So The Merge has officially succeeded! Marking that the whole cryptocurrency world has conquered a new milestone. An arduous journey for Ethereum towards scalability, security, and sustainability. As ETH consensus moves from PoW to PoS, more attention is being focused on liquid staking platforms. One of the leading protocols for staking $ETH in this field that we all know is Lido Finance. So, besides Lido, is there any other platform worth our attention? Today, let's learn about Rocket Pool with Holdstation, a platform that doesn't capture as much market share as Lido, but is still working hard to make Ethereum more decentralized day by day.
What is Rocket Pool?
Rocket Pool, with a TVL of $500 million, ranks 2nd behind Lido Finance in the top protocols for liquid staking services for $ETH. Rocket Pool currently accounts for only a small portion of the $ETH liquid staking market. Currently, there are about 220,000 $ETH deposited in Roket Pool which is much smaller than the 4,000,000 $ETH currently in Lido Finance. However, Roket Pool is currently distributing this $ETH to more than 1400 node miners, while Lido's $4 million ETH is currently being distributed to only 24 node miners. Rocket Pool is probably the “Silent Hero” that is helping ETH gain more and more power in terms of decentralized validation.
The premise for the potential of Rocket Pool
Currently, more than 30% of the ETH staked is currently being staked in Lido Finance. Users deposit $ETH into the Lido staking pool, this deposited ETH will be distributed to 24 node miners. These node miners are selected by Lido, and most of these node operators are big names like P2P Validators, Stake.Fish, etc.
It can be seen that Lido Finance is accounting for more than 90% of the liquid staking market share, and the entire allocation of ETH staked to the protocol is sent to professional node operators selected by the DAO protocol. This is raising concerns about the overwhelming success of Lido bringing about the concentration of validating power and possibly even influencing Ethereum.
The vision of Ethereum is to have a decentralized and diverse composition of validating nodes around the world. However, the current situation shows that most of $ETH is being staked on CEX or Lido Finance.
Liquid staking of Rocket Pool
Like Lido Finance when staking ETH users will receive stETH, in Rocket Pool users when staking ETH will receive rETH. rETH does not accumulate revenue through incremental issuance like stETH does. When Ethereum is successfully merged, the $ETH staked users can immediately unstake along with the accumulated reward, users can return rETH to the protocol, then exchange $ETH and rewards $ETH respectively. Thus the value of rETH increases over time. $rETH is currently trading on the secondary market for around $1,443 per $rETH.
One weakness of rETH is that rETH currently has only a small share of Ethereum's liquid staking market, with only about 106,500 tokens in circulation (stETH has over 4 million tokens in circulation). Due to its small market share, rETH has limited liquidity on exchanges and relatively few DeFi use cases.
Strength solo validator for Rocket Pool's potential and future.
The real highlight of Rocket Pool lies in the service that allows solo validator. In contrast to Lido Finance allocating $4 million in ETH to only 24 selected node operators, Rocket Pool allocates all sent ETH to individual validators around the world. This allocation of $ETH to many validators is exactly what Ethereum is aiming for for true decentralization. So surely in the near future Rocket Pool will receive the support of the community.
Lido Finance allocates staked $ETH to professional node operators. While this strategy creates a centralized authentication problem, professional node operators have technical expertise and non-native hardware. So there isn't any concern about their performance.
Solo validators, on the other hand, are beneficial for decentralized validation, but may not have the same performance quality as professional node operators. If a validator is offline and misses the recommendation to validate or block, he or she will be penalized by cutting the amount of ETH staked. (the penalty is usually not too severe unless there is serious malicious behavior such as a cyber attack)
To ensure the performance of solo validators and protect the stakers staking $ETH, solo validators are required to stake at least 1.6 $ETH worth of RPL$ tokens as additional insurance against crashes. Since $RPL is required to be locked as insurance, when more solo validators join Rocket Pool, more $RPL is needed to act as insurance. This will reduce the circulating supply of $RPL. 34.55% of the $RPL supply is currently being staked for this purpose.
It is important to note that since $RPL needs to be staked to become a solo validator based on the value of $ETH ($RPL worth 1.6$ETH), it means that if the price of $ETH increases and the price of $ If the RPL does not change, being a node operator will require more $RPL, the $RPL circulating in the market will decrease faster. This contributed to the deflationary mechanism for $RPL
Tokenomics
Rocket Pool's native token is $RPL . The protocol has a nice tokenomic design to achieve two purposes:
Make sure solo validators do their job properly and protect from crashes.
Encourage everyone to become a solo validator for Rocket Pool.
Solo validators incentive strategy with $RPL
The benefits of being a solo validator for Rocket Pool come from two main sources, the network verification bonus and the $RPL reward. Solo validator earns 100% ETH reward for half of their winning $ETH offered, 15% commission on the other half of $ETH provided by Rocket Pool, and $RPL reward. 70% of the total $RPL supply will be allocated to reward solo validators. According to the protocol's estimates, the estimated staking reward + commission is 4.81% APR, slightly higher than Ethereum's staking return of 4.2%. The $RPL reward APR is about 12.16%.
Two factors are affecting the circulating supply of $RPL:
Incentive reward $RPL emitted >> Increase circulating supply
More solo validators join the network or $ETH price increases >> Decrease in circulating supply
Conclusion and orientation for investment reference $RPL
In general, Rocket Pool's model has a lot of potential, currently the only weakness is that rETH token does not have many defi use cases like Lido's stETH. However, this problem in the future is not difficult for a project Liquid staking pool with TVL ranked 2nd after Lido itself. Not to mention that ETH has successfully implemented The Merge, the mechanism from PoW to PoS, leading to a significant increase in demand for $ETH staking. From there, Rocket Pool's revenue in the future will be huge.
Now, after The Merge has been successfully deployed, the temporary event fomo cash flow will tend to take profits after buying $ETH at a low price during the strong correction in May. Combined with It was a strong rally up to nearly 400% of $RPL in the period of July, August, then healthy corrections are needed. At the time of writing, the price of $RPL is hovering around the $26 threshold. Investors may consider disbursing 5-10% of capital at this price range. If the $RPL price approaches the same $21, you can consider disbursing an additional 2-30% of the capital. This is an investment reference for long-term holding purposes, not financial advice, does not apply to margin lending strategies. Currently, users can refer to buying $RPL on CoinEx exchange.
