What Is Rocket Pool?

With the introduction of the Beacon Chain, Ethereum has begun its transition to the proof of Stake consensus mechanism, a more stable, secure, and environmentally safe method of consensus.

Users who wish to support this change can do so by staking their Ether (ETH) on the beacon chain, otherwise known as the Ethereum 2.0 network, and get rewards. However, it is not that straightforward. Staking ether and becoming a validator on the beacon chain requires both sophisticated hardware and a deposit of 32 ETH, which is currently valued at about $50,000. Many users cannot meet either of these requirements and have their options limited to joining a staking pool, where numerous users pool their resources together to qualify. The problem with staking pools is that it facilitates centralization and poses a fraud risk.

To the relief of many, an Australian developer proposed a solution in the form of Rocket Pool. This decentralized, open source staking protocol allows users with as little as 0.01 ETH to support the ETH 2.0 network.

What Is Rocket Pool?

Rocket Pool is a decentralized staking protocol that allows users who do not meet the required qualifications to stake on the Ethereum 2.0 network. Outside Rocket Pool, users wishing to become node operators must stake up to 32 ETH. With Rocket Pool, users need only stake half the usual value, 16 ETH, to become validators on Ethereum 2.0.

The Rocket Pool protocol does more than support staking opportunities for node operators; it also includes staking-as-a-service providers. On Rocket Pool, users without the technical know-how and hardware can patronize staking-as-a-service providers. Users who wish to take this route can stake as little as 0.01 ETH without assembling a technical framework.

A Brief History of Rocket Pool

The decentralized protocol, Rocket Pool, began with the Mauve Paper that Vitalik, the founder of Ethereum, released in 2016. David Rugendyke, an Australian blockchain developer, found Rocket Pool having been inspired by Ethereum’s looming shift to the Proof of Stake consensus mechanism.

Rugendyke anticipated a gap in validators for the beacon chain. Ethereum 2.0 required validators to deposit 32 ETH and own high-spec equipment (a computer with a CPU processor with four cores and a minimum clock speed of 2.80 gigahertz.) to validate transactions on the network.
These requirements set barriers to the network and created a gap in validators.

Rugendyke pioneered his proposed solution as CTO while working with Darren Langley, a software engineer who has since become the General manager of Rocket Pool.

How Does Rocket Pool Work?

Two main things come into play when making sure that the Rocket pool protocol functions effectively. They include DAOs and smart contracts.

Rocket Pool is supported by two major DAOs, the Protocol DAO and the Oracle DAO. The former serves more of an administrative purpose because it is a community of members that decides what changes will be made to the protocol. The latter is more integral to the base technology of the Rocket Pool network and will be explained shortly.

Rocket Pool’s technology is built entirely on the Ethereum Mainnet or ETH 1.0, while the validating processes take place on ETH 2.0. It is important to note that at this time (at least until the merge), the two chains are running parallel to each other and have no concrete connection.

Source: LogicBeach

Data such as the status of a transaction on chain 1.0. cannot be available to a smart contract on chain 2.0. To bridge that gap, Oracle DAOs are made up of oracle nodes that provide oracle services and network liveliness to the protocol and its users.

The Oracle DAO is essentially an association of oracles, and data reported to be sent to smart contracts on ETH 1.0, must have already reached a majority consensus within the DAO.

Oracle DAO members provide two main forms of data, validated status of minipools (validators on the Rocket Pool protocol) and accurate RPL: ETH ratio for each user.

With this data, functions within the Rocket Pool protocol are possible with smart contracts. The processes of staking ETH, receiving rETH, and calculating a node’s APY are all based on smart contracts and would not be possible without the Oracle DAO nodes.

What Makes Rocket Pool Unique?

With over 200,000 ETH stakes and over 1000 node operators, the Rocket Pool protocol is arguably the premier protocol supporting staking on the beacon chain. To its credit are some features that make it a favorite amongst DeFi users. These features include:

1. Decentralization: Rocket Pool’s protocol DAO, which is run using the RPL governance token, facilitates the community agenda within the protocol. Decision making is not delegated to a single entity, and changes to the protocol are decided by the community of RPL governance token holders.

2. Dual Token Model: Rocket Pool caters to two groups of investors and has provided two token options to be used in various ways across the protocol. Its governance token, RPL, performs the function of native tokens in Decentralized Autonomous Organizations, and its liquidity token, rETH provides users with proof of their stake.

3. Open source: The primary aim of Rocket Pool is to expand staking opportunities for DeFi users on the beacon chain. As such, its primary services cater to and encompass a wide range of groups. Independent node operators, regular Ethereum holders, Software-as-a-service providers, and even pool stakes can also support the beacon chain via Rocket Pool. Additionally, smart contracts on the protocol are entirely transparent and can be accessed by anyone.

4. Security: Rocket Pool has shown that it prioritizes security with the protocol. Not only does the platform get audited by mainstream blockchain security companies, but it provides rewards for users who report suspicious activity. Additionally, a security function on the protocol prevents users from unstaking their funds within the first 24 hours of them staking it to prevent malicious activity. Finally, a socialized risk management system allows the losses from ETH slashing to be absorbed by the entire protocol instead of a single node.

5. Oracle DAO and protocol DAO: Rocket Pool is backed by two important DAOs that allow fair and trustless distribution of funds and rewards. The Protocol DAO comprises holders of the RPL governance token. They are responsible for a host of settings across the protocol. On the other hand, the Oracle DAO is made up of oracle nodes who report data across the beacon chain and the Ethereum mainnet.

Staking on Rocket Pool

To understand how Rocket Pool works, we must first understand what it is to stake on the Beacon chain.

On the beacon chain, node operators called validators are in charge of checking transactions, adding them to blocks, and proposing new blocks. To become a validator, a node needs to stake up to 32 ETH on the beacon chain. All staking processes on Ethereum 2.0 are done on a schedule, which contrasts with the infrastructure of the Proof-of-work consensus mechanism on the Ethereum 1.0 network.

On Rocket Pool, however, the rules are slightly different. Rocket pool’s services center two main forms of staking.

rETH Tokenized staking

Some users have no interest in running a node but are interested in staking their ETH. These users can stake as little as 0.01 ETH, in exchange for which they receive rETH, an ERC-20 token that represents a user’s stake, in addition to the returns on their stake. The exchange of these tokens is performed in a single transaction. Once a user has received their rETH, they can decide to HODL or put it to use in the wider DeFi landscape. Whenever a user is ready, they may decide to trade in their rETH for rewards, so long as there is enough liquidity in the protocol’s deposit pool to fill in the gap. Thus, users need not wait until the end of a phase of the Serenity Upgrade to receive their rewards.

Node staking

This category is built for users with technical skills and ETH who wish to become validators. The bracket covers independent node operators and Staking-as-a-service providers. Any user with 16 ETH can join the Rocket Pool protocol and be treated like any other validator. Once a user has deposited 16 ETH, Rocket Pool will substitute the rest of the stake with 16 ETH from the rETH tokenized stakers. The result is a validator who is staking 16 ETH on behalf of themselves and 16 ETH on behalf of the protocol. This validator is referred to as a mini pool and has the same responsibilities, and follows the same rules as node operators outside of the protocol. To reward validating transactions on the beacon chain, Rocket Pool rewards node operators with RPL, the protocol’s native governance token, and commission on their ETH.

Risks of Staking on Rocket Pool

Due to the premature nature of the cryptocurrency space, taking almost any action within the industry involves some kind of risk.

On the bright side, however, interacting with Rocket Pool poses little to no risk. The most apparent risk comes from the smart contract technology used in the decentralized application.

Smart contracts, which are automated lines of code, stand the possibility of failure. However, the Rocket Pool protocol takes security seriously and has undergone several audits from notable auditors in the crypt space. Not only have auditors like Sigma Prime and Consensus Diligence audited the protocol’s smart contracts, but they have also awarded the protocol with endorsements.

Thus, using auditors as a benchmark, the Rocket Pool protocol is secure and efficient.

Introducing the Rocket Pool Tokens: rETH and RPL

What Is rETH?

rETH is Rocket Pool’s liquidity token that represents the value of a user’s stake and value accrued on the stake. The value of a user’s rETH is determined using this formula: rETH:ETH ratio = (ETH stake + Beacon chain rewards)

The rETH value is updated every 24 hours because it grows over time of staking rewards.

The use cases for rETH go beyond the aforementioned. Users can trade their received rETH on decentralized exchanges like Uniswap or stake in other liquidity pools to earn more yield.

When a user wants to liquidate their stake, they can trade rETH for ETH on the Rocket Pool protocol, so long as the protocol has enough liquidity for the trade.

Holders of ERC-20 wallets can purchase rETH.

What Is RPL?

The governance token of the Rocket Pool protocol is known as RPL. It is the primary token of the decentralized protocol and is essential to ensuring the protocol remains trustless and decentralized. The RPL governance token gives the community a say in the important decisions that affect the protocol. Some of these decisions include rewards and inflation.

With new tokens being minted every 28 days, RPL is used to reward node operators on the protocol. Nodes are also required to deposit RPL as collateral for their ETH. This collateral can be anywhere from 10% to 150% of their ETH stake. It will serve as a cushion for when node operators are penalized by the beacon Chain either for absence or failure to perform network duties. Fortunately, there is a reward for operators who deposit RPL as collateral: extra commissions on their ETH.

The total initial supply of the RPL Token is 18,000,000, 54% of which is owned by Investors. The remaining is split 31% and 15% for Premined rewards & Airdrops and Founders & Project, respectively. At this time, the market cap of the token stands at $247 million.

How to Stake ETH With Rocket Pool

Staking on the rocket Pool protocol is entirely dependent on smart contracts. These smart contracts ensure you get the correct rETH value for your staked ETH. They mint the rETH provided in the transaction, saving you the trouble of liquidity issues, fees, or slippage.

It is important to note that after staking on the protocol, a user’s rETH tokens are restricted for 24 hours for security reasons. To stake via Rocket Pool on the Ethereum mainnet, follow these steps:

1. Install Metamask, an ERC-20 token wallet, create an account, and sign in.
2. In the MetaMask panel in the app, select network dropdown and select Ethereum Mainnet
3. Add rETH to your MetaMask wallet so you can access it for trading. To do this, start by selecting Add Token in the Assets tab and then clicking Custom Token.
4. You will be prompted to provide the following information.

Token Symbol: rETH
Decimals of Precision: 18
Token Contract Address: 0xae78736Cd615f374D3085123A210448E74Fc6393

Fill in the boxes with the information provided above.

Source: RocketPool Guide

1. Click accept on the remaining prompts, and your rETH should appear on the list.
2. The next phase is adding ETH to your wallet. You can either transfer from an existing wallet or buy from a cryptocurrency exchange platform.
3. Now you are ready to visit the Rocket Pool website.
4. Once there, connect your wallet. You will see a rundown of your balances when you click the wallet icon in the top right corner of the screen.
5. Finally, enter the amount of ETH you would like to deposit in the Stake ETH input button and click stake.

Conclusion

The transition of Ethereum to a full PoS consensus algorithm opens up possibilities for novel dApp ideas. Rocket Pool has taken advantage of these possibilities and paved the way for developers to develop even more simple and more innovative solutions to increase access to Ethereum.

Rocket Pool offers infrastructure to support staking at values as low as 0.01 ETH, provides liquidity, and permits quick cash withdrawals. For everyday cryptocurrency users wishing to stake Ethereum for profit or to support the ecosystem, the latter aspect is fantastic news.

In the end, Rocket pool is simply a safe approach to increase your cryptocurrency balance and assist the Ethereum network.