community - this matters cuz I think RP is superior to solo staking.
  • :thinking: I’m not sure I fully agree. Yes, it’s not degen defi, but 100% locking your money up for literal years with the hope that someday they’d get to withdrawals and the price of ETH would be OK… That’s its own kind of massive risk.
  • I haven’t done the numbers, but @Marceau did back in ?September and RP was around 5% since it had been on the market. (answer can be derived from here Beacon Chain Depositors Over Time with a bit of work)
  • I think it’s dramatically misleading to count taxes that way. We’re talking about a one-time thing where taxes get paid, but are owed regardless (just deferring). The boost is an ongoing boost. I think it’s a real concern, but I font think it’s captured by halving the boost.
  • I think a 9% boost is plenty sufficient given low additional risk. Free money is free money.

Now agreements:

  • 100% agree we need a quick explanation of RP. It’s a huge need. I answer questions about the basics daily.
  • I think we can expand intellectual/ethical to also hit community - I think that’s the intent of the poap - a literal badge that you were one of the “good guys”.
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All fair points!

drivers of solo staking

I think this will remain a disagreement. To me, seeking higher yields explains why a person DOESN’T choose solo staking; if it’s a defining characteristic, i would expect they would have already moved to RP or defi. I’ll admit some people feel risk-adjusted yields are better for solo stakers, but that’s tangential to either of our points.

relative risk aversion

I agree to the extent that everyone in crypto is taking more risk than an index investor. Solo staking is a certainly bullish long-term bet on ETH, but if withdrawals are cancelled/indefinitely delayed then ETH price will have been demolished long before; thus I don’t actually think price risk is higher than holding ETH unless you think you are that minority that can beat the market with active trading. There is illiquidity risk, but that’s not a huge problem if you aren’t overinvested.

1%

This was definitely a super rough estimate. I think (this from memory now) that about ~10k RP validators out of ~220 new validators since RP launch, that’s about 5%. But half of that ETH is RPL agnostic (rETH stakers)- so ~2.5% ETH from NOs. Then just looking the top 10 nodes that I can identify, ~2700 minipools were created using RPL bought before launch; I figure maybe at least 1/3 of the remaining 1900 nodes are the same (ie, 50% of 2.5%). So my very hand wavy number is about 1.25% are new RPL buyers. Put another way, the 5% we see is artificially inflated by both ETH holders without RPL (rETH) and and pent up RP demand from the first year of staking. Depending on your best guess, maybe 5-10%(???) of all validators are small/home stakers? So the 1.25% is less than I’d expect for a project that hit all its milestones flawlessly (if somewhat late) and offers much better returns (in both RPL and ETH). The bullish take is that there is a lot of room to grow given the number of untapped small stakers.

taxable

Deferring a taxable event for compounded earnings is the entire reason IRAs and other tax havens are sought after; I don’t feel this is misleading.
I’ll give an LSD example. for simplicity, investor buys ETH at crowdsale for 50 cents and it becomes a 1000$ stablecoin; LSD yield is 5% per year, commission is 0%; everything sold after 10 years. Long term capital gains is 20%.
A) Holding ETH: after 10 years, investor A pays 200$ tax and pockets 800 dollars
B) Buy LSD, tax deferred: After 10 years, investor B sells for 1000 * 1.05^10 = 1628. Pays 325 and pockets 1303.
C) Buy LSD, non-tax deferred: Investor C pays 200 tax when buying LSD. In 10 years sells for 800 * 1.05^10 = 1303. Pays taxes of (1303-800) * 0.20 = 100.6. pockets 1202.
In this scenario, tax deferring increases your profit by 25% at the end of 10 years.
The effect for creating a taxable event by buying RPL is smaller as it only affects 10% of your stack; however that effect increases with LEB 8 and LEB 4 and cuts into an already slim ETH benefit.

Free money

I think we are close enough to SBF’s arrest that we can say there is no such thing as free money.
Many outside of our community would disagree that RPL provides very low additional risk; perhaps even some whales in marriages within our community feel that same.

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Drivers of solo staking: to me the risk adjusted returns are in fact the whole point, not tangential. Defi stuff is much riskier (and more active). Staking is the web3 version of being a Boglehead.

Taxes: my issue with the example is ETH rising instantaneously on day 1 and never again. If we had ETH at $500 when we swapped and then rising up to $1k as we held it, the difference would be significantly lesser. I hear you though - tax deferment is effectively an interest-free loan.
1/11 addition: See https://dune.com/queries/1837767/3023087 for when people staked - not quite “when people initially got the ETH”, but there is very little that rounds to $0 imo.

Free money: there absolutely are risks. At this early stage, they’re quite large, but compensated by large opportunity. Later at maturity, the speculative opportunity will pretty much go away - and there will be much less risk as we’ve shown maturity. I’ll agree my phrasing is hyperbole, but “risk-adjusted performance improvement!” isn’t as catchy.

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I agree with your take. My slight tweaks are: even degenerate gamblers think their risk adjusted returns are good. In order to change the perception of risk adjusted returns of RP, I think that the ‘returns’ side is well saturated, so offering more ‘returns’ (POAPs, raffles, direct RPL payments) will not be as effective as punching down hard on the ‘risks’ side, which is a more complicated discussion. I think trying to explain why the ETH side of our whale-marriages chose to engage in an relatively untested smart contract rather than get RPL exposure would be a good place to start.

For taxes, the difference between someone who buys at 0.5$, and one who buys at 100$ or 200$ is minimal; the effect is still 90% or 80% as large. I think most of the money (in ETH terms, not number of NOs) we see migrating solo to RP will be from a sub 200 basis, not the 800-4000 range. I guess that’s just an opinion, so can’t really offer much more to defend it.

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I probably should have posted this comment in this thread:

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I think this comment goes here. So I’ve been digesting the excellent atlas RP docs, particularly solo migration. With the process as documented, each solo validator needs to be imported individually. Even in the ‘automatic’ flow, this means a public key inputted (copy/pasted); 24 seed words inputted; 2 transactions to complete for each pub key before moving on to the next.

concerns:
  1. For simplicity, I’ll use a moderate sized whale with 50 solo validators (this isn’t going to be our average migrator, but hopefully won’t be the smallest one). This will take a minimum 2 hours of constant typing, likely significantly more (3 seconds per accurate seed word, 15 seconds per transaction if gas correct, 15 seconds per validator to get through the other prompts, don’t restart after each validator but do have to resync at the conclusion). Using ethdo doesn’t seem much better as you need to set 50 different withdrawal addresses, so presumably still have to input mnemonic 50 times. For larger whales this process could last days.
  2. Your solo validators will be down for the entirety of this time.
  3. During the time that your key withdrawal keys that have not yet been transitioned from BLS will be on a hot wallet; any key logger in your client or node may find dozens of instances of 24 consecutive BIP-39 words very juicy.
  4. If you migrate some but not all validators created from a mnemonic, that private key becomes permanently hot and invalidates the recommended steps for secure creation.

I don’t think there is a way to solve #4, so I think it should be warned about in the docs. However, I think there can be ways to better automate #1-3.

One solution is just a small tweak.

  1. ask for first pub key
  2. input another public key, or N if you are all done
  3. query: send transactions to create all vacant minipools?
  4. query: set withdrawal addresses for all successfully created minipools?
  5. input 24 word mnemonic
  6. query: migrate all validator keys?
benefits:
  1. The time to migrate 50 minipools would be reduced from ~2-3 hours to along the lines of 15 minutes.
  2. much less time for 0x00 credentials on a hot wallet (less than a minute).
  3. less downtime/attestation leak

Another solution is which is based on the official deposit-cli:

  1. ask for 24 word mnemonic phrase
  2. ask for the --validator_start_index and the --num_validators (this will generate a numbered list of public keys)
  3. query: which validator do you want to import, or all validators?
  4. query: do you want to migrate any other validators?
  5. If no, asks to submit transactions to create all vacant minipools
  6. When successful, asks to change all withdrawal addresses at once.
  7. When successful, asks to import all validator keys at once.
Benefits:
  1. Doesn’t require browsing the web (i assume most people will copy/paste their public keys from beaconcha.in) or using an external storage device.
  2. TUI looks more similar to LEB8 minipool migration
  3. the first 4 steps can all be completed offline

Anyhow, this post is to see if:

  1. anyone buys that larger solo stakers would be more likely to switch with an more streamlined interface, or if this is just a petty issue that won’t stop migrators
  2. if it seems simple enough mechanistically to write an external script or PR for smartnode like the above (or better) with minimal security concerns
  3. if yes to above, how much time/money should be expected for a bounty to complete the work?