Hi @mikey – thanks for the thoughtful take!
My first thought is that your core premise isn’t fully considered throughout your response. Its benefits are counted and its drawbacks are not mentioned or ignored.
We believe that delegation will solve all the problems surrounding $RPL friction for node operators. Delegation allows $RPL holders, whether it be institutional investors or community members, to earn active yield on their holdings in addition to price upside.
There’s a few implications to get here. We need a highly efficient matching market; this is doable and we can expect the protocol solving it to have a fee for their work. We need a way to exit stake, which might be locked. This probably looks like forced exits (not so desirable as the NO), and/or a liquid wrapper; again, the protocol that makes these mechanisms should be expected to take a fee (and a liquid wrapper would require liquidity mining, with participants there taking a fee). Note that forced exits would damage protocol TVL – ie, if lots of folks want out of RPL, then all of RP is damaged. If this works smoothly, it’s fine. But do note that it has significant costs and relies on new services cropping up to make the core protocol viable. Also keep in mind that such a service could be quite centralizing (if people pick where to delegate, it’ll likely go to a known name, not a random NO – see stakewise, eigenlayer, any cosmos chain, RP’s vote delegation, etc).
staking is the most proven and best-known token sink in the space and we shouldn’t be shying away from an innovative solution that Rocket Pool as a protocol originally pioneered
This doesn’t really fly with the premise of a highly efficient liquid delegation market. If I give 10 units of RPL and can get them back whenever to sell, how are they more sunk than sitting in my wallet? I don’t believe they are. Insofar as they are less sunk (eg, some kind of withdrawal time) then the delegation market has friction. These are directly correlated, so we cannot count both benefits.
Burning $RPL benefits everyone in the ecosystem equally, including those who do not actively contribute to the ecosystem.
This also doesn’t fly with the premise of a highly efficient liquid delegation market. How am I more “actively contributing” by delegating something I can undelegate when I wish vs having a token sit in my wallet? I would go so far as to argue that this damages the power of active contributors since vote power would accrue to folks that are unwilling to hold RPL.
Without the $RPL collateral requirement, the incentive to hold $RPL is weakened, which decreases the buy-in of those invested in Rocket Pool’s health.
Let’s do a quick thought experiment, where everyone is at 10% borrowed value of RPL staked either with the current structure or the variant where all surplus_share is directed to vote-eligible RPL. In this case, everyone would get the same amount of ETH under either system. There might be tiny variations because the voter_share component is socialized instead of being linked with one’s own validators. (I’ll address voter_share vs burn vs LP elsewehere – wanted to use the most straightforward comparison here).
Now let’s change something. Let’s allow some ETH-only operators with the new tokenomics. This additional growth gives the RPL-holding operators more ETH. In other words, the incentive to hold staked RPL is at least the same (everyone has the same relative stake) or better (some people have lower or no stake).
the initiatives surrounding RPL Burn and RPL Buy & LP warrant deeper discussion
Agreed. This is needed for steps 6-8 in https://rpips.rocketpool.net/RPIPs/RPIP-49#estimated-process. The core team has asked for legal review and we think the pDAO can better opine once that comes back. We don’t think we need to block work for that (in fact, the RPIPs allow Saturn 1 to be released with a temporary holding destination for that “surplus_share”).
Importantly, there are three suggested choices, and your discussion only speaks to two of them. Fwiw, in my eyes they are all “pretty similar”. I have preferences for LP/burn/voter_share in that order, but not super strong preferences.
Rocket Pool consistently trades at a premium compared to competing protocol tokens due to this token sink – almost double the [Market Cap / TVL] ratio as players such as Lido, Stakewise, Stader, and Marinade.
I agree that it trades at a premium, I wholly disagree with why. The market is forward-pricing. Right now Lido sits at 28.7% marketshare and RP at 2.3%. At the numbers you gave, it just prices in something like 28.7%/4.2%, 35%/5.1%, etc. I’m not sure what evidence would look like for “the token sink is the cause”, but none has been provided.
Burn/LP discussion
One repeating pattern I’ve seen when discussing burn is that people want the absolute number to do something. Burn’s effect should be relative, not absolute. If it would be flat without burn, it’ll be slightly positive with burn. If the market would have gone down x amount without burn, it’ll go down <x. If it would go up y amount without burn, it’ll go up more than y amount.
Next let’s talk about effect size. In the current context, we’re talking about 1750 ETH per year going to RPL, which amounts to a bit over 1% gain/yr. This means if the market would move down 5%, we might move down 4%. If it would move up 5%, we might move up 6%. This will not be stronger than market speculation, especially on short time scales. We just saw the token move nearly 100% in 2 hours, I think it’d be hard to find a single week without 10% variation between the week’s high and low, etc. I think this is the core point for your examples – showing a downtrend or an uptrend on a token using burn doesn’t demonstrate much because other effects are very often going to dominate the overall impact. That doesn’t mean that the relative impact wasn’t there, just that it’s swamped. That said, it can still be real: going up 5% and getting 1% as ETH puts you in the same spot as going up 6% and getting no ETH.
I do realize that this means that burn/LP methods are only grounded in theory. I believe in them and think the additional addressable market is a strong benefit. But I respect not buying that theory translates to practice. In that case I’d suggest advocating for the 3rd option that’s explicitly on the table, which is simply subsuming surplus_share into voter_share.
This proposal is effectively equivalent to share buybacks in web2, which are often performed for very mature companies looking to return capital or “value” to shareholders. We believe that Rocket Pool has plenty of room to grow, especially considering its market share compared to other liquid staking protocols and the 22% self-limit rule.
A key thing here is that our protocol isn’t a company. I don’t believe we have any intent to make a next product, pivot to a new field, etc. It’s not about “will it grow?”, it’s about “can we spend money to help it grow sustainably?” That question isn’t so clear to me, but I think it’s somewhat likely. My hope is that the rework addresses the NO supply side very well, and then we need to work on rETH demand. I do think spending on awareness and some defi partnerships is likely to have good ROI there and we should do that. I’d happily vote to either reduce surplus_share or increase RPL inflation to fund that sort of thing.
One of the main aims of our soon-to-be-presented mechanisms is to boost Rocket Pool’s rETH branding in the crypto space, thereby promoting broader adoption.
That sounds exciting. In general, I appreciate that you brought up rETH holders multiple times in the post – they are really our lifeblood and I don’t think they get as much attention as they should.
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