What Is Rocket Pool?

By Gaurav Roy

As is pretty clear from the name, staking is the central part of any Proof-of-Stake (PoS) blockchain. This process not only helps keep PoS networks secure but also incentivizes people to help keep it running.

Let’s use the biggest PoS blockchain, Ethereum, as an example. As a peer-to-peer network, Ethereum relies on some of its participants to act as network validators. These validators operate blockchain nodes and verify new blocks so they can be added to the blockchain. 

However, to prevent bad actors from acting as validators, Ethereum requires its validators to lock up some Ethereum to serve as validators. They must have a financial stake in the network, to prove their trustworthiness. In return for doing this and operating a node, validators receive staking rewards. 

But let’s face it: staking ETH on your own is a complex process and is not for everyone. It requires technical know-how, a dedicated computer connected to the internet ~24/7, and –  not least of all – a hefty 32 ETH, making it a no-go for many. 

This is where Rocket Pool comes into the picture. Rocket Pool acts as an alternative by allowing users to participate in Ethereum staking without the technical and cost barriers of doing it independently. 

So, what is Rocket Pool? How can you take advantage of Rocket Pool while being mindful of the risks? Let’s dive into all this and more!

What Is Rocket Pool?

Rocket Pool is one of the leading liquid staking platforms for Ethereum. Basically, Rocket Pool allows its users to stake ETH without losing their liquidity. 

Liquid staking platforms accomplish this through the use of Liquid Staking Tokens (LSTs), also called Liquid Staking Derivatives. These tokens are pegged to the value of the initial asset that users stake and, crucially, can be used on DeFi platforms and other decentralized apps, just like any other token. To that end, Rocket Pool gives its users the liquid staking token, rETH.

Today, Rocket Pool is one of the largest ETH staking pools in the ecosystem. In fact, since its launch in October 2021, users have staked over 1M ETH on the platform.

What Is Rocket Pool For?

Rocket Pool is an open-source, decentralized, and trustless platform, aligning it closely with the ethos of Ethereum. The platform has become a very popular ETH staking solution since its launch for several reasons.

Staking With Less Than 32ETH

For one thing, Ethereum’s native staking requires users to stake at least 32 ETH. In contrast, Rocket Pool’s barrier to entry is much lower as the platform allows you to stake any amount, starting as low as 0.01ETH.

Staking Without Running Hardware

Similarly, Ethereum’s native staking requires you to run your own node – a resource-intensive, technically challenging, and time-consuming process. Rocket Pool, on the other hand, allows you to start staking ETH simply by buying the ERC-20 token, rETH. While the value of rETH is pegged to ETH, its value goes up over time as holders earn staking rewards.

Removing the Need to Lock up Liquidity

Furthermore, Rocket Pool provides users liquidity by enabling them to use their locked funds. The platform’s liquid staking mechanism gives you rETH in exchange for your staked ETH. You can then utilize rETH just like any other ERC-20 token in the vast DeFi ecosystem.

Those who want to earn more rewards can do so by becoming a Rocket Pool node operator, which has a minimum requirement of 8 ETH. There are currently more than three thousand node operators in Rocket Pool’s network.

How Does Rocket Pool Work?

The Rocket Pool protocol consists of three main elements: smart contracts, the Smart Node Network, and Minipool Validators. Let’s take a look at the role that each of these elements plays in the system.

Smart Contracts

The first main element of Rocket Pool is its smart contracts, and they fulfill two roles within the protocol. Firstly, they accept ETH deposits from users and assign them to node operators. Secondly, the smart contracts are responsible for issuing and tracking the various tokens within the protocol. 

Smart Node Network

This is a decentralized network of Ethereum nodes that run Rocket Pool’s Smart Node software. These nodes are specialized to run custom processes, allowing them to communicate with Rocket Pool’s smart contracts and provide network consensus. 

Anyone can run these Smart Nodes and stake their ETH without incurring a fee, provided they fulfill the minimum 8 ETH requirement. In return for providing Rocket Pool with a node, you get to earn extra rewards on top of what you earn from staking your ETH. These rewards come in the form of the Rocket Pool token.

Minipool Validators 

These are special smart contracts that fulfill a key role in the Rocket Pool Network. Here’s how they work: 

A node operator first deposits 8 ETH (or 16 ETH) on their node. When this happens, the Minipool Validator then receives 24 ETH (or 16 ETH) in deposits from users who are staking on Rocket Pool but not running a node of their own. 

As the smart contract accumulates a total of 32 ETH – the ETH from the operator plus the ETH from the other users – it creates a new validator on that node, which then performs the consensus duties to earn staking rewards on that 32 ETH.

The Rocket Pool Ecosystem: Explained

What Is RPL Token?

The Rocket Pool Token, or RPL, is the governance token of the protocol, providing a way for the community to have a say in the protocol’s future and the way it functions. 

RPL is also what node operators must use as collateral to insure their node. To explain, when node operators create a Minipool Validator, they are required to stake at least 10% of their ETH’s value in RPL as insurance. If a node’s poor performance or misbehavior causes the network to lose any ETH, it can be recouped by selling off that node’s RPL collateral. 

The protocol also distributes RPL as a reward to node operators for operating on the network. In fact, operators are incentivized to stake as much RPL as possible (up to 150% of the value of their stake) to increase their rewards.

RPL has a current inflation rate of 5% per year. This means, for example, that in a year where the total supply of RPL was 20M, the protocol would mint 1M new RPL.

What Is rETH?

Besides RPL, the Rocket Pool network utilizes another type of token: rETH. It is a liquid staking token that users receive in return for the ETH that they stake. To explain, after depositing ETH into the protocol, you immediately receive rETH. Then, as validators accumulate rewards, you receive rewards proportional to your stake.

As previously mentioned, rETH can be used like any other blockchain token on decentralized apps. For example, you can use it as collateral for a loan on decentralized lending platforms, or to provide liquidity to a DEX.

Oracle DAO

Oracle DAO is a special group of Rocket Pool node operators that perform important administrative duties that smart contracts can not. 

These responsibilities include managing the creation of unique validator public keys for minipools and transferring data from Ethereum’s Beacon Chain to its execution layer. The Oracle DAO also proposes, votes on, and implements changes to Rocket Pool. In return, the protocol compensates Oracle DAO members by allocating them a 15% share of the total RPL inflation produced in each reward period.

Risks of Rocket Pool

As a leading decentralized ETH staking protocol, Rocket Pool is integral to the Ethereum staking scene, but it is not without its risks.

Smart Contract Risks

The most obvious risks are those that accompany any protocol using smart contracts. This means that Rocket Pool is potentially vulnerable to bugs that could lead to breaches or exploitation. While the protocol has open-source code and has gone through audits, this is by no means foolproof. That said, Rocket Pool also has a bug bounty program to reduce such risks.

Risk of 51% Attacks Due to Lower Staking Costs

Last year, Ethereum co-founder Vitalik Buterin raised concerns over Rocket Pool’s underlying mechanisms. In a blog post, he noted the protocol’s approach, which allows users to run a node for a quarter of Ethereum’s native staking cost, could enable malicious actors to “51% attack the network, and force users to pay most of the costs.”

To clarify, a 51% attack is when a malicious individual or entity attempts to gain control over a blockchain network and exploit it for their benefit. This is actually part of the reason Ethereum’s native staking has the 32 ETH minimum requirement: it makes it incredibly expensive for would-be attackers to gain control of more than 50% of the network’s nodes. 

Other Risks to Consider

Other risks could come in the form of market volatility and demand affecting rETH’s value, issues with Ethereum affecting Rocket Pool’s performance, and regulatory and taxation ambiguity around crypto, specifically staking rewards.

Then there’s governance risk. While the risk of this is relatively low, if the OracleDAO somehow became compromised, it could negatively impact the protocol or even implement malicious changes.

How To Stake ETH on Rocket Pool in Ledger Live

Now that you know the advantages offered by and risks associated with Rocket Pool, here’s how you can use Ledger Live to stake ETH on the platform:

1. Install Rocket Pool on your Ledger device. Navigate to ‘My Ledger’, select the App catalog, search for Rocket Pool, and click Install.

2. Now go to the Rocket Pool dashboard, and select the Ethereum account that holds the ETH you want to stake.

3. Once connected, input the amount of ETH that you want to use and click on “Stake”.

4. Sign the transaction on your Ledger device.

5. Once done, you’ll receive rETH tokens. The amount will be different from the ETH staked because the value of rETH depends on a dynamic exchange rate.

You can find full instructions for staking ETH on Rocket Pool, including how to unstake, on Ledger’s support page.

Final Thoughts on Rocket Pool

Rocket Pool’s user-friendly approach to liquid staking, easy-to-use platform, and dynamic rewards have all made it a very popular choice for users looking to stake ETH without the hassle of doing it independently.

Of course, you can access all types of staking – from native, to staking as a service, to liquid or pooled staking – all from the Earn section in Ledger Live. 

The seamless online interface of Ledger Live, conveniently paired with the enhanced security of your Ledger device, allows you to track your rewards, discover staking opportunities, and effortlessly maximize your crypto holdings without having to navigate multiple platforms
So what are you waiting for? Explore Ledger Live today to unlock your financial potential, and take advantage of the many benefits of crypto staking.