Rocket Pool is an innovative platform that allows users to stake on the Ethereum network with less capital required, earning extra rewards while contributing to the security of the network. It is a permissionless protocol, which means anyone can stake their ETH without requiring any approvals. Users can either:

• Be a Node Operator (NO) and run software on their own hardware (or on the cloud). This role requires only [8 ETH + 2.4 ETH of RPL] or [16 ETH + 1.6 ETH of RPL] to be staked by the NO to create a Rocket Pool minipool (which is linked to a beacon chain validator);

• Invest in the rETH token. This role doesn’t require anything else other than just holding the token. The provided ETH to mint rETH will be paired with a Node Operator to reach the required 32 ETH to launch a new validator on the beacon chain. The rETH token will increase its value over time as the network receives rewards.

It becomes clear that Rocket Pool relies on a balance between these two roles that must be matched to support the protocol growth and it is common to have more demand on one side or the other. We can have two kinds of imbalance in Rocket Pool and I want to explore the beauty of how each of those scenarios naturally creates incentives for the other side to grow and go back to a balanced state. We can either have:

• too much demand for rETH. This leads to the deposit pool contract reaching its limit and has two consequences: a reduction in the rETH APR as we have idle ETH waiting on the deposit pool, making rETH become a bit less attractive. In this scenario new buyers can only get rETH from secondary markets, creating a premium on its price that can be used to incentivize Node Operators to create new validators. When new node operators take this premium and create new minipools the balance is restored.

• too much demand for minipools. This leads to an empty deposit pool, which increases the rETH APR, making rETH more attractive (no drag from idle ETH on the deposit pool).

We have previously seen one mechanism that can be used to restore the balance between rETH demand and minipool supply involving the premium described above by using a tool called RocketArb, developed by Rocket Pool’s community member Ramana. With the Shapella fork and the Atlas upgrade, RocketArb could be upgraded to also support the arbitrage opportunity created when too many users are trying to sell rETH. This would lead to a discount on the rETH price and become an incentive for Node Operators to buy the discounted rETH and close their minipools, restoring the rETH price.

The Atlas upgrade brought another mechanism that plays a role in helping the system restore its balance and I’m glad to have proposed it back in August last year.

Before Atlas, when a Node Operator joined the minipool creation queue, waiting to be matched with deposits from rETH minters, the ETH provided by the node operator would sit there idle. Considering a queue with hundreds of operators we could have thousands of unproductive ETH in the system (actually having a negative impact on the rETH APR, which is the opposite effect of what we want - to create incentives for the rETH demand). After Atlas, when a NO makes the deposit for a new minipool, only one 1 ETH is deposited in the beacon chain and the remaining ETH provided goes to the deposit pool and can be used to match and launch the first minipool in the queue. This new ETH that becomes productive faster without any new rETH minted increases the rETH APR, making it more attractive.

Another interesting aspect of this design is that the ETH that originated from a Node Operator who joined the queue can also be used by other Node Operators willing to enter the queue, as there must be at least 1 ETH available in the deposit pool for them to start the process. This makes the queue longer and has two effects that help to restore the RP balance by making the rETH side more attractive:

• a new investor considering joining Rocket Pool would have to consider the uncertain time waiting in the queue not earning any yield and may decide that investing in the rETH side would be more effective at that moment, and start receiving the rETH yield immediately. A few weeks of waiting in a queue would have a negative effect on a yearly yield;

• existing Node Operators with 16 ETH minipools who decided to reduce their bond from 16 ETH to 8 ETH to create a new 8 ETH minipool will effectively reduce their yield when they complete the bond reduction, as they start receiving rewards only on 8 ETH instead of 16. They will only recover this yield when their new 8 ETH minipool has waited in the queue and launched. This means that while the Node Operator is waiting in the queue, the forfeited APR from the reduced bond is now boosting the yield on rETH. This boost can have a big effect, considering hundreds of bond reductions currently taking place, which will make rETH a much more compelling option, thus increasing the rETH demand and helping restore balance.

With all of that in mind, if you have ETH and would like to stake it on Rocket Pool, going the rETH path might be the best choice right now*.

As we look toward the future of Rocket Pool, I invite all readers to step out of their comfort zones and think creatively about how they too can contribute to the evolution of the protocol and of Ethereum as a whole. Sometimes you don’t even need to have the idea. The one mentioned in this article, in particular, was born in Valdorff’s mind - I just saw it had potential, refined and polished how the design would look, and fought for it on the forum. I’d like to thank the team for implementing it, and everyone else who helped make Rocket Pool and Atlas such a huge success.

*NFA, DYOR