An exploration into trending LSD: Rocket Pool

Greythorn Asset Management
4 min readMar 15, 2023

Rocket Pool (RP) is the base layer protocol for decentralised, community-owned and trustless ETH2 staking. Established in late 2016, Rocket Pool has become another important player in LSD. Although it provides similar products to Lido, there are considerable differences in its architecture, growth strategies and design of native tokens.

From a user’s perspective, ETH holders can stake any amount (min. 0.01 ETH) of their tokens in exchange for rETH, which will be automatically distributed to validators in a non-custodial manner. rETH can be circulated and traded to tokens like ETH in RP or DEXs. The value of rETH varies with the number of ETH + ETH staking rewards in the network. The conversion rate of ETH:rETH has been increasing, and is 1.0538 (Dune, 09/01/2023). The staking APR is ~4.39%.

From a node operator’s perspective, anyone can join the RP network by depositing 16 ETH + another 16 ETH from all non-node stakers to create a new validator called “minipool”. In addition, “minipool” operators are required to stake RPL tokens worth at least 1.6 ETH (i.e. 10% of 16 ETH) as a “reserve” for potential punishment. Within the upper limit of 150% worth of staked ETH, the more a node operator stakes, the more RPL rewards they can obtain. These operators can obtain a 7.29% APR for ETH with varying RPL rewards.

The commission rate varies based on supply and demand. Node operators can earn a percentage of rewards earned on that 16 ETH assigned by the protocol.

Use Cases

  • Governance for Protocol DAO
  • Collateral for “minipool” operators & a form of insurance.
  • When the operators are severely punished by Ethereum while fulfilling their validation duties, resulting in their collateral falling below 16 ETH, this RPL collateral will be auctioned for ETH. Thereby compensating for the loss of ETH for RP.
  • Rewards to node operators and DAOs (inflationary).

Token: $RPL

TVL: ~$1.06b

Market Cap: ~$886m

FDV: -

Tokenomics

1. Initial Supply: 18,000,000 $RPL

2. Initial Inflation Rate: 5% p.a. (Can be adjusted by Protocol DAO)

  • RPL Staking as insurance collateral by Node Operators (3.50%)
  • Rewards for Oracle DAO members providing various forms of data (0.75%)
  • Funding for decentralised development by DAO Treasury (0.75%)

3. Tokenomics

Figure 1: RPL Tokenomics, Source: Greythorn Research Team Data: Protocol Docs

Comparables

Figure 2: Lido vs Rocket Pool, Data: Greythorn Research Team, Dune Analytics & Protocol Docs

Bullish Fundamentals

  • Decentralised in the sense that everyone can be a node operator. No trust assumption is needed compared to Lido’s Validators.
  • Low inflation rate of RPL (5%), further relieved by the staking requirements for nodes.
  • RPL was listed on Binance on 09/01/2023

Bearish Fundamentals

  • Limited scalability with less capital efficiency.
  • The protocol does not share profit with $RPL holders.

Closing Remarks

Rocket Pool is a decentralised protocol for ETH2 staking that allows users to stake any amount of their ETH tokens in exchange for rETH. While similar to Lido, Rocket Pool differs in its architecture, growth strategies, and native token design. The tokenomics of RPL includes a low inflation rate and various staking mechanisms for node operators, but the protocol does not share profits with RPL holders. Despite limited scalability and capital efficiency, Rocket Pool was listed on Binance in early 2023.

References

  • CoinGecko. 2023. Cryptocurrency Prices, Charts, and Crypto Market Cap | CoinGecko. [online] Available at: <https://www.coingecko.com/> [Accessed 22 February 2023].
  • CoinMarketCap. 2023. Cryptocurrency Prices, Charts And Market Capitalizations | CoinMarketCap. [online] Available at: <https://coinmarketcap.com/> [Accessed 20 February 2023].
  • DefiLlama. 2023. DefiLlama. [online] Available at: <https://defillama.com/> [Accessed 26 February 2023].
  • RocketPool.2023. Rocket Pool [online] Available at: >https://docs.rocketpool.net/> [Accessed: March 1, 2023].

Important notice and disclaimer

This presentation has been prepared by Greythorn Asset Management Pty Ltd (ABN 96 621 995 659) (Greythorn). The information in this presentation should be regarded as general information only rather than investment advice and financial advice. It is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to participate in any particular trading strategy. In preparing this document Greythorn did not take into account the investment objectives, financial circumstance or particular needs of any recipient who receives or reads it. Before making any investment decisions, recipients of this presentation should consider their own personal circumstances and seek professional advice from their accountant, lawyer or other professional adviser. This presentation contains statements, opinions, projections, forecasts and other material (forward looking statements), based on various assumptions. Greythorn is not obliged to update the information. Those assumptions may or may not prove to be correct. None of Greythorn, its officers, employees, agents, advisers or any other person named in this presentation makes any representation as to the accuracy or likelihood of fulfilment of any forward looking statements or any of the assumptions upon which they are based. Greythorn and its officers, employees, agents and advisers give no warranty, representation or guarantee as to the accuracy, completeness or reliability of the information contained in this presentation. None of Greythorn and its officers, employees, agents and advisers accept, to the extent permitted by law, responsibility for any loss, claim, damages, costs or expenses arising out of, or in connection with, the information contained in this presentation. This presentation is the property of Greythorn. By receiving this presentation, the recipient agrees to keep its content confidential and agrees not to copy, supply, disseminate or disclose any information in relation to its content without written consent.

--

--

Greythorn Asset Management

Melbourne-based asset management firm, focused primarily on Tech | Web3 | Crypto | Blockchain | DYOR/NFA. Subscribe to hear our latest industry insights.