UnETHbonded (UEB) minipools

Proposal to allow unETHbonded (UEB) minipool by any NO who has 16.6 ETH of RPL available as collateral

This proposal creates the ability for RP minipools backed solely by 16.6 ETH worth of RPL. This will allow NO who have a higher percentage of RPL staked to leverage that for greater ETH return by using that RPL as collateral for an unETHbonded (UEB) minipool. These minipools will have a commission of approximately 1/2 the current commission rate. Perhaps the smart contract can be implemented using the previous code developed for ON unbonded minipools. The node commission can be applied as 15% to one half (16 ETH) of the minipool even though the deposit pool supplied 32 (or 31) ETH. A small 1ETH deposit might have to be made by the node operator to the deposit pool to register the WC and initiate the srub period.

For example, if your command rocketpool node status returns with: The node has a total stake of 3000 RPL and an effective stake of 3000 RPL, allowing it to run 18 minipool(s) in total. If running with two normal minipool or less, this node would be allowed to run one UEB minipool by using 16 of the RPL-permitted minipools as collateral.

Pros:

  • It reduces the average node collateral paid by regular stakers. This proposal creates an effective node commission of only 7.74% for the unETH bonded holders.
  • Combining these low-commission UEB minipools with the higher-commission regular minipools will help lower the average node commission paid by rETHers.
  • One 15% normal minipool (16 ETH) + one 7% UEB minipool (31 ETH) = 10.2% average commission minipool. (Math = 16 ETH at 15% + 16 ETH at 15% + 15 ETH at 0% commission = 10.2%)
  • This allows existing node operators to run more minipools.
  • It still provides ~100% insurance to back up the regular ETH in the event of a non-validating node that runs the minipool to forced exit status and any envisioned slashing events.
  • It creates even more demand for RPL. Supply and demand should increase the price of RPL.
  • UEB minipool might be able to be paired with DVT as well, allowing those with less than 16 ETH worth of RPL to be able to run a partial unETHbonded minipool as well.
  • It’s free ETH money to the NO as the RPL will continue to earn RPL staking rewards.
  • The NO is compensated for their efforts at the rate of 1/2 the node commission on the minipool. Since this is paid by the core Ethereum protocol there is NO COST to the RP protocol to fund this commission payment.
  • No additional CPU load is expected as each node can efficiently run multiple minipools.
  • Provides the advantage of unbounded minipools but is not permissioned only to a member of the ON. Any NO with enough RPL staked would be allowed to use that as collateral

Cons:

  • It will have to be post-merge as the focus of the devs on the merge.
  • This will have contract changes that will need to be audited.
  • We might want to increase the max RPL effective staking to 160% vs. 150%
14 Likes

I’ve been toying with a similar idea as well.

A few suggestions from me:

  1. The UEB minipool may be backed by 16-24 ETH worth of RPL (100-150%) and earn rewards for the respective RPL bond put up by the NO.
  2. The ETH commission should not go to the NO as there was no ETH put up. Instead, the ETH should be used to buy RPL on the open market and burn the RPL. I agree with keeping it at half commission rate.

Rationale

  1. The NO did not put up any ETH and thus should not receive ETH commission.
  2. It is likely that there is a NO/validator shortage in the event that UEB minipools are required. Swapping ETH to RPL and burning RPL increases the value of RPL for all RPL holders, socializing the gain to the protocol. Thus if RP needs more NOs, there is a mechanism to raise RPL value against ETH which enables new/more NOs to come in.
  3. The UEB minipool will still earn RPL rewards for the NO, which should be significant rewards for running the additional minipool.
4 Likes

I think it’s becoming clear that RP needs some form of unbonded minipools to allow it to scale. And this particular idea seems to benefit the protocol the most by:

  • Maintaining the permissionless quality of the protocol
  • Avoiding centralisation towards the oDAO
  • Protecting rETH holders by requiring appropriate collateralisation
  • Increasing demand for RPL.

I agree with @Shokus that the RPL required should be between 100-150% (16-24 ETH worth of RPL) collateralisation, and earn RPL rewards for doing so (there should be discussion as to whether this is the same reward rate as standard NO’s, or whether it would need to be reduced due to an UEB minipool providing less overall insurance protections for the protocol). I also agree they should not receive a commission on the ETH, given they have not supplied it themselves.

I am skeptical on introducing a buy back and burn mechanism for RPL - my understanding is that this mechanism is wasteful (it burns RPL when it could be used more effectively to grow the protocol) and does not tend to result in the desired price appreciation (unsure if it’s a fair comparison, but this may be highlighted by the recent need for a redesign of the MKR tokenomics). Admittedly it would help counter inflation though, and I am happy to be corrected if others have a more informed opinion on the potential benefits of this.

2 Likes

I like this idea as it allows RP to scale more quickly by taking 32 ETH out of the queue at the same time creating a higher demand for RPL. I am not sure I see why people are opposed to giving the node operator ETH rewards. IMO the collateral requirements will be the same (~17.6 ETH in RPL) and the NO could have easily swapped RPL for ETH. But removing the ETH rewards removes the largest incentive imo.

1 Like

The idea of using ETH to buy and burn RPL is as follow:

  1. It puts upwards pressure on RPL/ETH at a time when we need more NOs.
  2. If RPL/ETH goes up, more NOs can be formed mathematically (since collateral is ETH-denominated).
  3. In such a situation, it strengthens the protocol, and the benefit is socialized to every RPL holder in a fair way.
  4. It helps counter inflation and may help in the long run as RPL APY decreases potentially below inflation rate. When RPL APY is below inflation rate, NOs are effectively taxed and RPL rewards are no longer rewards. A burn mechanism helps lower the inflation rate and preserves RPL reward value for a longer time.
  5. RPL burn is the way RP as a protocol earns income, similarly to how Ethereum EIP-1559 is income for Ethereum-the-protocol.
3 Likes

I like the idea – and I’d certainly be interested personally. Although I think the counterargument would be that DVT may be a more capital-efficient way of accomplishing the same thing, and that since both solutions require a code change (audit) it might be advantageous to put that dev time towards DVT instead.

3 Likes

rETH demand is strong

(liquidity, low risk, high collateralization, no troubles to run a node, easier, not locked.)
instead of becoming NO, wales/high ETH holders are jumping to rETH

we want more node operators or more minipools to ease the rETH demand, mantaining a healthy NO profit and rETH yield that drives adoption.

what needs to be improved:

  • New NO and minipools

  • NO incentives to remain engaged and profitable over time.

  • RPL Diminishing returns and consequent NO bleeding: ( RPL APR will go lower with time, if too much (under 8-10%?), there will be no incentive to be a NO. when ETH and RPL will be withrawable, just sell and convert all to rETH.)

  • rETH Diminishing returns (too much commission for NO, lowering the rETH yield)

a solution could be Not Eth Bonded (NEB or UEB) minipools set to a fixed 5%/10% commission.

Nodes have a single or more minipools (16ETH + 1.6ETH RPL min) and based on the bond collateralization, NEB minipools could be launched using only the 32 ETH from the staking pool (+ RPL bond) .

NEB minis can be set to a maximum amount per node (4/7/9/14) and the RPL bond in ETH required to launch one could be (to be decided),

EG.: with a full 24ETH (150%) collateralization:

  • 1.6ETH (max 14 NEB minis)
  • 2.4ETH (max 9 NEB minis)
  • 3.2ETH (max 7 NEB minis)
  • 5.6ETH (max 4 NEB minis)

since there are right now about 1000 NO and 5000 minipools, with the bare minimum of 4 NEB minis launched per node the minipools count will double. (IMHO 3.2ETH per mini could be the sweet spot)

also ODAO nodes will be NEB with a 100/500 minipool limit (only the RPL bond per mini will be required)

pros

  • more minipools more decentralization
  • hugely better rETH yield in short and long time
  • better NO returns in short and long time
  • NO are incentivized to collateralize to 150% and leave the bond even after The Merge withdrawal
  • positive RPL price impact
  • new NO will be attracted

a little math:
with the bare minimum of 4 NEB minis, node is 150% bonded, 5.6 eth bond per mini.
node have an extra 128 ETH —) 5% APR ----) 6.4ETH
6.4ETH ----) 5% for the node operator = 0.32ETH

4 Likes

I’ve been worried about how to backstop the value of RPL and counter its inflationary policy/divert cashflows to RPL holders in some way. I don’t know enough about the nuances of tokenomics, but based on EIP-1559 this intuitively makes sense.

If we ever get a professional node operator program up and running, a portion of PNO earnings could be programmatically diverted to similar types of buyback/burn mechanisms and/or direct fee distribution to RPL holders.

2 Likes

I also like the burn idea, some NO’s don’t want exposure to RPL and even invested NO’s I think have some concern about the RPL inflation once the network stabilizes, upward pressure on RPL price would help that. The burn would allow the protocol to still pay out NO’s, devs, pDAO, while not being inflationary, and would be tied to network use EIP-1559-style. Very good idea imo.

The only counterargument to this would be Xer0’s liquidity crisis theory. The burn would contribute to a lack of RPL liquidity faster than the current system.

1 Like

2-I partially agree , because NO is responsable for validating so it must earn some commission

I agree, and I would go further by raising the cap to 200 % RPL, so NO could buy more RPL to start more Minipools.

@ken why we must wait the merge? the demand for rETH is there , Aave just aproved an increase to stETH because of the higth demand for borowing ETH to mint stETH.
I think this is urgent. We are loosing market share and the oportunity cost will be very high AAVE proposal link

1 Like

The only reason I see to wait for the merge (or near merge) is that the devs are actively working on the needed changes for RP to be ready for it. The code is scheduled for auditing. I think that this proposal has merit and carries some priority. I am looking forward to having the devs comment on the feasibility and the degree of complexity of UEB minipools. Perhaps folks attending ETH Amsterdam with them can inquire more during the meetup.

3 Likes

more math not counting the eventual ODAO 100/500 minis each:

  • 4000 more 32eth minipools----) 160.000 ETH —) 80 times staking pool top up

  • 7000 more 32eth minipools —) 224.000ETH —) 112 times staking pool top up —) doubling the Rocketpool total staked ETH

providing that rETH demand will remain stable (why not? it’s a no brainer) i think it’s the right road to tackle LIDO and ramp up

I think we would have to figure out how to handle the withdrawal credential exploit with this new type of minipool.
I’m not convinced on the right amount of RPL per UEB minipool. 0x03 is not implemented so there is no way to deal with underwater UEB minipools.
And of course this design would heavily lean on the RPL auction mechanism, which would have to be fixed first.

I think we would have to figure out how to handle the withdrawal credential exploit with this new type of minipool.

  • This could be addressed by requiring that 1 ETH be submitted to the deposit contract. In essence, making it a 1 ETH + 16 ETH-worth-of-RPL minipool.

I’m not convinced on the right amount of RPL per UEB minipool. 0x03 is not implemented so there is no way to deal with underwater UEB minipools.

The amount of collateral would need to be financially equivalent to the amount needed for a normal 16 ETH minipool (17.6 ETH of collateral). This value comes from the beacon chain failsafe that kicks out a non-performing validator once their effective balance is at 15.75 ETH. The worst case (assuming that the blockchain is reaching finality) is that the node operator then gets slashed with only 15.75 ETH remaining. This will result in a further penalty of ~1 ETH. So total exposure (loss of funds) is 17.25 ETH. Thus the need for 17.6 ETH worth of collateral.

And of course, this design would heavily lean on the RPL auction mechanism, which would have to be fixed first.

Agreed but I think they may have done this already. It looks like it is working in beta 1.3 RC2 on Prater. Yes/No?

Yes, I think that seems reasonable.

With a regular minipool, we can be certain that there is at least 16 ETH collateral at all times. What I mean by UEB minipools going underwater is this: RPL ratio can change over time, in particular if I start a UEB minipool with the RPL equivalent of 17.6 ETH today, it could be less than 16 ETH tomorrow if the ratio drops enough. I don’t think we have a good way to deal with this situation (no forced exits possible). So if the design is just that you need RPL equivalent of 17.6 ETH when you start the UEB minipool, it is strictly more risky than a regular minipool. We can reduce the risk of a UEB minipool going underwater by requiring more than 17.6 ETH, but it will never be as good as just using 16 ETH instead.

Not sure what the 1.3 RC2 changes with regards to auctions, but I am talking about the auction mechanism needing a new design, including smart contract upgrades, as I am trying to discuss in: RPL Auction Mechanism Design
I didn’t get a lot of answers from the team, but it seems like they agree that the mechanism needs work if we want to lean on auctions more. I think using 100% RPL as collateral qualifies.

1 Like

IMHO starting a minipool with 16 eth or 17.6 eth of RPL is not worth the hassle.

i think only 300 minipools are more than 100% collateralized.

we are starting on the best case 300 more 32 eth minis, 9600 eth worth, 4.8 times the pool…

to scale up a lot more are needed and this solution i think will not ease the rETH or the
NO problem neither in short nor in the long run

Another option to increase minipool is to leverage the collateral deposit of 16ETH , minting rETH to NO, allowing to deposit into Defi and borrow ETH to start another minipool. This is already happening with Lido and Aave.

if 16 rETH are minted from the NO 16ETH and used to start another mini, is not the same starting it up with the pool ETH directly?

I think this is a great idea, it would generate additional demand for RPL while at the same time enable large chunks of 32Eth / minipool to be taken out of the deposit pool.

i think the Node Operator should recieve commission though. A normal NO only recieves comission on the Eth provided by the deposite pool, this is independant of his own ETH stake so i see no reason why a Node Operator staking purely with RPL should not recieve Comission. I would go as far as to say that a pure RPL node Operator is exceptionally beneficial to the protocol by driving big demand for RPL while taking larger bites out of the maxed out DP which we desperately need. Therefor i would even suggest such a NO should recieve comission on the whole 32 Eth from the DP.

i think this should be explored immediately. Im sure with some thougth and ingenuity this could be fleshed out pretty well and we really need some new mechanic in the protocol to get some more NOs up and running.

2 Likes