How Rocket Pool Is Democratizing Staking for Ethereum Investors


By Konstantin Boyko-Romanovsky, CEO, Allnodes

To fully grasp the power of the Rocket Pool protocol, it is imperative to understand staking. Staking is a form of passive income available to self-sovereign individuals or crypto investors on centralized and decentralized crypto exchanges and staking platforms. The act of staking involves locking up a certain amount of collateral for a period of time. In turn, this helps secure a given blockchain network, and the investor receives staking rewards similar to interest on investment. It is a passive income since no sale or trade of staked collateral occurs, and the rewards are independent of the asset’s appreciation or depreciation.

Not every blockchain offers staking. Only blockchains that operate on a Proof of Stake (PoS) consensus model are designed for staking, as their name implies. Unlike a bank, which is a centralized ledger of transactions that do not require a consensus, a blockchain on the PoS model requires participants to verify transactions and secure the cryptocurrency ledger. In a decentralized ledger, the effort for authenticating and recording transactions is collective.

Participants in PoS blockchain protocols offer their stake, or collateral, for a chance to validate blocks and receive rewards, while the protocol randomly selects a node, or computer, that will validate a block. Finally, the other validators authenticate a proposed block, and the consensus is achieved.

This is where it gets interesting. Apart from staking rewards, a PoS consensus model comes with additional perks. It does not require a lot of computational computer power energy like some other consensus models to forge blocks. Therefore, it is more inclusive and available to anyone wishing to partake.

Different PoS protocols require different stake amounts and vary by lock-up periods ranging from 2 days to indefinitely. The latter pertains to Ethereum specifically. Although not a PoS protocol, Ethereum is on its way to becoming one. ETH2.0 stakers are asked to stake 32 Ether for an undetermined period of time. In other words, to become a validator on the Ethereum network, one needs a substantial amount of collateral, over 84,000 USD worth, at the time of writing and hold that amount until Ethereum fully merges to Ethereum 2.0 and becomes a PoS protocol. This is not very inclusive.

Luckily, another concept democratizes the process of staking Ether for investors – the Rocket Pool (RPL). Rocket Pool is a community-owned, fully decentralized staking protocol that supports investors, big or small. It is designed for easier self-sovereignty, which means that partaking in Ethereum 2.0 staking via a Rocket Pool may not require extensive technical knowledge to run a node or a big wallet. It is important to note that all Ether staked through Rocket Pool supports the Ethereum network by the same consensus mechanism described above.

The Rocket Pool protocol is for two types of investors, those who wish to remain liquid and stake small amounts of Ether without being bound by uncertain lock-up periods and investors with at least 16 ETH looking to maximize their ROI and stake to become a validator. Let’s examine the possibilities of each.

Staking small amounts of Ethereum is possible when an investor exchanges their ETH for rETH tokens in the Rocket Pool. The rETH token will represent the amount of Ether staked in the pool and accrue value. It is a straightforward single transaction accessible to many investors through various decentralized applications, crypto exchanges, or digital wallets. An investor can also exchange their rETH back for ETH at any time and thus remain liquid. Therefore, it is a democratized and inclusive way to partake in Ethereum 2.0 staking since running a node is not required, the amount needed for the stake can be as little as 0.01ETH or 26 USD, and staking rewards ensue.

Even higher monetary gains exist for investors looking to run their own node through the Rocket Pool protocol. However, instead of 32 Ethereum, an investor can stake only 16 ETH. The other 16 ETH will come from the protocol itself, making up for the validator node requirements of 32 ETH, and a Minipool will be formed. How can a protocol afford such a top-up? The additional Ether comes from investors that exchange it for rETH tokens mentioned earlier. The entire idea verges on brilliance, but it doesn’t end here. The 16 ETH from the Rocket Pool generates additional ROI for the node operator between 5 and 20%. This percentage varies based on the supply and demand of rETH and remains fixed after the launch of the Minipool. Currently, this expected Minipool fee is at 15.05%

16 ETH is still a large sum, so the protocol participant is being asked also to provide a minimum amount of RPL crypto assets as collateral, specifically, 10% of the ETH value at the very least and 150% at the very most. The current price for RPL is 23.83 USD, and it’s all-time-high stands at 59.21 USD. RPL ranks #235 on CoinMarketCap.

The best part? Like all PoS protocols, RPL comes with its own staking rewards, and the investor now receives staking rewards from RPL and staking rewards from Ethereum. To illustrate with numbers, consider that the Ethereum 2.0 node operator makes 5% ROI while the Rocket Pool node operator makes 5.75% from staked ETH2.0 (including the Minipool fee) and 18% from staked RPL.

From its launch in early November 2021, 2,988 Minipools have registered through the Rocket Pool protocol across 70 decentralized geographic locations. At this time, there is only one staking platform where investors can launch Minipools. However, investors can also launch Minipools using their own infrastructure. Such democratized staking offered by the Rocket Pool is an excellent example of Decentralized Finance (DeFi) at work, and the extent of new rising financial instruments is fascinating.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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