Draft Proposal: Expanding Rocketpool's Market Reach with No-RPL-Bonded Megapools

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We propose changes to the Rocketpool protocol aimed at expanding the total addressable market (TAM) of Rocketpool Node Operators. In addition to the options they currently have, Node Operators would be able to run a new type of pool that trades off RPL price volatility for borrowed-ETH rewards. Those rewards would instead accrue to holders of unstaked RPL who lock their RPL in a vault.

Some Personal Background

As a Node Operator with an RPL collateral ratio under 10%, I won't be starting new minipools despite having idle ETH I'd like to stake. Going into rETH is not an option for me as the tax liabilities triggered would dwarf the current (low) APR. I've looked into starting new validators as a solo staker, but was put off by the nitty-gritty of doing so. And there's no way I'm buying more RPL after seeing the volatility RPL exhibits.

The current UX is unfriendly to those of us who aren't interested in speculating on RPL and just want to stake their ETH using Rocketpool's tried-and-true framework. Truth is, with Megapools set to vastly improve the cost-effectiveness of staking incremental ETH, I'd willingly forego a large portion of my 14-15% cut of borrowed-ETH rewards if doing so would shield me from RPL volatility while allowing me to stake my idle ETH with Rocketpool's best-in-class.

• Software
• Dashboards
• Smoothing-pool
• Rescue-node
• Community
• Lindy

I think there are others like me in the node operator market. See for example,

• https://dao.rocketpool.net/t/as-the-price-of-rpl-fell-some-problems-were-exposed/1967/8
• https://dao.rocketpool.net/t/as-the-price-of-rpl-fell-some-problems-were-exposed/1967/9

How can Rocketpool expand its TAM and capture our business?

Proposal Outline:

1. Establish an RPL Vault: RPL holders have the option to lock RPL tokens in a vault.
2. Establish a No-RPL-Bonded (NRB) Megapool: As the name suggests, these megapools do not require RPL to be bonded.
3. NRB-pool queue: When an NRB pool is started, a chit representing the intended amount of borrowed-ETH goes into a queue. The queue advances at the rate of 1000 ETH per day. Once an NRB's chit has cleared the queue, the NRB pool's bonded-ETH is moved to the minipool queue (though it probably won't be called that once megapools are a thing)
4. Vault Cut of Borrowed-ETH rewards: 9% of an NRB megapool's borrowed-ETH rewards goes to the vault as a Vault Fee.
5. NRB Operator Cut of Borrowed-ETH rewards: NRB megapool operators receive 5% of borrowed-ETH rewards.
6. Vault Fee is sent to the rETH contract: The vault fee is simply added on to the ETH sent to the rETH contract whenever the operator takes a distribution from the smoothing pool, their fee distributor, or their NRB megapool.
7. Vault Fee is Claimed as rETH: Depositors into the vault can claim their share of the vault fee as rETH at the current protocol rETH/ETH exchange rate at the end of each epoch.
8. Vault RPL is Ineligible to Vote: RPL locked in the Vault is ineligible to vote on formal proposals.

Market Analysis

There seem to be 4 broad groups of Node Operators in the Rocketpool ecosystem :

No-Speculation Operators (No-Specs): Potential Node operators who would like to use Rocketpool but refuse to speculate on RPL. At the moment such operators can only use the protocol through clunky "marriage contracts" with RPL holders

Yes-Speculation Operators (Yes-Specs): Node operators who like using Rocketpool and are happy to stake and speculate on RPL

Grudging-Speculation Operators (Grudge-Specs): Node operators who like using Rocketpool but feel forced into staking and speculating on RPL

Pure-Speculation Non-Node-Operators (Pure-Specs): Folks who hold unstaked RPL purely for the purpose of speculation

Of these groups, I believe No-Spec is the largest one by far and represents a big untapped market for Rocketpool

While we may want to monetize No-Specs ASAP, its important to do so without unleashing unmanaged forces of supply and demand that would increase RPL market volatility. To manage these forces, let's first understand where they will come from:

RPL Supply: RPL supply will primarily come from Grudge-Specs converting to No-Specs, but also to some extent from Yes-Specs, and Pure-Specs who a) do not believe in the potential of No-Spec monetization to drive large revenues long-term, or b) want to avoid the RPL price volatility wrought by a badly managed transition

RPL demand: RPL demand, on the other hand, will come from new and existing Yes-Specs and Pure-Specs (and even Grudge-Spec to Yes-Spec converts) who do believe in the potential of No-Spec monetization to drive long-term revenue.

If these forces play out on different timelines, they could cause significant RPL price volatility. RPL volatility begets RPL volatilty because it converts Yes-Specs to Grudge-Specs and then to No-Specs. On the other hand, a general conviction that RPL price volatility will be contained during the transition can itself subdue volatility. This brings us to the purpose of the nrb-pool queue. By indirectly limiting the rate at which Grudge-Specs will sell RPL to start new nrb-pools, the nrb-pool queue should suppress RPL price volatility. 24hr RPL volume is currently around 2.1K ETH. Assuming a 10% RPL bond per borrowed-ETH, transference of 1000 borrowed-ETH from RPL-Bonded minipools to NRB-megapools would cause no more than 5% of the current 24 hr RPL volume to get market sold each day.

The throughput of the queue can be raised by the pDAO if RPL price remains well anchored.

Additional Notes:

1. The current tokenomics do not offer a clean separation of roles---one needs to either be lucky or be an RPL tokenomics/market-dynamics maven to profitably operate a Rocketpool node. This proposal creates space within the Rocketpool umbrella for a pure play node operator role that's competitive with solo-staking. The provision of such a role will expand Rocketpool's TAM.
2. Because NRB operators do not bond RPL, there's no need for RPL inflation to compensate for decreased capital efficiency. Indeed, NRB pools can play a central role in Rocketpool's path to sustainable inflation.
3. A 9% Fee on borrowed-ETH rewards is roughly double the take rate of LDO holders. So, theoretically speaking, if NRB megapools were the only minipools available, RPL could sustain the same marketcap as LDO with roughly half the amount of borrowed-ETH.
4. The 5% Node Operator cut on borrowed-ETH is intended to nudge would-be solo-stakers to stake with Rocketpool.

Open Questions:

• Do the Vault and Node operator fees (9% and 5% of borrowed-ETH respectively) seem right? Ideally these rates would be adjustable by the pDAO and the adjustments would apply to all NRB minipools (not just new ones). Unfortunately, making this so poses a technical challenge: When borrowed-eth rewards are distributed, how do we ensure that borrowed-ETH rewards are taxed at the fee rate prevalent when the rewards accrued?

Next Steps:

1. Community Discussion: We encourage the Rocketpool community to review this proposal and provide feedback.

2. Technical Analysis: A technical feasibility study is needed to understand the potential impacts and complexities of the proposed changes.

3. Formal Proposal: If the community and technical analysis support the proposal, it can move to the formal proposal stage for voting.