RPL Inflation Breakdown

RPL Inflation Breakdown

As an extension to the RPIP #003 topic, below are the proposed breakdowns of the RPL inflation, based on different stakeholder groups.

RPIP-003 proposes inflation sitting initially at 5% of total token supply per year to incentivise four key actions within the system:

  • Incentivising ETH2.0 staking - Building native inflation incentives for node operators gives Rocket Pool a competitive edge compared to other ETH2.0 staking options.
  • Incentivising Deposit Pool Security - Providing incentives to RPL holders who deposit their RPL to the Reserve Pool to provide additional security to the user deposit pool and rETH.
  • Incentivising Trusted Nodes - These nodes sit in a meta-group above normal Rocket Pool validators, and transmit ETH2 data back to the ETH1 chain. Incentivising the correct relay of this data is critical to the early phases of Rocket Pool development.
  • Ecosystem Incentives - Funding community and ecosystem incentives, for example creating deep liquidity for rETH to be leveraged inside of the DeFi ecosystem, external RPL/ETH liquidity on AMMs, funding Rocket Pool integrations in the wider ecosystem, etc.

RPL Inflation Breakdown:

  • During the first year of operation, 5% of total RPL supply equals 900,000 RPL . This inflation is broken down based on the following weightings:
    • Validator rewards: 65% (585,000 RPL)
    • Reserve pool rewards: 15% (135,000 RPL)
    • Trusted node incentives: 10% (90,000 RPL)
    • Ecosystem incentives: 10% (90,000 RPL)

While the introduction of inflation may seem like a counter to token scarcity, Rocket Pool is the first & currently the only ETH2 ‘minipool’ enabling protocol. Introducing RPL inflation to reward value-added actors introduces a mechanism for active participants to earn governance weight in line with their contributions to the network.

We invite community feedback on both the breakdown of these allocations, as well as suggestions around different ecosystem incentives to roll out as we move through the launch phase of the Rocket Pool network!


I believe that inflation makes sense to reward value-add actors.

However, I believe that the value of RPL needs to be directly backed by the underlying protocol token ETH.

If RPL has its value resting on the sentiment of the public (those to whom RPL may be sold), then the value of RPL is actually NOT something that value-add actors can bank on.

My proposal is to rest the value of RPL upon the actual value it is creating, the ETH rewards it is minting and the ETH commission which is being collected.

I propose that the inflation rate of RPL be pegged directly to the rate at which this value is being created. Let RPL be minted as a tokenized representation of the actual value-add: rewards+commission.

In keeping with the fat protocol theory, a token who’s value is puffed above the base protocol by speculation and sentiment will be flattened over the long term.

Allow RPL to settle to its most stable and flat value, let it represent the rewards and commission of Rocketpool.

Here is how the inflation rate would operate:

RPL is minted and given to node operators, in DIRECT proportion to the ETH rewards and Commission being accrued by that node. For example: if the network is accruing ETH rewards at a rate of 6% APY plus 10% commission ( .06% APY ), then RPL is minted at a rate of 6.06% and given directly to the node operators in proportion to their stake and pool.

RPL may then be redeemed via smart contract for the rewards and commission they represent. A base-price will be payable when liquidity is available, based on the value-add of RP network (.0606 ETH per RPL in the above example)

The specific value of RPL compared to ETH can be above this base price when agreed upon by open market forces, and if so, there is an incentive for Rocketpool to retain the value RPL represents, as the base price payout cannot beat other opportunities available to an RPL holder. If RPL price rises above the minimum payout, RPL will be used elsewhere and Rocketpool will retain the ETH within its pools.

The current market price may rise above this value-add minimum based on usefulness, sentiment, and function in other DeFi projects… any price above this base network-derived minimum price will be relayed via Oracles, and the excess market price may be informative to the smart contract in many ways, such as the minimum RPL stake required to achieve the elevated status of Oracle or Trusted Node.

RPL is burned when it is redeemed for ETH and the coin remains flat and stable, sentiment only plays a very small part, therefore the fat protocol theory is respected.

If RPL is kept and instead re-staked by a node operator, a larger proportion of RPL rewards are given. In this way, incentive is given to re-stake RPL and allow value to grow within Rocketpool and the other DeFi projects which happily accept a backed coin.

RPL re-staking may also be incentivized by the governance weight it provides, all while being backed by the actual base layer protocol token, ETH.

An added benefit of this model is that RPL will have a “base value” represented by the network value-add, and will not be at risk of dropping through the floor if every validator exits. If every validator exits, all of the ETH they have staked will return to them, all of their ETH rewards and commissions will be fully liquid and may be claimed at the minimum, most recent value-add price of say .0606 ETH per RPL via smart contract. This also means that rETH remains unaffected and fully backed.

RPL value in this model has a stable base in RP value-add but may also capture the value of its use in other DeFi projects, the open market will decide what it will be worth.

To be clear, in this proposal model, when a validator exits, they are given ONLY THE AMOUNT OF ETH THEY ORIGINALLY DEPOSITED. The rewards and commission are given to the entering queue and overflow/exit ETH pool in order to back rETH and RPL, and to protect against slashing.

when a validator exits, they are given ONLY THE AMOUNT OF ETH THEY ORIGINALLY DEPOSITED.

Taking the entirety of a node’s ETH rewards away from them would stop anyone from becoming an operator for the pool. The pool works because operators are, at a bare minimum, guaranteed the same exact rewards they would get if they staked solo. That should not change.

There is a larger point here though, which I think probably does need to be addressed… where does RPL’s value come from?

  1. Control over governance
  2. Demand from node operators who wish to spin up another validator.

I do wonder if this is enough. It feels like maybe too much of RPIP 03 implies that RPL value comes from collecting more of it.

If we were to compare RPL to stock in the ecosystem, then it would need to be backed by the profits of the ecosystem somehow and have a role in governance… the latter of which is covered but the former doesn’t make a ton of sense because that’s what rETH is.

If we were to compare RPL to a currency, then it would arguably get its value from being the medium required to pay taxes/fees… which is almost what node operator demand is, except that node operators still hold onto their RPL.

I wonder if RPL value could be improved by requiring node operators to burn their RPL instead of, or in addition to, staking it. It could be a one-time burn to become a node operator, or a per-validator burn, or a yearly burn. And if an operator doesn’t pay the tax, the tax comes out of their commission and prevents them from spinning up additional validators. Maybe you could even make it so that the expected RPL reward inflation per validator is equivalent to the amount that needs to be burned in order to spin up a validator? Not sure.

There is a third value added by RPL staked by validators which is the additional insurance it provides to secure pool stakers ETH. As an investor I’m looking at becoming a RP node operator for its ability to generate an additional income stream from being an excellent service provider. The various measures already put in place by the RP devs already make RP safer than many other projects. The additional RPL insurance element makes RP an even better bet for an institution like a trust fund to consider allocating funds to it. This means that given a bit of promotion such bodies will be queuing up to use RP. So my mini staking business as a node operator has a guaranteed client base. This means that I can back myself to earn not only the staking commission but also an RPL income stream. The value of RPL then comes from demand from anyone else who wants to make RP their chosen node operator platform. If you accept that pool providers for ETH2 are going to be ranked by the twin elements of pool performance and pool security by very large investors RP needs to be in the top 10%. I think we are well on the way to achieving that objective. However the additional returns from requiring the use of RPL in this way have to be quantified and of course ultimately RP has to perform or else everyone will be disappointed.

RPL will be the tokenized ETH rewards.

RPL will be backed by the ETH rewards.

RPL in this model will be welcomed in all DeFi projects because it will be backed 1:1 for RP APY.

The entirety of ETH rewards is NOT TAKEN from them, it is given to them in a highly useful, liquid, tokenized form, on an ongoing basis, and prior to their exit. This means their ETH rewards are actually being made MORE AVAILABLE to them.

RPL already exists as an investment asset. I don’t think it’s reasonable or even possible to change that to the degree you’re suggesting.

Then perhaps a coin should be incorporated into the RP tokenomics which follows this model, because it will give the missing incentive that will make RP absolutely dominant.

RPL could be used as a function-unlocking additive, a non-inflationary coin which at 18million supply is low enough to perform more exclusive functions when staked on a node, such as que-jumping, instant exit times, or access to greater APY to name a few

please see the wisdom in this model

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I think you have just identified the solution TwoCanSpam. Think of the RP ecosystem as a computer game where a player has to acquire various assets to achieve the best outcomes.

So the objective of the game is to maximise the income one can earn from managing an ETH2 node. The income can be denominated in ETH or RPL. To earn that income you can buy various “weapons” with RPL.

So just to be a player you put up a certain “bank” of RPL. By playing well in terms of running a lively node you will get more RPL in your bank. You can spend your bank to give you various privileges such as priority in bidding for commissions. You can lose part or all of your bank by being a sloppy or malicious player.

The excellent rewards available to RP game players compared to “normal” staking attract the best node operators who in turn create demand for the 18 million RPL available, which in turn is already tightly held. That makes the RPL inflation rewards even more valuable and more highly sought after.

RPL will be readily convertible into ETH and thus easily valued and very fungible. It’s rarity will become a significant driver of value and will ensure that only the very best node operators inhabit the RP system over time.

Thus we will be the best performing pool and the first one selected when the big institutions and trust funds allocate their ETH staking portfolio. That’s what I want to be a part of.

If we abandon the idea that this is RPL you’re talking about, then what I’m gathering is a suggestion that node operators could have access to a tokenized representation of their rewards before they’ve exited the network. This is however problematic if a node subsequently loses the rewards they earned by getting slashed or being inactive. That said, if a node exits, rocketpool already supports tokenizing those rewards with nETH. So I think your suggestion is effectively covered by the nETH token?

Let’s call this new APY coin pETH so we can discuss it… if pETH is rewarded per 100 blocks or otherwise… perhaps then the operator is rewarded only the amount that their node actually earned in APY for the previous time period (like a paycheck is only rewarded for acceptable work of a previous time period)… the backing/payout contract will payout at overal RP APY, but the minting contract will only mint for acceptable work of the individual node during the previous time period. The mint maximum is the overall RP APY, and the minimum is zero, based on performance.

My suggestion is to make the APY token pETH so that validators are able to make a profit yielding business of RP without ever having to exit, and creating a backed token that will incentivize total ETH rewards APY to stay within RP, which is a good thing. This is at odds with the current nETH standard, which incentivizes nodes to EXIT when they need some money, and actually doubles down on trying to CANCEL that incentive by artificially slowing exit time.

the added benefits and uses of pETH are outlined in my proposal, which I believe are more than nETH

Demand for RPL in the model set out by RPIP #003 comes through the two factors you mentioned, plus the demand created by users acquiring RPL to stake into the reserve pool and earn inflation in exchange for further securing the network.

The ‘stock’ and ‘currency’ models aren’t entirely valid as we no longer have to assign value to such strict verticals, the value of RPL accrues through its use as a security mechanism within the system.

Requiring a burn, or a fee which is directed to the DAO are both options which can be explored in the future once the system has been rolled out!