Reduce Node Operator Required ETH

The demand in the market

rETH became a very popular staking derivative. So much so that rETH trades at a premium to ETH. The demand is huge.
At the same time, the deposit pool is constantly full with 5,000 ETH sitting idle and potentially more can enter until the premium on rETH is arbitraged.
This translates to the possibility of 321 new minipools waiting to be matched from Node Operators.
So we arrived at a situation the demand for rETH is high, while the supply of minipools is low ( I myself lack the ETH and RPL to spin up new pools).

This stifles the growth of Rocketpool while Lido and other more centralized staking providers can easily absorb the demand. The demand for a decentralized staking derivative is high and we should take this opportunity and offer a solid alternative.

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(source: Rocket Pool Explorer )

Proposed mechanism

Node Operators could easily absorb the demand, all that is needed is to lower the requirements for ETH.

I propose we lower the requirement to 8 ETH each and allow additional node operators to spin up new pools. This can scale the supply almost 2 fold. Personally, I would love to spin up more minipools and absorb the current deposit pool and demand in the market.

However, we should avoid a supply spike and rush to spin up more minipools. Therefore a gradual mechanism is needed to slowly introduce more pools.

The mechanism is as follows:

  • Each currently running minipool gets the right to split one minipool into 2 after the minipool proposed a block (avoiding a rush and supply spike)
  • A minipool could then be split into two minipools. That means a Node Operator can create a new minipool without depositing new ETH.
    – 16 ETH Pooled, 16 ETH Node Operator → 48 ETH Pooled, 16 ETH Node Operator
    – The minipools are now 24 ETH Pooled, 8 ETH Node Operator each.
    – Rewards are counted after the split with the new allocation
  • After a sufficient time or when new minipools spinning up has slowed, the mechanism can be lifted and each Node Operator can split their existing minipools into 2.
  • After that, minipools can be created using only 8 ETH and 24 ETH that is pooled.
  • This should a choice and each Node Operator can decide which split they prefer.

Absorbing the demand

This will mean an increase in the number of minipools and an increase in the number of stakers. Node Operators can absorb the demand and take on more stakers without having to risk more ETH.
I believe this will help Rocketpool grow faster and become a bigger and more solid staking provider and importantly diminish the premium on rETH and offer a solid alternative to centralised staking providers.

In addition, the APR of rETH will increase due to higher efficiency (idle ETH compared to staked ETH)

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Ok so i just had a quick chat with the Devs about this and im happy to inform you that i was able to convince them to launch this proposal in Q1 of 2023, Code name “Atlas”.

Cheers

3 Likes

This has been discussed and accepted in RPIP-8: LEB8s - A new Lower ETH Bond size of minipool with 8 ETH from the node operator

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Well ok then, disregard my post :slight_smile:

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This was very refreshing to read. An optimistic community member, by all appearances unscarred by the nETH/pETH civil wars of yestermonth. Thank you.

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Just out of curiosity, what do you think we should have set for the maximum RPL allowed in your scenario? Currently, it is 150% so 24 ETH of RPL. Thoughts?

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I am not sure about the maximum, I am nowhere close to it, so my concern is on the minimum.

But to try to answer anyways:

I think it could be lowered as well, as being closer to max does not improve the security guarantees much for the stakers.

The biggest attack vector is probably outsized MEV rewards that could be stolen. Seeing the sizes, the amounts are not enough to guarantee it, while those amounts close to the max receive more rewards (nothing should come for free). So this does not impact bad actors at all.

Pretty pointless to reward beyond the min imho.

But as I said, I am more concerned about the min. Ideally, this should be lowered as well. I wouldn’t want to be able to split up my minipools but then find out that I need to buy more RPL first.

One interesting thought: The more minipools are run by a Node Operator the less collateral they need. All pools that are run by the Node Operator function in a way as the collateral. Malicious actors would only run 1 if they try to steal outsized MEV. But this could potentially lead to more centralisation of Node Operators.

5 Likes

There’s a tokenomics issue where the value per token of RPL has a relationship to the number of RPL needed to mint a specific amount of rETH, so unfortunately the minimum can’t easily be reduced. LEB8s, which are being implemented ~Q1’23, will require 8 ETH and 2.4-ETH-worth-of-RPL minimum.

The maximum will be 12 ETH. As context - this was the subject of quite a lot of community chatting and some contention leading up to and during a vote.