Abstract

This proposal aims to improve RPL tokenomics in the short term before the changes of RPIP-49 can be implemented. Minipools can be created without a minimum RPL requirement and at 5% contract commission. A temporary (until after Saturn 1) dynamic commission boost beyond this value is introduced. Total dynamic commission starts at 10% for zero RPL staked, and scales linearly up to a max of 14% for staked RPL positions worth at least 10% of borrowed ETH. The cliff for RPL rewards is removed by extending rewards linearly below 10% of borrowed ETH.

Motivation

With the DAO having voted for the Saturn upgrade, the fundamental value of RPL will primarily be based on megapool TVL. Short term increases in TVL are beneficial for the protocol as long as they can be expected to convert to megapools. On the other hand, as competition emerges and an equivalent or higher yield is accessible without the need to acquire a protocol token, short-term RPL utility is unlikely to continue to significantly support fundamental value. Therefore, node operation is made more attractive by allowing minipool creation without RPL and removing the cliff for RPL rewards. Contract commission for these new ETH-only minipools is kept less attractive than megapool validators under Saturn 1 to encourage migration once dynamic commission is disabled. In the interest of acting fast, this proposal minimizes smart contract changes. The suggested parameter changes can be enacted immediately after the vote passes and RPIP-63 is implemented. The dynamic commission requires reward tree spec changes, which would be rolled out alongside the parameter changes or shortly thereafter.

Specification

• node.per.minipool.stake.minimum SHALL be set to 0
• network.node.fee.target SHALL be set to 5%
• network.node.fee.minimum SHALL be set to 5%
• network.node.fee.maximum SHALL be set to 5%
• Reward Tree Spec v10 SHALL be implemented and be used for ongoing reward tree calculations. It consists of the following changes:
  • Remove the minimum RPL stake to qualify for issuance rewards
  • For minipools that are opted into the smoothing pool, determine the commission for smoothing pool calculations based on ETH bond and RPL stake:
    • For 8 ETH minipools at reward snapshots prior to Saturn 1 and the first 4 snaphots thereafter, use commission = max(contract_commission, 10% + 4% * min(1, percent_of_borrowed_ETH / 10))
    • For 16 ETH minipools and later snapshots, use commission = contract_commission
  • For the same minipools as above, calculate their individual beacon chain rewards during the rewards period and give them a bonus (node_reward_bonus) based on bonus_commission = commission - contract_commission
  • If the smoothing pool balance is not sufficient to cover the beacon reward bonus for all minipools (total_reward_bonuses):
    • Fully credit the adjusted smoothing pool rewards excluding node_reward_bonus to all nodes
    • Credit modified reward bonuses as node_reward_bonus * (remaining_balance / total_reward_bonuses)
• Reward Tree Spec v9 or Reward Tree Spec v8 MAY be used for reward periods ending before Reward Tree Spec v10 is available; this SHOULD affect no more than one reward submission after the vote for this proposal ends

Snapshot Vote

The following configuration is suggested for a vote.

Title: Tokenomics Rework Prelude (RPIP-62)
Voting type: Ranked choice voting

Options:
- For variant A (keep reward cliff)
- For variant B (remove reward cliff)
- Against both variants

After the conclusion of the Snapshot vote:

• Sections of this RPIP in the format <A|B> SHALL be updated to reflect the chosen option:
  • If variant A is chosen, replace <A|B> with A
  • If variant B is chosen, replace <A|B> with B
  • If the proposal does not succeed, do not make any edits
• These edits SHALL be made to this RPIP, even if the RPIP is already in a “Final” state

Rationale

Megapool Conversions

The base commission (without dynamic commission) is lowered to 5% such that megapool validators introduced in RPIP-49 remain significantly more attractive. As a reference point, the returns for ETH-only users in Saturn 1 would match the base commission returns from minipools in this RPIP if node_operator_commission_share were set to 2.14%; Saturn 1 starts node_operator_commission_share at 5%. We expect that operators with ETH-only minipools described in this RPIP will eventually migrate to megapools and thus contribute to RPL value capture.

Dynamic Commission Eligibility

Requiring smoothing pool participation to receive dynamic commission provides a strong expectation that the end-of-interval balance will be sufficient to cover the full reward bonus for all qualifying minipools.

To understand when there wouldn’t be enough, we look at a worst case scenario: every minipool is eligible to receive a total commission of 14% due to their parent node’s RPL stake while earning a contract commission of only 5%. This makes 86% of the pool’s pETH execution yield available to pay out a reward bonus that comprises 9% of pETH consensus yield. In this case, the balance will remain sufficient as long as execution rewards are less than 86/9 = 9.55 times lower than consensus rewards, or more concretely, provide an APR of at least 2.8/9.55 = 0.29% with annual consensus layer yield at 2.8%. This is less than half of the current network average. Even though the expectation is that it won’t be used, the specification does provide a fallback definition in case bonus commission cannot be fully covered.

16 ETH minipools are made ineligible for dynamic commission in the interest of further incentivizing rETH capacity.

Considerations

Supporting Protocols

• NodeSet Constellation enables liquid RPL staking (xRPL) and liquid ETH staking with full solo validator yield (xrETH) by building on top of the core protocol. This has the potential to increase node operator TVL by attracting market participants that do not wish to lock their capital in a node. As Constellation’s revenue is mainly derived from ETH commission, sustaining viability requires maintaining the ability to earn high ETH commission on minipools. Dynamic commission addresses this by offering 14% total commission at an RPL collateralization level of 10%.
• Rocket Lend is a Rocket Pool specific lending protocol funded by the GMC. It enables NOs to use their ETH bond as collateral to borrow RPL and stake it on their node. This proposal will likely make borrowing RPL less appealing as the marginal ETH yield it unlocks is reduced. However, the proposal may also onboard new node operators that will be interested in participating in the lending market. As such, Rocket Lend can still serve an important role in increasing capital efficiency for both lenders and borrowers.

Security

• The minimum collateral per minipool is lowered from 10.4 ETH to 8 ETH at time of creation. This is sufficient as it is still significantly higher than the 4 ETH validator bond proposed in RPIP-49.

Copyright

Copyright and related rights waived via CC0.

Citation

haloooloolo, knoshua, "RPIP-62: Tokenomics Rework Prelude," Rocket Pool Improvement Proposals, no. 62, July 2024. [Online serial]. Available: https://rpips.rocketpool.net/RPIPs/RPIP-62.