### July 2023 ## knoshua's proposal **Status:** Seemingly died in discussion **Link:** https://dao.rocketpool.net/t/redesigning-no-rewards/1199 **Summary:** This proposal sought to move the maximum effective RPL collateralization down heavily without other changes. There was significant pushback to this proposal, with reactions that indicated users are sensitive about the influence on RPL price by this type of tokenomics change, though knoshua and others believe that this would be an improvement in RPL fundamental value. There wasn't much hard evidence discussed on either side re: price impact, but the community seemed clearly against the change, so it didn't advance. ## Valdorff's proposal **Status:** Open discussion **Link:** https://github.com/Valdorff/rp-thoughts/tree/rpl_staking/rpl_staking **Supplementary research:** - [ib1gymnast's demand impact analysis/opinion](https://twitter.com/ib1gymnast/status/1682172265121697792?s=20) - [Pieter's risk analysis for RPL price impact](https://hackmd.io/@pieterastra/HkpTLBhqh) **Summary:** An extensive adjustment of RPL rewards with the goals of: - Incentivizing new low-RPL LEB8s, paid for by reducing all 16 ETH pool rewards - Decreasing the relative incentive to stake more RPL than the minimum with a stated goal of pursuing more efficient inflation **Notes:** Overall, this is similar to knoshua's suggestion, but it's much more complicated. In addition to the goals stated above, this proposal also includes the removal of a lock on rewards above 15% collateral because (in Valdorff's words) "If only 10-15% get full apr, but we demand up to 75%/150% be locked... It's kinda ick." The propsal doesn't specify how anticipated protocol changes such as LEB4s would be treated. Would low-RPL LEB4s be incentivized over LEB8s and 16 ETH minipools? **Community Reaction:** Common praises: - This proposal may raise RPL prices because more NOs would join and existing investors would appreciate better tokenomics - This proposal may bring in new NOs by enticing those who are currently skeptical of RPL via an increase in rewards for those who want to hold less of it - This proposal encourages an increase in validator count by incentivizing users to transition from 16 ETH pools to LEB8s Common criticisms: - Many users have expressed concerns about the potential negative effects on RPL price, which is important for the pDAO and team to function effectively - There are benefits of tokenomics stability, and there is little indication that current tokenomics are miscalibrated for the current maturity level of the protocol. - There are questions around the effectiveness of this proposal to achieve results in the real world. Many have indicated they believe it would have the opposite effect. - APR efficiency of lower collateralization encourages that outcome, meaning the average collateralization will converge to a lower level (whether driven by new entrants or capital reallocation). This provides poor UX because RPL market liquidity is low, so large downward price movements which would put stakers below the minimum threshold are relatively common. - Rocket Pool tokenomics are already complicated, and this makes it far more difficult for users to understand - This proposal presumes RPL to be an asset valued purely on existing utility, not a token that will receive new utility over time - The most succinct and humorous version of this I've heard is an accusation that "they want to speedrun current terminal tokenomics instead of changing them!" **Commentary:** There is no specific evidence presented for new large-scale buy pressure, only a claim that increasing incentivizes for lighter collateralized LEB8s will produce this effect by attracting new operators. This argument appears to assume a sufficient number of rational, omnicient operators, all with only a slight distaste for RPL, coming in to offset any existing stakers who would sell down to achieve maximum APR -- hence the "real-world limitations" criticism above. I am seeing evidence of very large amounts of RPL which hold the opposite view (i.e. "this proposal is bad for RPL value and my big wallet will sell"), though data collection is still ongoing and more is needed. Although there is no risk analysis presented as part of this proposal (see Pieter's supplemental research for an analysis of RPL price risks), the biggest risk appears to be the potential to create more of a shift in capital allocation amongst existing NOs rather than enticing new NOs. That is, it might encourage existing RPL-heavy NOs to sell while only bringing in a few new folks on the margin. Like knoshua's proposal, this also represents a philosophical shift for RP in that it reduces incentives for one user group in order to increase incentives for another. Proponents say this prioritizes the terminal number of validators in RP over the short-term RPL price, while detractors have pointed out that this could potentially _reduce_ RP participation because some users are alienated. The final criticism listed above has seen relatively little public discussion but has come up quite a bit in my private discussions. There appears to be a fundamental disconnect between proponents' and detractors' beliefs in regard to the future utility of the RPL token. That is to say, proponents believe market price will eventually converge upon the floor ratio, whereas detractors believe new utility will be found to justify higher collateralization levels. See my current stance below for more discussion here. ## Ken and Wander's proposals **Status:** Open discussion **Link:** N/A **Notes:** I believe my and Ken's proposals to be more along the lines of thought-experiments than true proposals, but I'll still note them here for the sake of completeness. In response to Val's renewal of this discussion, Ken first suggested that if LEB8 incentivization is the goal, we should focus on it directly by reducing 16 ETH pool rewards and minimizing other effects. He suggested keeping the RPL rewards ranges and locks the same for now, which is less disruptive. Broadly, I feel this is a much more reasonable step than either of the prior proposals because it would help us understand the effects of incentive changes before potentially pursuing further adjustments. However, it is still a philosophical departure from prior changes and contains the same risks of user alienation and forgoes any benefits to tokenomics stability. As a slight twist to Ken's idea, I proposed using a carrot instead of a stick. I.e. the same economic model, but using positive psychology via increased incentives to LEB8 pools without increasing incentives to 16 ETH pools. This could be paid for by increased inflation or re-allocating from the oDAO/pDAO. ## Wander's Current Stance Axioms upon which my stance is built: - We are many years from maturity - There are better models to be found, so we have plenty of time to research them - Attempting decisions too quickly generally leads to controversy, which is worse in the long run than any outcome Currently, I am strongly opposed specifically to the above proposed changes as written, though time and additional upgrades to RP are likely to soften my view towards this type of proposal more generally. Similar changes may be less risky, such as introducing the new exotic reward curves only with new features like LEB4s, which would preserve existing UX and backwards compatibility. The lockup changes seem to be controversial, and I'm not sure how I feel about that change. On one hand, it feels like a UX QoL change because the current friction is entirely artificial -- users can exit and rebalance their RPL stake at any time with minimal delay (a few days) if they're willing to pay the opportunity cost of waiting in the Ethereum and RP queues again (which may not always exist). On the other hand, lockup mechanics are very effective at influencing investment beliefs and even artificial friction provides holders with confidence. In regards to the axiom of "better models exist", the recent conversation has been focused solely on the existing landscape (RPL lockup percentages, rewards APR levels, inflation distribution, and min/max effective balances), but what about adding _new_ utility to RPL? That seems more likely to please users and the upcoming comfirmed upgrades for staking (EIPs 4788 and 7002 in particular) open up the design space a lot. Here's a couple examples (out of many options) of interesting lines of inquiry that may offer more value-additive changes to the protocol: 1) As an RPL-heavy NO, is there an intra-protocol way for me to lend my excess RPL collateral to an RPL-skeptic so they could create a minipool? 2) Are RPL-based validators viable, either via RPL-only pools or extra allocations for those with high collateralization? There is also a question of prioritization here. Rocket Pool is a two-sided market, and community and development resources are limited, so we may want to prioritize the rETH side of the equation in the short term instead. Today, there is already a large boost to NO supply from Atlas, and LEB4s (and maybe LEB2s?) are on the roadmap to provide another exponential NO supply jump. [My work with NodeSet](https://nodeset.medium.com/project-hyperdrive-4819f22391dc), which will likely be released before any tokenomics proposals can be implemented, also represents a mssive boost to the NO supply side. Perhaps we should revisit the NO supply situation after all of these planned upgrades over the next year or two. In the meantime, we can take the time to gather data to determine how users will feel about these kinds of changes. For example, are RPL holders comfortable with any reduction of utility for the token (for Valdorff's proposal, RPL has less utility for 16 ETH pools)? Or should we commit to only adding features a la Linux's "You Must Not Break User Space"? Backwards compatibility concerns aside, Ethereum has only disadvantaged a group of users en masse once before: the transition from PoW to PoS. What's more, this was telegraphed for over five years (even before Ethereum existed), after which it took over another two years to complete the transition. The above proposals' transition times are either immediate or effectively immediate (<1 year), and they haven't been a part of RP's roadmap since inception. We don't know what user expectations are on this point until we learn more, and acting without knowledge is akin to rolling the dice on a $1b+ system. To this end, I want to continue surveying NOs and RPL holders. It may take a lot of time to gather and compile this information into a full report, but I don't think we can risk moving forward without this data. Now that I've started, I've realized it it has a very high value. We should have been doing this all along! The community would be well served by user surveys for a variety of topics, ideally integrated into the smartnode. Perhaps this is a good grant target, but for now, I am conducting this research manually. ------ For prior context on tokenomics research and my own views, see [this series of writings detail some of my earlier research on RPL tokenomics](https://hackmd.io/NIlfyRshQKOo_DZ8NKYo_Q).
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My Values

vvander.eth

7/21/2023
Valuing Digital Assets

Mike Leach (vvander.eth) 2022-11-05

7/15/2023
RP Layer 2

Written by Xer0 Tldr: centralized SaaS provider build on Rocket Pool The goal for this idea is to help define a higher APR for ETH while still utilizing the Rocket Pool network. I’ve compared a few APRs below Solo-staking = 5% Lido-liquid staking = 4.6% (10% commission) Rocket Pool rETH = 4.3%

11/5/2022
Identity and Governance

vvander.eth - 2022-08-18 Recently, the Rocket Pool community has been working hard to formalize the DAO and get several initiatives off the ground. This is a great achievement and it's something I'm very proud participate in. Generally, this has taken the form of Rocket Pool Improvement Proposals, but it also includes a vote on the Incentives Management Committee initial member list, which includes several anonymous members. This is the subject of my writing today. Identity and its relationship to trust in the crypto realm is a touchy subject, as evidenced by the recent Tornado Cash + OFAC debacle. Privacy is a core crypto value. Nevertheless, all participants are responsible for the safekeeping of public goods, so we have to form an opinion on identity and trust in governance. Namely, is identity a useful input in deciding who we trust? Trust is a difficult problem. BrightID and similar projects aim to provide Proof of Humanity (PoH) without publicizing identifying information, but they are still nascent and easy to fool. PoH protocols might help prevent large-scale sybil attacks, but it isn't a solution for preventing smaller, more targeted sybil attacks like the ones to which a multi-sig is vulnerable. As any infosec professional will corroborate, security planning is all about the expected threat vectors. If you want to defend against a nation-state attack on your trillion-dollar blockchain, you're going to take different precautions than if you're just worried about your smartphone in a sketchy part of town. In Rocket Pool's case, its governance resources are already a decently high value target, so when designing governance structures, the DAO must account for actors willing to put in an enormous amount of time and effort into an attack -- e.g. paying several people to create the appearance of multiple active and engaged anonymous accounts with the explicit goal of campaigning for governance powers. This is especially worth thinking about when it comes to the more powerful protocol-level responsibilities like the pDAO guardian and the oDAO, but it's true for anyone given governance powers. The blessing and curse of crypto is that we can't rely on any authority to provide deterrence against such attacks, so we're on our own to design resilient systems.

11/5/2022
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