HackMD
Rocket Pool 2.0 Tokenomics, Pt 3:
Current Protocol Proposals
-Wander, 2022/05/01 (vvander.eth)
tags: rocket-pool research
Rocket Pool has been live for about 6 months now, and in that time, we've seen quite a few suggestions on future protocol improvements. This series focuses on areas of research for Rocket Pool tokenomics and suggestions for the future – this part is about the existing tokenomics proposals being discussed.
First, a quick note: these are the most highly supported and fully specified suggestions so far, though many more exist. If you want your idea included here, shoot me a message!
Ken's Un-ETH-bounded (UEB) minipools in RPIP-6
Status: Draft RPIP
In one of my favorite suggestions, Rocket Scientist Ken proposes allowing NOs to create minipools using only their RPL as collateral with no ETH required. The mechanics of this are not settled at all, so there are many variations of this idea floating around. My suggested twist on this idea proposes distributing the security risks of RPL/ETH ratio fluctuations onto the NO via a liquidation mechanism, although that has its own downsides.
I expect that there will be quite a bit of workshopping on this idea in the future since added utility for RPL will be attractive to the community.
Combo Nodes
Status: Mutliple Ideas, Draft RPIPs, and a Proof of Concept
RPRC-3, RPRC-7, and the "Pawn Stars" idea provide new options for RPL holders and ETH holders to team up to make nodes together instead of relying on a single operator which owns both RPL and ETH. This would allow the creation of new nodes from capital that is currently still on the sidelines.
For example, Patricio Worthalter is an early RPL investor with the largest amount of RPL (currently 2.5m) of any individual holder. As the founder of POAP, he has expressed a desire to stake his RPL but can't commit to running nodes himself. Similarly, there are early ETH investors who don't wish to hold RPL, either due to the tax burden of swapping or the desire to remain purely exposed to ETH. Combo Node proposals would allow these actors to put their assets together to make RP nodes, providing them with yield on otherwise stagnant assets while also increasing RP's NO capacity.
Since most of these ideas don't require changes to the protocol, it's easy for the community to experiment on top. Thus, the Rocket Pool community has led the efforts here so far. @Marceau and @Patches have a splitter contract up and running on Prater, for example.
RPL Inflation Changes
Status: Mutliple Ideas
There have been a few calls to revamp inflation mechanics, such as this DAO forum post from @jort.
I'll be going into more details in Part 4 about my proposed changes to inflation, as I think it may be best to upgrade the model more wholistically based on data gathered since launch.
pDAO Contract
Status: Early Discussion
Currently, RP does not have on-chain governance and protocol variables and upgradeable contracts can be managed by the dev team via a mechanism called "bootstrap mode". This is, justifiably, an area of concernm, as this heavily centralizes Rocket Pool around the existing dev team.
To fix this, a protocol DAO smart contract must be created to allow for on-chain governance mechanisms. However, the security sensitivity of on-chain governance makes the development of a pDAO contract both a technical and political challenge. On-chain governance introduces an extensive attack surface which, if poorly executed, could allow malicious actors to drain deposit pool and treasury funds. For an example of this in action, see the recent Beanstalk governance hack.
To protect against these new vulnerabilities, the pDAO contract will need to use intermediary governance tools, such as a governance council, as a backstop against attacks.
DVT Proposals
Status: Early Discussion
Distributed Validator Technology (DVT) is a promising avenue for overcoming some of RP's current limitations surrounding the financial barriers to entry.
DVT is exciting to Rocket Pool researchers for the multiplicative power it promises validators by reducing the ETH collateral requirement for NOs from 16 ETH to as low as 0.1 ETH (or even lower if gas prices permit). Most importantly, a lowered ETH requirement, allows nearly anyone with ETH to become a node operator.
Another effect of DVT is more consistent rewards for existing validators. Since a significant percentage of validator rewards are luck-based, smoothing these rewards are also possible with DVT; if a NO can spread the same amount of ETH across more validators, the returns become more averaged.
Smoothing Pool
Status: Advanced Discussion, Some Implementation
Of course, Rocket Pool is already pursuing rewards smoothing research on its own without making use of DVT (the methodologies are combinatory and not competitive!) in the form of a "Smoothing Pool". Kane and Joe from the dev team have spent considerable time researching and developing several ideas for smoothing NO rewards, such as this research paper on the post-Merge reward structure which led to this merkle tree reward spec.
The new reward system coming with RP v1.1 is a "stepping stone" to a smoothing pool, for which full implementation will take quite some time. Currently, there are a few unresolved problems surrounding incentivizing participation of larger stakers, but I'm optimistic these can be resolved. It may be unnecessary to solve this anyway, as rewards smoothing is attractive to so many small players that it may make up for no larger stakers joining. Either way, the future is bright for staking rewards smoothing!
Reduced ETH Collateralization
Status: Advanced Discussion
It's clear that the 16 ETH which NOs must provide to create minipools is excessive. Debates over how excessive it is are ongoing, with discussions generally focusing on time to breakeven for dishonest or non-cooperative NOs, such as those who would defect from the smoothing pool if they received a large enough MEV reward from a proposed block.
There has been some excellent analysis and research put together by the community and dev team together in discord, and some consensus appears to be forming around ~6-8 ETH as the statistically most effective minimum collateral. I worded this very carefully, because anything less than 16 ETH can lead to situations where it is more profitable for an NO to selfishly shortchange rETH holders' return rate, but the likelihood of encountering such a profitable scenario is extremely remote for even the largest NOs.
This change is highly appealing for NO capacity, as it could potentially increase NO counts significantly because exponentially more people have access to 8 ETH than 16 ETH, but it isn't a perfect solution. Note that this doesn't completely unlock NO capacity, just increase its potential, and it would also not affect the RPL collateral requirements, which would remain at the minimum of 1.6 ETH worth of RPL.
Timeline
The research listed here is still ongoing and realistically will not make its way into production for some time.
Any of the protocol changes discussed here must be audited, which means many months of advanced planning regardless of development time. The current round of planned updates is expected to be audited in May, and the changes necessary for withdrawals must be ready for the Shanghai Ethereum fork, expected in Q4'22 or Q1'23.
While the new merkle-tree reward system will make its way into production with v1.1 sometime this summer with support for The Merge, the earliest we can expect the rest of these to launch is with the Shanghai update.
Part 4
This is the third part in a 4-part series. See the final article for my views on where we should focus future tokenomics research efforts.
Thanks to @stcention for feedback on this article.
