Bankless - The Bull Case for Rocketpool with Marceau & Ken Smith

Episode Date: September 3, 2022

On today's episode, we welcome Marceau and Ken Smith, two Rocketpool community members to share everything you need to know about Rocketpool, staking, and the bull case for Rocketpool, ETH, & RPL. ------ ConsenSys | Mint a Merge NFT! https://bankless.cc/themerge  ------ SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  ️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: ROCKET POOL | ETH STAKING https://bankless.cc/RocketPool  ️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across  BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave  MAKER DAO | DECENTRALIZED LENDING https://bankless.cc/MakerDAO  LEDGER | SECURE STAKING https://bankless.cc/Ledger  ----- Timestamps: 0:00 Intro 4:40 Guest Relationship to Rocketpool 5:45 What is Rocketpool 7:36 Rocketpool's Value Prop 9:45 Two-sided Marketplace 13:20 Rocketpool's Community 16:20 The Bull Case for Rocketpool 19:50 rETH 25:20 rETH Yield 26:30 Protocol Risk 31:05 Rebasing 38:26 Running a Rocketpool Node 43:45 Rocketpool Critiques 51:48 Institutions 57:20 Single Node Operators 59:45 Pools 1:06:00 $RPL Explained 1:10:15 $RPL Critiques 1:16:00 $RPL Bull Case 1:24:40 Closing ----- Resources: Marceau https://mobile.twitter.com/marceaueth  Ken Smith https://mobile.twitter.com/shtimseht  Rocketpool https://rocketpool.net/  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. 

Welcome Bankless Nation to the Bull Case for Rocket Pool. This is our semi-regular Bull case episodes where I grab a community, grab a and they propose a few community members to take the lead on who can present the biggest and best and most bullish case for their respective project and token. Today on the stream, we're talking to two members of the Rocket Pool community. And Rocket Pool is a community that's been around for a very long time. They were one of the few projects that made it through the 2017 mania and through the 2018 to 2020 bear market.

And they were one of the few projects that I paid attention to. In my naive state of 2017, couldn't really tell what the difference between a good project and bad project was. And they were the ones that rose out of the 2017 with a community of East Staking enthusiasts, supporting them all the way through and through. The centralized team of Rocket Pool is about like five people, and they've been this very, like, grassroots bottom-up organization,

and this community has just come around, this protocol as something, not just something that exists in the app layer, but an app layer project that also is very close to the metal of Ethereum and very core to the true ethos of Ethereum. At least that's my interpretation of Rocket Pool. We will get Ken and Marceau's takes on their perspective of what Rocket Pool really is and what it means to Ethereum. Rocket Pool in this current moment is also a bankless sponsor, however, that has no relation to whether or not we do shows the community behind Rocket Pool is the reason why these two community members are here. And also, as an added disclaimer,

Bankless actually does stake right now 160 Ether with Rocket Pool on a Rocket Pool node. So those are our disclaimers. We're going to get into the show and more right after we talk to some of these fantastic sponsors that make the show possible. Lens Protocol is an open source tech stack for building decentralized social media applications. It is the new era for social media. We all have toxic relationships with our Web2 apps. We want to break up with them, but we can't. These applications own our digital lives and all the relationships that we've made. We need to break through to a new paradigm of social networking applications that we control rather than them controlling us.

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Lens is the last social media handle that you'll ever need to create. So in order to get started, there is a secret code word in the show notes. Enter that code word in the Google Forum linked, and you'll be well on your way to entering the world of Web3 social. Rocket Pool is your decentralized Ethereum staking protocol. You can stake your eth in Rocket Pool and get REath in return, allowing you to stake your eth and use it in Defi at the same time. You can get 4% on your eth by staking it with Rocket Pool, but you can get even more by running a node. Rocket Pool is the only staking provider that allows anyone to permissionlessly join their network of validating Ethereum nodes. Setting up your Rocket Pool node is easier than running a node solo and you only need 16 ETH to get started.

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the way it was always meant to be, fast, cheap, secure, and fiction-free. Rocket Pool is on the stream. Here I am joined on the left with Ken Smith, a Rocket Pool community member, and Marceau. I don't know if that was your real last name, but the last name on Zoom is Heath. It's a good last name if that's the real one.

Ken and Marceau, welcome to the stream. Thanks for having us. Appreciate it. Yeah, pleasure of being here. So you guys are two Rocket Pool community members. Do the titles go any deeper than that, or how would you describe your guys' relationship with Rocket Pool?

Ken, I'll start with you. Yeah, so I'm a member of the Rocket Pool community, first and foremost. I have a special title there. They call a Rocket Scientist. It's just somebody who knows a little bit about the protocol and is willing to share their time on Discord to help educate others. And I've been enjoying it ever since. Marcel, same question to you.

Yeah, no special title, just a passionate community member. And I think that's kind of what makes Rocket Pool kind of special, is that they have this core team that's reasonably small, and really they rely in this really vibrant community to kind of stand up and provide a lot of the research and marketing and kind of just benefits to the community. So I'm just one of those guys. There's an army of us and I'm just one of them. Yeah, and there's plenty of nuances about rocket pool that really make it special in my mind and you touch on one of them. The small, constrained size of the centralized rocket pool team has really put a lot of emphasis on the

strength of the rocket pool community. And so the void that has been left by the team has created this very, very strong community around them. but I don't want to get too far ahead of ourselves. Let's just start the very basic 101, speed run, the basic pitch of Rocket Pool. What is Rocket Pool? Why should we be excited about it? Who wants to take this one?

Sounds like I can. Yeah, yeah, let me, let me shoot here. So Rocket Pool is a liquid staking derivative protocol that allows any user to stake their ETH by simply swapping their ETH for a token called REth, and that REETH accrues interest based upon the Ethereum staking protocol. Individuals can acquire that from a couple of different places.

They can do it directly from the Rocket Pool contracts themselves or their websites. They could also buy it on any marketplace that is selling it. Many dexes on both layer one and many of the layer twos sell the RETH token. And simply holding it, you incur interest on that ETH-staked interest on it. Rocket pool is also kind of a two-sided protocol. Not only can you come in from the liquid-staking side of the house, you can come in from the node operator side. So if you have a little bit more capital and you have a little bit of interest in running a validator,

a node at home, you can actually become a node operator and not only earn interest on your ETH at stake, but you can also stake other people's ETH, those that are deposited for our ETH, and earn a commission on that. So you actually earn more rewards by staking with Rocket Pull than you do as a, as a solo node node validator. And so what part of that story is rocket pools? Like, what part of that story does Rocket Pool really own? Like, what is unique about Rocket Pool?

Because there's other staking as a service providers. I can stake my eth with Coinbase. There's also Lido. What about that story is really unique on the Rocket Pool side of things? Yeah, I think there's probably five things, but three are really what are important, right? I mean, the first thing is that this protocol is a, it's an Ethereum protocol. It's built with smart contracts on the Ethereum network. And because of that, it's entirely permissionless.

It's permissionless to either acquire the REE, the liquid staking derivative, and it's completely permissionless to run a node and become a node operator. There is no white listing, there's no K.YC or requirements to docks yourself to run a node. Because of that, it's completely decentralized. You can run it in any country. Rocket Pool has the most number of decentralized geographically know-it operators of any sticking protocol. And because of both of those things, it's fully trustless. There's no requirement to have trust that the team will continue to be there to run the protocol

or update the code, right? The code is a series of smart contracts. And so those three things really, I think, open it up, that it's fully permissionless, decentralized, and trustless. It also helps that it's fully open source. So you can verify this, both the code and the contracts that are there. And Rocket Pool also has been very adamant about making certain that it uses the core Ethereum clients, right? Both the execution layer clients and the consensus layer clients, it doesn't create its own client. It just simply uses the ones that are out there like Geth and Basu, like Nimbus, Lighthouse, Prism. And because of that, it's got one of the most diverse profiles for the node operators that are running their validators, right?

We are highly diverse. And because of that, it adds a level of surety and security to those that decide to stake their EF by purchasing and are acquiring the REEF token. I really want to drill down on that two-sided marketplace part where the one side of the marketplace is that people with ether demand services or abilities to stake their ether. And there's a variety of different ways of satisfying this demand. They can run their own note and stake their own ether themselves. or they could stake their ether with Coinbase,

or they could stake their ether with Lido, or they could stake their ether with Rocket Pool. Like this side of the equation is pretty well understood, I would say, by most in the Cryptosphere. But it's that other side of the marketplace. The two sides of the marketplace, that's one side. The other side of that marketplace is largely constrained or restricted on most other marketplace participants.

Can you run a node for Coinbase? No, you cannot. 24 people can run a node for Lynde. Ido, can you run a node for stakewise? Like, no, you cannot. But with Rocket Pool, that's the most open part of this whole thing. And so it actually creates an actual marketplace rather than a monopoly or a forced outcome

by just like Coinbase stakes with like Bison Trails, for example. Can or more so, can you really, let's look down on that point? Why is having that other side of the marketplace open for participants so important? What does that really unlock? Yeah, maybe just one point on the previous thing about staking providers. They're not all created equal, obviously.

I mean, not to say the obvious, but Rocket Pool is very, very different than Coinbase or Lido. And one thing I really like about the protocol is that, to me, Rocket Pool is really well positioned as a public good within the ecosystem. And I think there's sort of four qualities that I look for in any kind of staking provider that I really want to love. One is just being kind of exclusive to Ethereum and being aligned with their ethos. One is being purely decentralized and trustless.

We're all kind of reminded why this is important with things like OFAC going on. And the other two are being permission list, like Ken mentioned, and also just not seeking rent. Like, Rocket Pool doesn't exist to extract commission. There's no skimming of commission to fund a treasury. They're really there to kind of serve that two-sided marketplace. And I think it's just a really fair model that makes it a really compelling platform as a, you know, a staking service. But your question was more about them as a node operator. I'll let maybe Ken jump in with that. Yeah. I mean, Marceau, I think you kind of hit it on, right, which is there are these challenges to Ethereum, right? And there's always going to be some threat or some challenge to it in

the years ahead, right? And right now it's been about censorship, right? It's been about the influence of government entities to regulate what a node operator can and cannot include in their transactions and the blocks that they propose. And, you know, certainly I'm a U.S. base staker. My intent is to fully comply with my government regulations, right? I don't, I don't plan to to go counter towards them. No intense on going to jail? Yeah, exactly. Likewise. Same.

But, but, you know, so, but how does Ethereum as a whole maintain that there isn't a single government entity providing censorship, right? And so the way that it accomplishes that is it makes certain that it's, it's new to operators are decentralized, both in different geographic entities, both in different legal jurisdictions for what they, what they have to comply with. Then there's also kind of the moral question, right? I mean, there's a lot of interest right now. and MEV, especially with the merge coming

and the transfer of the MEV coming from the miners that are earning it right now to the potential for stakers to earn that. And there's a lot of moral and ethical considerations that you have to decide, right? There's going to be a lot of choices for stakers now about do you want to extract MEV? And if you do, what type of MEV do you want to extract?

Is there a line in it that perhaps is not ethically right to extract? I'd like to take a moment and just really like highlight how Rocket Pool as an organization is different from the landscape, right? So, like, Lido is the big, like, elephant in the room, the big whale in the room about, like, it's the other one out there. There's, like, others coming to market.

Like, Swell is another one, like, coming, like, it's taking as a service, but not here yet. And then, like, all the other ones, Coinbase, like, stakewise are all these centralized operators that, you know, we know what a centralized operator is. So we can kind of, you know, move on from that. It's not too much nuance there. But how is Lido as just, like, an organization

and a community, how does that, how's the flavor of the rocket pool, like, org holistically, organization and community combined, how is that different? And for people who aren't familiar with the trading chat in the Rocket Pool Discord or just overall how the org works, can you guys help just like shed some light on that part of the thing on the, on Rocket Pool? Yeah, maybe, maybe I'll go for it, Ken. You know, I was going to say, I mean, I think one of the things you brought up before is that it's two-sided, right, that you actually get both parties in the Discord and

chatting about this, right? You get a, you get the group of node operators that very much want to work on kind of the technical side, want to make certain that the nodes are well performing, that they're performing their duties and validation, they're thinking farther ahead in the research channels about where do we need to be to position ourselves for mev and mev extraction, how do we provide the most capital efficient way to stake the ETH? On the other side, you get the individuals that are the REF holders, right? And they're coming in and what they want to value is to see REEF basically be a substitute for ETH, right? That the recommendation would be that no one should just hold pure Eith.

You might as well hold a yield-bearing asset, right, and get an interest earning liquid staking derivative in your wallet. And to do that, you need REE to be integrated in as many defy protocols as possible, right? So that way folks don't have a reason to swap it back other than to pay gas on the Ethereum network. And so I think by having both sides there all together in one discord, it really adds to the value of it. You can see both sides of the coin at the same time and kind of develop and, you know, design a protocol that can work for both sides of the house.

Right. And I really think that actually does define what the important points are. I think any successful staking as a service system has two things that they need to optimize for. They have their liquid staking token, and that liquid staking token, if it's successful, will accrue more yield faster than its competition, right? It simply goes up faster. And so that's one pillar that we'll touch on. And then the other side of the marketplace is the node operators.

And it's kind of the same question. Can your system make a node operator more profitable than other systems? And so we'll take these one at a time. What is the bulk case for R.Eath holders? Why should I old R.Eath over any other alternative staking as a staking derivative asset? Who wants to take this? this one. Let me take a stab at it and can't jump in, please. I mean, first of all, I would say that, like, I think staking is going to be a really big deal in the post-merge world. I think once we

emerge from the merge event, people are going to want to chase yield and having a staking derivative token is a really great representation of how to capture that yield, right? So post-merge, yield goes up like 2x and the risk to yield, sorry, the risk to staking goes down quite a bit just because the execution risk is removed from the equation. We're currently at about, I think, 12% ether staked in total. It's pretty low. I think we're heading towards 50% in a sort of saturated state over the course of probably two years. And that's a 4x increase to just the size of staking participation.

It's pretty meaningful. I also think liquid staking is a really important function of this as well. You could sort of argue that liquid staking tokens are sort of a better version of just vanilla ether, right? Because it's a productive asset. So as long as you have the right liquidity depth and the right integration, with your staking derivative, it's just a better form of ether. So why wouldn't you hold it? Like, I think it's easy to make the case that staking is a big deal and liquid staking

is a really, really big deal. When we talk about like our eth specifically. Wait, so Marceau, let's pause for a moment. So you were just actually talking about this, the tam, right? The tam of what's at stake here. So I totally agree with you. Eth staking, we call it the internet bond market. And, you know, sometimes a little bit like crazily, but not that

crazy. Like we compare the size of like the ETH staking market, which where it is is like billions per year and compare that to like the, you know, sovereign bond markets of global nation states. And that's kind of where we think this ether staking industry is going. And then also you said 14 or 12% of total ETH is staked presently. And I definitely also think that's going to go up somewhere around to where like the Core devs kind of think minimum 20, maybe equilibrium around 30, give or take. And so not only are we just bullish as an industry on Ethereum proof of stake, and that's going up into the right, but we also think inside of Ethereum internally,

the proportion of ether that's going to be staked will also be going, and maybe 2xing or 3xing. Any other color or like numbers that you want to slap on to like the tam of this whole thing? Yeah, I think that point is really clear. I mean, I think the pie is getting bigger and it's easy to project where it's going. I think separately, I would argue the market share, the slice of the pie that Rocket Pool is likely to capture is also probably going to go up. And I can get into the reasons as to why I think that's probably going to be the case. But I think there's a really compelling story for our Eith is a token that has kind of an interesting history.

It was sort of borne into the bear market. And there hasn't been a lot of sort of like push to grow it until now. And a lot of things are coming together in a really spectacular way in September. I'm sure we'll get into this. But like there's a lot of, I think, really great tailwind effects and great narrative. that are kind of like all coalescing around the same time. And the teaser is like it's incentives, it's integrations, it's the merge, it's APR going up, it's risk going down, like all these things are coming together.

And they all sort of multiply and stack on top of each other in a really, really powerful way. I think September is maybe like the most insanely bullish month for Ethereum, fundamentals at least. I don't know about the price, but like fundamentals could not be any stronger for staking right now. It's just, it's absurd. Okay, so let's go into R.E. specifically. why will R-Eath in the landscape of other staking tokens, which Coinbase also entered the fray with their C-B-Eath, why would I hold R-Eath over any other staking derivative asset?

Yeah, yeah. So, I mean, just the set context, like we launched back in, I think it was November, and since launch, R-Eath, demand for R-Eth has captured about a 5% market share in the market. And that is through a bare market, that is with no marketing at all, and that is with no team liquidity incentives, and that is with basically zero integrations. So like, R-Eath, it's awesome,

but you get it and you hold it and you watch a number go up, and that's kind of all you can do with it. And that's changing in a really big way. To talk about the good things about it, like why it's fundamentally a good kind of token, and then I'll get into kind of like, what's the catalyst for growth here?

A few reasons that make it just, I think, strictly the best product in the market. So for one, it is fully collateralized and insured. Like, there's no risk of like a run on the bank or, everyone getting a haircut because a mass slashing event happened. Like, our Eath holders are just like 100% insured from any kind of catastrophic event that might happen. Also, there's just no counterparty risk.

Like, sure, you put a little bit of trust in the smart contract to operate the platform, but you're really farming out, you're staking to a mesh network of operators. And if any one of them underperforms, they get penalized and not you as a token holder. So, again, it's like fully kind of collateralized. There's no collateral, there's no custody or trust requirements. there's no possibility for censorship. This is a really important thing. Right now, it's very topical.

And then just, I mentioned it a few minutes ago, but like, R-Eath is just fully neutral. It is well-aligned with Ethereum. And I think just given that it has no kind of trust assumptions that go along with it, it's really well-positioned to be sort of a defy building block because it's sort of this neutral kind of Lego that can go in anything. It can be a good half of an LP position.

It can be something you take a leverage position on. It has these great qualities that make it very, very neutral, that I think we'll make it just kind of a fan favorite for Defi, I think, once we get to that point. And I think it's worth to note that a lot of the properties that you just said are, maybe individuals are like, oh, I have a hard time mustering up the motivation to care about those things. But it's also worth noting that Defi apps will always suck up more demand than individuals. And so, Marceau, maybe you could also talk about just like the integration side of REath and how demand can come from, like, the defy side of Ethereum and why those particular properties that you just talked about are actually more

conducive for defy apps than just like the average individual who, you know, doesn't really look under the hood of things. Yeah, sure. I think there's two kind of catalysts that are coming that are really meaningful. So one is integrations. I'll talk about that real quick. So it hasn't been until recently that I think our Eath has demonstrated enough lindy effects that it's sort of trusted in the network.

So we're now, whatever, 10 months post-launch. And we're really, I think there's an avalanche. of integrations they're coming. So I got to be careful what I say because some of this isn't quite shareable, but like Maker is going live in about two weeks. And that's obviously a major lending platform. The biggest opportunity that we are missing with Areth is not being able to take a collateral position on it. Like people want to take leverage. They want to pull out stable coins for farming. They want to go buy a house. Do defy shenanigans generally. Right. And that use case hasn't existed until now. It's about to exist in a really, really big way with Maker and a few others that I

probably shouldn't say too much about. The other side of it that I think is equally as compelling, if not more compelling, is that there has never been a native kind of incentive program for REath until literally yesterday. So we launched a incentive management committee. Full disclosure, I'm on the committee, so I have some kind of say as to where the funds go. But I think that is a really, really powerful force that will help us grow liquidity depth, grow those integration partnerships, and also just frankly grow yield and grow TVL on the platform. There's a really, really powerful, I think, flywheel effect that's going to come from this. Once we get those incentives in place, I think a lot of things fall in place kind of quickly coming from that.

In particular, like one thing, I'll give a quick plug and then I'll stop for a second. Like one, I think really unique thing to tie it to the previous point, I think our Eith, because it is such a neutral building block that Rocket Pool has such a great opportunity to go and sort of offer co-incentives to other protocols, where we can go and approach some some protocol, let's say Maker, like let's say Maker is providing incentives on MKR, ETH, to keep liquidity on their token.

We can go to them and say, like, hey, guys, why don't you move your liquidity program over to Maker REath, and we'll pitch in some of the incentives? So you get, like, co-incentives. You get a higher yield because you've got half of your LP is now productive suddenly, and then rocket pool benefits tremendously

because we are growing along with that pool. It's sort of like almost free growth for us. So that is one, I think, really exciting property of liquidity incentives. We're going to start pushing, I think, pretty hard. And it's a big kind of opportunity for us. So, like, called action to your viewers, like, if you're part of a Dow and you want sort of like free boosted yield on your liquidity program, reach out to us because there's,

there's a lot of, I think, opportunity there for that. And it does make sense that the integrations would start to snowball after Maker, specifically, Maker being kind of like the basement of Defi, the bottom tier, the bottom foundation. Like once you're collateral and Maker Dow, then you, you're kind of, it opens up the doors to becoming collateral and like the remainder of of defy. So it does kind of make sense that that is the right, the right order of operations here. Let's talk about strictly just the yield of our Eath. Like how will our Eth accrue more or less

yield than the others taking derivative assets in the landscape? Yeah, I'm not sure that I would argue that it does, to be honest. I mean, all the tokens are going to take, they're all going to get the beacon yields minus whatever commission they charge. And, you know, they're all kind of about the same 10 or 15%, it's all kind of like just a rounding error, to be honest. I think where what I would argue is more meaningful is what is the return per unit of risk that you're taking on for the underlying, right? So like, I would argue that holding REath basically has zero risk because it's fully insured and there's no counterparty risk, there's no trust assumptions. So like the denominator is like zero. There's like no risk discount that I would apply to it. And I don't want to pick on

any particular protocol, but like if you look at other tokens, they do come with tradeoffs, right? And so you can think of like, what is the percent likelihood that Project X will go underwater and go to zero? And it's not zero percent, right? So you have to apply sort of a discount given that. So I think, you know, I would argue that it isn't just the raw APR that matters. It's more like the risk-adjusted return for that token that really kind of shines. You said it a couple times. So let's go ahead and dive into it.

Is the risk really zero that some sort of Black Swan event will happen with Rocket Pool and like accidentally like lock up ball of the ether, for example. Like, is the, you said it's fully insured. It's not like FDIC insured. So it's not that kind of insurance. You're talking about over collateralization, right? So can you like unpack that a little bit for us? Like what really is the protocol risk?

And why do you seem so confident in this, in saying that the risk of our eth is lowest? Yeah, yeah. Good question. I'll probably pass it over to Ken here in a second because Ken has done some really great research on kind of risk modeling. But what I mean specifically is certainly we're not FDIC insured, but there is more than 100%

of the collateral backing the issued token. So if we can sort of fully redeem down to zero and still kind of make everyone whole, if we had a massive kind of run on the bank type of event. And there's no point where the custody is all managed by smart contracts. So there's no point that like a bad operator could just run away with the funds. There's no like we're kind of in a can't be evil kind of situation. And when we say that it's fully insured, really what we mean is like given the reasonably worst case scenario, which is like a.

mass slashing event takes out half the network. And all the validators basically go to zero. Like, do the R.Eath holders incur any damage from that? And the answer is like, not really, because the penalties come out of the node operator side primarily first. But that's probably getting into more of Ken's territory. Maybe I'll let him kind of jump in on that. Yeah. I mean, to that point, I would probably add that, you know, Ethereum as a whole is a very forgiving protocol, right? I mean, I think it was envisioned by the core devs that you would not need to be a professional node operator. You do not need to have a, you know, a large data center or high speed connection to do it. They really envisioned that home, home stakers, individuals like myself,

could run a, run a note on their bookshelf behind them and simply, you know, secure and protect the network. And because of that, the penalties for actually attacking the network right now are fairly forgiving, right? As long as, you know, there isn't a non-finality event that occurs, as long as a large portion of the network, you know, close to 51% attack doesn't happen that if for some reason something is misconfigured on a node and a slashing event happens, the node operator does not actually receive that large of a penalty, probably, you know, one-eath or two-eath, even post the merge here with, with Bellatrex out there and the higher penalty fees. So at that case, the node operator has already put enough collateral on that they incur that loss to the,

to the protocol. The RE folder has been fully insured and they receive their contribution back. Because it's been somewhat dispersed throughout the entire mesh network of nodes, the individual RE folder probably won't even see any loss in APR. It's just so minor that it gets kind of lost in the average variance of the randomness of each validator and how it performs. You know, there certainly are perhaps maybe these catastrophic Armageddon events, right? The entire network goes down.

There's multiple bugs and multiple clients. The core devs cannot get, you know, consensus achieved in a couple of weeks and the protocol comes down. But at that case, I'd argue it's not a rocket pull problem. It's an all-of-a-thereum problem. Right. And we've got much bigger problems than rocket pull. Right, yeah, we don't like to think about that.

Okay, so is that the conclusion on like the bull case for our Eath that we're like, is pretty damned like robust and anti-fragile. And also it's all already decently well penetrated into the market share at 5% is what Marceau said. And that was before any sort of like like illiquidity incentives around that. Is that Tybo on the bull case for Eith or is there anything else missing? I would just add one thing that wasn't mentioned, which is that our Eith is not a a rebasing token. And this this provides an advantage in two ways. For some folks, because of their

tax authority, it may be much more advantageous to hold and possess our ETH and other other liquid staking derivatives. And secondly, that the fact that it's not rebasing allows it to be much more integratable with other defy things, not only on the main net, but also on other layer two's. So it's one advantage that it has that not all of its competitors have. Well, let's dive into that a little bit more for the listeners that don't know what rebasing is or just unfamiliar with the nuances behind this and also taxes in relevant jurisdictions. Can you just start from a little bit a higher level on like why a non-rebasing staked derivative token is good and overall just what rebasing is? Yeah, maybe I'll let Marceau talk about that.

Sure thing. So I mean, people are probably most familiar with Lido's STE and that's what's called a rebasing token. And so what happens when you hold that token. And so what happens when you hold that token is that it is pegged one to one with the price of ether and all all gains that are that are received from staking are then kind of issued as new tokens so you get I think it's a like every 24 hours you get a drip of like a small incremental gain on on your total unit so your number of units goes up over time and that's sort of nice because it keeps peg with ether one to one so it's very kind of intuitive but it also means you're getting an income event in the u.s. taxable event yeah every taxable event every 24 hours and it's kind of a

kind of a headache to integrate. It's also, like Ken mentioned, really difficult to do rebasing across different chains. So like to do rebasing to L2 is kind of technically complicated. And for both kind of tax and just kind of technology reasons, it's actually a lot better to do what is called non-rebasing, which is where you don't get more units of the token, but the value of the token goes up relative to ETH. So if you look at the ratio of R-Eth divided by ETH, it is like slightly trending up, right? And the rate of return up is just, the rate of return of the beacon chain. So, you know, there's pros and cons.

You can argue one way or the other, but we like it because we think it's more kind of composable, more integratable, and also just simpler from a tax perspective. It's a, it's a good model. And it's also what Coinbase just came out with, too. So I think that's kind of a nice vote of confidence that this is the kind of superior model when it comes to how to issue out rewards from the beacon chain. So just to regurgitate this and make sure I understand. So Stake teeth from Lido is a rebasing token, and that has nice, just,

like, it's intuitive in that, like, one staked ether equals one ether all of the time. And so it's just one to one. That's just what it equals. And so if you deposit one ether, you get one staked ether. If you wait a year, that one staked ether will be still worth one ether. But then that begs the question, all right, well, then where does my yield come from? And so if you're holding staked ether, you're getting dripped more staked ether from the Lido protocol as as the form of, that's where your yield comes from. But when a transaction on Ethereum occurs and it's into your wallet with tokens,

that's a taxable event. And so since your yield is being paid to you, that's just like regular income tax. Rather than having this alternative, which is that with Rocket Pool, I think it started off as one R-Eth equals one-eth, and then R-Eth's

grew, has grown from there. And so, like, I don't know where it is now, but maybe it's like 1.5R.Eth equals one-Eth. And then tomorrow, it'll be 1.6, and the day after it will be 1.7, not actually, there's a fake numbers. Not quite that high.

Not quite that high. That would be hyperinflation. But the idea here is that there will be, it's not into, it's no longer intuitive. So that's the tradeoff that we've made. But I mean, the intuition, the intuition costs versus not having to pay taxes. Like, yes, I'll pay those intuition costs because I get more money that way. And I guess that's actually a little bit more bullish on the fundamentals of the protocol because, I mean, protocols in nation states generally don't talk, but they talk.

through their users that live in those nation states. And so if the users are fundamentally having to sell their REath to pay for their taxes, then that would be bad. And so this mechanism means that this does not have to happen. And not only at the individual level, but basically at the protocol level, because if all users are selling small income taxes of worth of REath, then that actually does show up in the TVL of the protocol.

Yeah, I mean, you know, not tax advice, but that matches my understanding. Certainly not. I think that I would. I think long-term bankless listeners should know that they should not be getting tax advice from me. The one thing I'd point out, too, is like, if you look at that as a against the, against the commission, you could argue that a non-rebasing token has a higher yield because it has less of a tax drag. So the real return for a non-rebasing token is actually higher than some of the competitors who do rebase because they have a higher tax treatment towards them. Depends on your jurisdiction, obviously, but I think that's kind of a nice way to look at it because there is a hidden fee there in the form of taxes, of course. Yes. Yeah. Yeah, I do take that argument. I accept that argument. Ken, any comments on this or what's going on in your brain? No, I think you've covered the RE-E side very well. Okay. All right. Well, that's just one side of the marketplace. That's the REath side. I also want to get into the other side of the equation. The bull side, the bull case for being a node operator with Rockapool. And then also we'll have to, because of where that conversation leads, get into the RPL token, of course. We're going to get into these

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brave at brave.com slash bankless and click the wallet icon to get started. And we are back with our bulkcase for Rocket Pool. And we're going to touch on the other side of the marketplace, the node running side of this marketplace. And this is the unique side for Rocket Pool because you can't run a node on a Staking-as-a-Service protocol other than Rocket Pool. That's like the unique thing that Rocket Pool brings to the table,

the whole protocol permissionless side of things. So why would I run a node with Rocket Pool though? Like, convince me. Why should I go right after this stream is over, go spin up a Rocket Pool node? Yeah, the short answer from that is you're going to earn more running a rocket pole validator than you will running a solo validator, just pure and simple. So there's an incredible financial incentive for anybody who wants to do that. There's some other auxiliary arguments towards it too and that you're actually doing a public good, right?

There are individuals we've just learned about that want to have REath that don't have either the capital requirement or the technical ability to run a node, but still want to possess a a stake ETH derivative in their wallet. And so by running a node, you actually help provide lift to the protocol. You stake ETH on behalf of the R-Ethers. And at the same time, you as a node operator earn a commission. And so it's probably worth maybe just mentioning, I think, to the folks here that, like, one of the things I always hear in the Ethereum community is that everyone should be running a node, right? And they kind of stop at that.

They say, for the health of the network, everybody run a node. And this is, this is costless. It requires no ETH. You can run a node at home, but the big barriers, people don't know how to do it, right? Everybody says, you should run a node and help decentralize the network. One of the things I'd encourage anybody to do listening to this podcast right now is just simply, if you have an old computer, 10 years old, 12 years old, could be a laptop, could be a little desktop or server, right, whatever, it doesn't take much.

Literally a Raspberry Pi you can stake with. Simply go over to Rocket Bull, download its software. It's got a great installer, a great interface. They've got a dev there by the name of Joe, who has just made this thing so easy. It's literally just a couple of clicks and commands. You download the software. You get to pick whatever Ethereum clients you want, your consensus layer, your execution layer. You let it sync, and you'll be up running a node on the network, right?

Now, for that, you're not going to make anything, but you're going to help protect the network and relay the blockchain, right? You'll be a basic patriot of the Ethereum blockchain. Absolutely. And I cannot think of a more easier way to actually run a node than to just simply download the Rocket Pool installer and go ahead and do that. That's interesting. You're saying it's easier than like, if I wanted to run a node, I'd probably go to Ethereum.org and like start there and they would point me off in a different direction. It's going to be different for every single client. But you're telling me like it's actually easiest. Rocket Pool has made it easier than Ethereum.org to go run an Ethereum node. Is that what you're saying? But by far, I know there's efforts from the Eastacre community, such as Waggon. to kind of make it a simple one-click installer,

and I know that they've been working great on that. But I got to say, maybe I'm a little biased, but I think the Rocket Pull stack is just the easiest thing because it's incentivized for Rocket Pool to continue to upgrade that. So there are constant releases, right? And you can imagine, as we're approaching the merge, there's a number of technical releases that are being provided, and Rocket Pull is just keeping up on that, right?

So you can simply use the Rocket Pull software. You're running all the major clients, right? And you can run your own node. Now, what people are probably more interested in, though, is to actually become a validator. And this is where the staking aspect comes. So now instead of just being a relay on the network and protecting it and transmitting and verifying that the transactions are meeting the protocol requirements, now you want to actually be a validator.

You actually want to attest on the network and say, yes, that last block met all the Ethereum requirements. And it is correct. That's the correct head. Those transactions are all processed correctly. I'm going to vote yes for. or I'm going to vote no for it. And to do that, you have to be a validator.

And Rocket Pool, they call them mini-poles, but it's the same thing. It's a validator. And for that, you have to put some collateral down. If you are just a solo validator, you have to come up with 32-Eth of collateral. And that is a large financial barrier for most people. But Rocket Pool right now actually decreases that down to 16-Eth and some collateral that we'll talk about on the RPL token, 1.6-Eth of the RPL. L token, but there's actually plans coming up here for something called a low-eath bonded mini-pull.

After kind of analysis and a lot of thorough research, we've actually discovered that that 16-Eath is much more collateral than what you actually need to protect against the foreseeable or the likely attacks that could happen on a validator, right? And so there's plans in the work to do something called a low-eath-bonded mini-pull that would reduce that initially down to 80th. So you only need 8th plus about 2.4Eth worth of the RPL token. But there might even be plans later on if we get some improvements to the core protocol, something called forced, forced exiting, that could reduce that down to 4Eth.

And at that level, you know, it becomes much more affordable for everyday individuals to be able to put enough capital on to move their node to a validator and actually start earning ath rewards. I think one of the common criticisms of Rocket Pool that I've heard is that it's capital intensive of a model. And so to produce, you just lock up a lot of ether in order to produce enough supply of other, of more space, right? Where, you know, Lido, all the Lido operators, they don't have to stake up any ETH because it's a trusted system. Rocket Pool, because it's trustless, also comes with this burden of over collateralization, and that's limited this scale

of how much R.Eath can come to market because all, every single node operator also needs to come with a bond. But if we go into the future and take it on the assumption that this bond goes from 16 eth per node down to 4 eth per node, and Ken, I'm going to ask you, like, how the calculus actually comes out that that's like a justifiable and not overly risky. But like, say, for example, if we think that 30 million ether will come to market, well then rocket pool, if rocket pool is, if you're so bullish on rocket pool that you think that rocket pool will dwarf 100% of the market of staking as a service providers because it's a protocol,

well then you would actually only need, so 30 million divided by four, 7.5 million, you would need 7.5 million worth of ETH to just be node operators. And so, like, all of a sudden, instead of having 15 million ether becoming needing to be...

I'm doing that math wrong. Anyways, the idea is that, like, it requires much fewer node operators to rocket pool to eat up a larger market share of total ETH stake derivative token. And so that has been historically one of the big critiques about rocket pools. Like it's too capital intensive to really scale.

But if you're telling me that we can go from 16-Eath bond down to four-Eath bond in, and you can really kind of grow, I really think that takes the complete ceiling out of the potential of rocket pool's constraint on our ETH growth. That is, if we get there. So I'll let you respond to anything that came up to your mind there, but also if you could explain why the risk is such that we are actually able to do this in Rocket Pool. Yeah, so excellent questions in there, right? Let's let's just take the first case first, right? Which is let's take the current model, which is right now, Rocket Pool requires

16Eath of the node operator, and that's paired with 16Eath from the pool of REEth depositors, right? And so in that case, what do you earn as the node operator, right? You're earning 16, your earning interest on your 16Eath, and you earn what's called the node operator commission on the other 16th from the R-Ethers, right? And that no commission, let's just keep it easy. Let's call it 15% right now, okay? So already right now, being a rocket pool node operator, you earn not only your interest and your yield, right,

both from the beacon chain, both from M-EV, if you decide to extract it, and both from tips and inclusions after the merge comes up here, right? But you also earn the node commission, right? 15% on the R-Ethers. Now, what happens when they introduce here, perhaps as early as the end of this year, they're low-eath bonded mini-pull.

Let's just take the first step. Let's go from, instead of the node operator having to deposit 16-Eath, right, they now have to deposit only eight, right? Well, they're earning the Node Commission, not on 16. It's not a one-for-one. It's now on 24-Eth.

And so that does two things. It increases your leverage, right? Your leverage has gone up from 16 to 24. You get 1.X leverage on there. But for the protocol, what it sees is actually a 3x increase. in terms of the lift capacity, the ability to stake REEth, right? If, for instance, we grew no more node operators,

but we introduced the 8-EF LED, we would be able to stake already three times the amount of ETH on the R-Ease side as we are doing right now. So it grows the protocol quite exponentially, and it goes even higher when you go down to 4-Eath, right? Just to pause really, just to clarify that, again, we're talking about this two-sided marketplace, and what you're saying is that with this technological advantage,

advancement, one side of the marketplace can actually stay in the same spot, and that allows the other half of that marketplace to grow. First, like, if it goes from 16-Eath down to eight, it takes off the weight of the other side of the marketplace by 50 percent, and if it goes from 8 to 4, then, like, it can allow the other side of the marketplace to grow by another 50 percent. So it takes off one constraint from the supply side and says, like, oh, it turns out with just like a snap of the fingers, technological innovation, we like to tell you. tech, we can actually grow the supply side of Rocket Pool node validators by like first we double it and then if we can do it again, then we'll double it again.

And that's without inducing any more of demand, there's a marketing behind that. That's just like straight tech. Yeah, exactly. And it's and it's kind of interesting. I know this may be a little too technical and so forth. But it's fascinating to watch how the numbers actually work in there. One of the things that Rocket Bull could do is they could actually lower that node commission to lower levels on what it's historically been,

yet still generate because they're paying that node commission now, not on 16th, they're paying it on 24-Eth, you can actually deliver more ETH returns to a node operator and at the same time reduce the node commission that our ETHers are paying to have their stake D. So it's kind of a win-win. I think that's actually the really, really important point. And so as an ETH staker, I get really excited if I can...

So I say I have 32 eth and I'm super excited to get my like 4.1% yield on my staked ether because I'm going to run a node. But then I discover Rocket Pool and I realize I can actually cut up my 32 ether into two chunks of 16 ether. And then I can not only am I going to get that 4% of the Ethereum yield, but I'm also going to charge the other 16 ether that comes into each one of my nodes. So now I now there's two sets of those. I get to charge that 16 ether 15% of their reward. And so my 32 ether is getting 4%. But I'm also charging another 32 ether 15% of their total staking rewards.

And so that boosts the yield. But then we do this again when we cut it down from 16. So what I just said was the current standard of Rocket Pool. That's where we are today. But you're saying, like, you can cut this down again. And so I have 32ith or and I can run one node on Ethereum in stake for 4% yield. Or I could cut that 32Eth up into four units of eight.

and then the other side. And so I only have four units of eight. And so I actually multiply the charge, the commission that I can get by four. So it's four times 15 percent times 32 ether. No, even more than that. Even more. You go 24, 24, 24, 24, 96. Right.

Yes. Yeah. So 15 times 96 times the eath stake rate. Again, bankless listeners will know I'm bad at math. But like, so that's why. that's why you use the leverage word, where you can get leverage on your yield. But what you're saying there is like, well, actually, we don't actually have to pay that all to node operators. They can take, still take leverage and still definitely juice up their yields a little bit less

so. We'll just take that down a notch. And then we'll also lower the fee of our ETH token holders. And so the fee comes down and it makes our ETH more attractive. And, you know, you could even, I don't know how low that fee can go, but that's probably one of the levers that Rocket Pool has to make REath really attractive as a buy and hold, uh, state derivative asset if it's the lowest one that has a lowest fee. Like the CBE from Coinbase, that's 25%.

That's nuts. Uh, and so like if Rocket Pool can be like the lowest fee charging staking derivative token because of this innovation, that was a straight up argument as to why you would want to hold our. Yeah, exactly. We, we think we can target 14% node commission when we introduce the eight, LEB mini-pull and still generate for the node operator returns that are that are in double

digits. Is this where we should start the conversation to turn to RPL or is there other parts about like the node operators that we should touch on first? No, I think I think it's probably a good, a good talk about RPL, right? I mean, because this is a thing that, you know, causes people to scratch their heads a little bit and say, I don't get how this falls in the tokenomics of rocket hole. Okay. I've said real quick one thing if I can.

On the node operator side, there's a series of technological improvements that are coming. And the low-reath bond in mini-pools is a really important one, but just to kind of complete it out here real quick. We just launched a smoothing pool for revenue. That's an important kind of value for node operators. We also have this kind of creative SaaS design, staking as a service design that's being built on top of rocket pool. So that enables companies to come and bring their clients to the platform. That's a meaningful kind of growth strategy for us. And then also, I mean, I'll just quickly gloss over this, but there's this really kind of neat idea about a solo staker migration where we can, where Rocket Pool could just sort of like ingest validators by pointing them at the smart contracts.

And then just a very natural way to kind of grow the protocol where they don't actually have to exit. They just have to like sort of update their solo validators to point to Rocket Pool. And that's just an immediate kind of benefit to them because they get commission and all that kind of good stuff on top. So LEDs, lower reef bonded mini pools is super cool. It's like a 7X in terms of supply. But that's like one of like four juicy things that are coming. So just putting that out there. Yeah, well, since you did bring them up, I do want to go into them.

And so one sounds like a white list kind of thing where like there's just like this like front end to rocket pool that targets larger institutions. Can you just explain that a little bit more? How does that work? Yeah, yeah. So it's called SaaS, staking as a service. And what it is is just building the smart contract layer such that other companies can run rocket pool as they're kind of like infrastructure underneath their staking operation. right? So you could have a company theoretically like Cracken that stakes with Rocket Pool but has a white labeled product on top of it and they can call it whatever they want. It can be their own product and they just run kind of Rocket Pool under the hood. And then they get all those juicy benefits like commission and reward structures and things like that. One other thing that's really cool about it is that just because of the way that it operates, like being a node operator is sort of three jobs in one. You're like you have to run a node, which is some Linux expertise. You have to put up collateral. on the each side and the RPL side.

And with the SaaS model, that actually separates the functions cleanly to three separate people. So you can have a person running nodes for somebody else. You can have someone taking the ether side. You can have someone taking the RPL side. It's really attractive for like large depositors who just want to go like 100% pure ether, for example. So it's a really compelling case for more kind of institutional buy-in.

Whereas in the past, Rocket Pool has really catered well to kind of the retail side of the market. Why, if I'm cracking, if I'm Jesse, why would I, want, why would I give up my control over staking of ether and just doing it with like my own cloud service or whatever? And why would I give that over to Rocket Pool? Like what's the incentive there? Yeah, I mean, there's nothing to give up. There's trust in smart contracts to operate the way that they're intended. And there's been a lot of kind of diligence by the team to make sure that that works. But you are in no way in the process trusting Rocket Pool. Rocket Pool can turn around tomorrow and be

evil and try to steal your money. And they just can't do it. And that's kind of beauty. is charging a fee that Cracking would have otherwise been able to charge themselves, right? Rocket Pool doesn't take any commission. Well, the node operator fee. The node operator's taking, yeah. That'd be a benefit, though. If you're Jesse, you see that as a benefit because you get to charge the commission on the other side of that. Oh, Cracken also runs nodes.

Oh, they don't just give you ether. They also run the nose. I mean, if you were Cracken as a staking service, not Cracken as a token holder. Yes. Yes. Okay. I see. And so that you're saying the incentive is that like cracking could like make a deal with bison trails and like have some sort of proprietary deal with some commercial business or that commercial relationship could instead be rocket pool. And rocket pool is like pretty competitive on that front. It could happen. It could happen at that. Okay. I mean, bankless itself can start marketing itself as a staking company and provide its members with, you know, a staking service. And you're basically just using a white label product. You know, same as, same as Kirkland does, right?

They put their label on a product, but it's some other manufacturer that makes the Kirkland products we like. Okay, why would bankless do this? Why would we, why would we do this? A couple of reasons, probably to provide service. You can create a management fee for providing the service, right? Charge a slice of the returns on it. Perhaps maybe you've got some excess RPL token that you've invested in, that you'd like to have fully stake to earn a return on. I know we haven't talked about that RPL token.

and perhaps maybe you want to, you need more ETH to be able to provide that, uh, that value to actually stake the RPL token. Okay. Okay. All right. Yeah. I can actually see a lot of, a lot of companies, right? Small management firms, individual investment folks, especially for folks that don't trust the larger companies, right?

They don't understand to it. They go to their financial advisor. The financial advisor says, I just recently reached out to this small company that's providing staking services for Ethereum. They handhold. They provide a white glove. concierge service, right?

Here's their phone number of the person running the node, yet you can see that it's all been invested on a smart contract. You don't have to worry about that individual running away with the funds. Right, right, right, yeah. It's really just pushing the duty. It's like pushing, it's like a sales layer. It's like, hey, you guys go do the hard work of going making sales. Okay, that makes sense.

Let's get into what you talked about, Marceau, with ingesting single solo node operators, because I think that's actually really interesting. competitive advantage that Rocket Pool might have if there's like independent nodes and like the Rocket Pool Protocols just like says, hey, come come join us. Can you talk about that a little bit? Yeah, yeah. So I mean, right now, Rocket Pool has about 1.6% of the market. So it's pretty small minority of the market, right? Room to grow, certainly, but it's a small player in the market. And when the withdrawal hard fork happens, there's a technical improvement that lets you sort of

redirect towards a different fee withdrawal address. So you could, as part of that change, point at towards Rocket Pool and then basically convert your solo validator you've been running at home since Genesis into two or maybe four mini pools, just kind of automatically through the Rocket Pool software. And the reason to do that is honestly really compelling because you get the smoothing pool, which kind of smooths your rewards over time.

So if you're a home validator, you probably get like a proposal a year or something like that and your revenue is very spiky. Having it be smooth is very appealing for one. You also get extra commission, you also get extra RPL rewards. I know we'll talk about that in a minute, but like it's just sort of strictly better from a yield perspective and a variance perspective to have Rocket Pool be what's kind of managing your backend of the software stack and not just doing it with your kind of native, native clients at home. So it's a really kind of creative way to bootstrap growth and just like ingest and like give them a big like bear hug and welcome them into that Rocket Pool family.

I think it's a really cool thing that we can do that is very, very unique to the circumstances around the withdrawals and also Rocket Pool is a technology layer. Right. And the reason why I wanted to take the time and talk about the staking as a service and also ingesting the solo operators. Well, first off, those are two barbells, right? Like, one is going after the big people that are like funnels for like the rest of the world into rocket pool. But then also it's like the remaining single node operators are given like a very low barrier into like joining rocket pool. So it's like rocket pool as a system is like going after both ends of the spectrum, like the big boy institution. but also the remaining solo stakers that exists on Ethereum. And like the idea here, like the bulkcase for Rocket Pool, in my mind,

is synonymous with how many independent validators there are, which I think also brings us to the conversation of RPL because there's like a one-to-one relationship of how many independent staking validators there are in Rocket Pool and the RPL token. So who wants to, let's start at the very beginning, who wants to lead us into the conversations around why the RPL token exists and what it does?

Yeah, I guess, I guess, I can start with it. The one thing I may, if I could, that we touched on, but we didn't cover in depth, and I would be a shame for not mentioning it is the smoothing pool. And I think this is one thing that I don't think people have figured out. It was just launched this week as part of the Redstone upgrade to rocket pool. And what it does real briefly is that, you know, post-merge here, right? We think that the returns that a validator gets are going to be made up about 50% from the beacon rewards. We think about 40%. Now, this is on average, about 40% of it is going to be the inclusion tips. And that doesn't change with gas prices.

Everybody's still paying about one to two guay to move their transaction through MetaMask or whatever their wallet or their choices. And then, you know, most models show that about 10% of the returns are going to be in this MEV, right? Something I call proposer payment values, the amount of MEV that's actually paid to the block proposer, right? Now, what's misleading about that is that's an average, right? MEV is actually a very rare thing, right? These large, arbitrage opportunities that occur where somebody can make 10, 8th, 50th, 100th, 200th, from, you know, placing a flashbots transaction in there are actually pretty rare. And so what happens is, sure, on average, you get that, but for most validators, they're not

going to see any MEV, or if they do, it's just going to be a very small amount, you know, much less than even a fraction of what the inclusion tips are at one guay or two guay, right? So what the smoothing pool does is it's kind of a playoff, the old mining community that says all of the validators that are in rocket pool can opt in. It's an opt in choice, but already I think we've got about 30% of our node operators that have opted into it already and almost as many of our many pools that have opted in. But what it does is it smooth them. So it basically says that, okay, what we'll do is we'll share those rewards in a in a 28 day reward period. We'll collect all of that MEP, all of that PPP, PPP, PPP, proposal payment value that's made to the proposers and we'll distribute it

equally based upon the contributions of everybody in the pool. And so what that does is it is it reduces the variance, right? If you are a solo operator and you're thinking, hey, I might, I might win this lottery, right, at this large MEV, it's going to be a lottery. And that lottery isn't one that you can play forever. There's a lot of push and a lot of thought among the core developers in the Ethereum community about is MEV good, is proposer builder separation needed? Do we have to worry about OFAC sanctions and so forth? And they keep looking at perhaps removing the, ability to order the transactions by the proposers. So there's only, in my opinion, a narrow window that we can actually chase this game. And so if you join the smoothing pool, you're much

more assured. You've got a much more probable outcome of getting some share of that MED versus if you don't join a smoothing pool that, you know, you're just, you're playing the odds. And the odds are, unfortunately, that most people will not win any substantial MEP. And this is one thing I think that really attracts rocket pool. In fact, the smoothing pool is so, I think, unique among it that will start to see other protocols that allow node operators will also be contributing and creating smoothing pools of their own. So the question I have, the critique I have that I'm hoping you can cover is, is doesn't this just take money from the people that are very good at extracting MEV and giving it to the people

that aren't as good at extracting MEV? No, so the people that are good at extracting MEV, those are going to be the searchers and the builders, right? The searchers are going to look for the unique arbitrage, run the very fast, computers, find the best way to do it. But eventually, they'll know who the next proposer is, right? Let's say, for instance, it's Marceau's node. They have to decide if I'm the searcher and I found, let's say, 100-Eth block, I got to decide how much I'm willing to bid in one of these relays, like flashbots or other relays that are coming up. And perhaps maybe I decide to pay him 70% of it.

So I put a 70-Eth-efe bounty on that. And if I win that auction through the relay, Marceau will propose that block. I'll take 30th and I'll give them 70th. So really it's just the proposer that lines up. And so the way as a node operator, you get your share is you want to have as many block proposers as needed. So the only way to do that is either be very rich and run a lot of nodes yourself

or join a smoothing pool. Because if I'm in the smoothing pool and Marceau's in the smoothing pool and he gets that 70th, we'll share it among some fair sharing method. And usually that sharing method that we're looking at is the number of added stations. So if we both had two nodes operating for 28 days,

they both did equal work, we'll share that reward 50-50. I'm getting the gist of like there's this pattern that I always find in crypto that like it's like a Peloton, a bicycle peloton where like the more people that are in the peloton, the more efficient it is? Is that also the same way that the smoothing pool works? Is that like actually when the smoothing pool has more buy in

by more and more node operators, it actually becomes a more competitive product? it gets much more certain on your returns, right? The variance. So right now, like if I'm by myself, maybe I'll win that 100th block. I probably will never win it even over five years. And in five years, they've removed MEV. The protocol has changed.

We've got proposer builder separation. There's now a fixed ordering. I can't change anything. I can't extract that anymore. But if I join a pool and there's a lot of people in it, we'll have that many more proposal opportunities. And perhaps one of those is one of these lottery blocks. And if we win, then we all share the proceeds.

Will I ever see 100-Eath in one? Probably not, but I'll receive one-one-th or one-thousandth of that return, and I'll do that month after month after month. So in that five- or three-year period, whenever they invoke DBS, I'll actually have some returns in my wallet to benefit from it. Cool. Cool, cool, cool, cool. All right.

Now, so that's another incentive to spin up a rocket pool node and join the rocket pool system. Like it's another like perk in a sea of perks of being a rocket pool node operator. And again, like I was like we were about to go into before we went down the smoothing pool rabbit hole. Every single node comes with an RPR, RPL sidecar. Who wants to take us down the RPL rabbit hole? Like what the token is and what does it do? And overall we'll eventually end up at the bull case for that. Who wants to lead us here?

Maybe maybe I'll start and Marsau can finish, right? Yeah, please. So so what is RPR? RPL is the native token of RocketPol. Why do we have it? Well, we first have it because it was initially the ICO offering in 2017 when the ideal first came, right? It was offered to investors. Investors could purchase it, right?

There was no lockup period, right? It's so old of a token now. Everybody has it. It's very well distributed among the larger shareholders of it. And it funded the dev team for that period of 2017 to 2021 when the protocol finally launched and staking was available on the Ethereum network. What does it do? It actually provides, it would say, three functions to it, right? The first thing they throw out is they say, well, it's the governance token of Rocket Pool, right?

But we've heard that everybody's got a governance token and we're not really certain what value a governance token has on a protocol, right? So let's pass over that one pretty quickly. the main reason that RPL exists right now is it does two things. One, it provides insurance. It provides a second tranche of insurance, right? So we mentioned that, you know, as we go down to low-eath bonded mini-poles, right? If we go down to 8th and so forth, there are some possible outcomes of events that happen that, you know, perhaps that 8th is consumed up by a node operator,

especially the node operator that abandons their nodes. maybe they pass away or something happens to them. They get hit by a bus, have amnesia, forget they have a node. And that node begins to leak ETH very slowly until it reaches some critical level and it's kicked off the Ethereum network. So that RPL bonding provides a second level of insurance. If there's not enough asset when that node is removed from the network to cover the investment, the principle of the REath holders, the RPL token is auction.

So it provides this kind of second level of insurance. But more importantly, as we talked about, it actually provides access to leverage, right? So I think of RPL as a token that that provides the leverage, right? So when you, you know, if you want to get this low-eaf minipool, you have to put more RPL token. There's kind of a more buy-in in order to get that leverage. And that's what adds value to it, right? The token itself does inflate right now at 5%.

70% of it is paid to node operators, right? So you earn a stake yield on it. the other 30% is given to the DAOs. It's a two-party Dow system in RocketPull, one called a P-DOW, one called a No-Dow, different functions. But the majority of the inflation is paid to node operators. Okay, so Marceau, do you want to say anything? Because I have a few like a devil-advocate takes on RPL I want to bring.

So I want to give you a chance before I go into that. Yeah, for sure. I mean, I could talk about this for a long time. The one thing that I just wanted to like, so Ken's explanation was brilliant, And the one thing that I want to maybe illustrate and plus one is to a node operator, RPL is the price they pay to unlock commission. So it very much has a natural kind of leverage property to it, where if you put an X amount of RPL, you get Y amount of sort of leveraged yield in return.

So there's a direct connection between RPL and the yield that it unlocks. And this is why some people feel like RPL is sort of leveraged ether, because we've actually done the calculations and looked at the sort of difference between them. And if you believe that ether has value because the yield that it generates, RPL has about three times more value because it unlocks that much more yield in the form of commission. So I'm a big believer personally in this theory that once we are post merge, we will kind of attribute value and sort of monetize Ethereum in terms of like a DCF model looking at the yield that it generates. And if you follow that same logical argument to RPL, it has even greater value because it effectively acts like a leveraged form of ether. So it's really appealing to a node operator in addition to the things that Ken mentioned as a utility token, the ecosystem. But just the economics of it, I think, are very well designed for node operators to find it appealing.

But go ahead with your, I know you've got some questions. Some questions asked. Yeah, so I've always, this is a question about the RPL token. There's always like sat in my brain, so I haven't figured out how to answer it. Like, it seems like there are some tokens out there, some protocols out there that if the token wasn't there, it would fall apart. like MKR, Maker Dow does not work with MKR. Like you need the MKR token or else that thing breaks down. Like it completes the loop.

For RocketPool, I haven't seen that association. So when Ken was talking about the role of Rocket Pool, it's like the additional bond. But like the bond is already ether. Like that is the bond. That's why we put up a bond in the first place. And then you're adding this like RPL token on top of that. And so it's kind of like there's this product. It's this RPL protocol.

else, this is RPL network with all the incentives to join it that we've talked about throughout this podcast. But then there's like this gate. And it's this gate that is RPL. In order to pass through the gate, you must own a sufficient level of RPL to get through the gate. But the gate doesn't actually need to be there. It could actually just be ether and ether alone.

And you could, in theory, just have a higher bond requirement in order to, like, match what was otherwise the RPL. but the RPL is like retrofitted onto this system in a way that I think is less like organic like MakerDAO and more like kind of kind of it's like it's just like it's like given this role rather than like actually needing to be a part of the protocol. So that's my critique to that. Like what would you guys say to that argument? Ken, you want to take it or do you want me to? Wait, why don't you take first down at it? Sure. Yeah, I mean, first of all, I think that's a semi-fair technique. I think you can defend the position. of RPL in the ecosystem in a few different ways. One is that it has kind of an important function of just aligning incentives

between the team and their sort of ODOW that runs the Oracle and also between node operators. It's an incentive mechanism for them. And then it also acts as a secondary form of collateral for REath at a minimum of 10% collateral for that. It's also the mechanism that allows us to do things like the lower Eiff bounded mini pools because right now it's sort of a secondary form of collateral

and it's sort of treated second after ether, but once we flip to low-rethbinded mini-poles, it's actually the primary form of collateral, arguably it's the primary form of collateral. So we're sort of swapping out the role of ether with the role of RPL, and RPL is really being positioned as sort of like the collateral layer, and ether is just really, you know,

the pure monetary. Yeah. Yeah. So it is changing a little bit. I mean, I think you could ultimately design a protocol that looks like Rocket Pool without a native token, or at least for collateral, you'd still need to have governance

and things like that. But it does really help to make the tech come together beautifully and like governance and incentives come together beautifully. That I think it would be a worst product without a token like Rocket Pool in the center of all of it. Right. I do like the idea of like the RPL token being like this fractal microcosm off of Ether where like Ether is the collateral for Ethereum,

but then Rocket Pool is the collateral for Rocket Pool and what does Rocket Pool, but it does, it validates Ethereum. And I also like that inverse relationship where like on a normal rocket pool, mini pool with 16 ether, you have like a relatively low RPL requirement in the total capital size proportion. But then as you go down to like the lower bond requirement pools, it actually inverts. And so like there's an inverted relationship there between less like as you get more leverage on your yield, you have to pay more collateral to protect against that leverage. So I do I do think that makes sense.

And overall, I just like the imagery of like RPL being a little sidecar to the Ethereum motorcycle. That's kind of how I think about it. Yeah, the other thing I would probably add is that I think it aligns incentives, right? I mean, you need some way to fund a dev team, right? You need some way to fund the team that is marketing and integrations, right? That is the educational outreach and the support outreach for the node operators when they have, they have difficulties, right? And you either do that by either becoming rent sinking, right?

you take some part of the Ethereum commission from the staking operation. But that cuts into the profits of everyone, right? The profits of the RE folder, the node operators. So instead, what you do is you create a tokenomics around it that says, okay, RocketPool will pay its bills and keep its lights on by selling the RPL token that the dev team earns from their participation in the ODOW. And the only way that that token continues to have value is if they keep producing products and services that people want to, want to use.

To become a node operator, you need to have RPL, you need to buy it and produce it. So it aligns the incentives for the team to perform, for the node operators that invested in it to be committed to the protocol and then for others to have a requirement to purchase in. And because it has value then, you can return that as a reinsurance value, right? Most operations of any significant size that staking is becoming here not only have a primary means of insurance, but they go to the reinsurance market and make certain that that they have layers of protection.

And so I think it's actually very essential that protocols start to consider these layers of protection. Yeah, I think that's a perfect way of putting it better than how I put it. But I would sort of summarize that as I think RPL is what lets Rocket Pool be non-rent seeking and to act as a public good. Like in the absence of RPL, they would be forced to collect, to skim off the commission and to fund a treasury and to pay for things like marketing and growth. So having it there.

is a kind of a creative way of bypassing a lot of those behaviors that we don't want to have because we want Rocket Pool to be a public good. Cool. Okay. All right. Now we really just tease this whole Rocket Pool community. It's just like really itching to get into the bull case. So who wants to just give me the most bullish case for the RPL token? I can take a step at it. So I've spent a lot of time thinking about RPL as a token in the ecosystem and its role is collateral and where we're likely to go with technology efficiencies that like the lower eathl moniples.

And it's really fun to project this forward. And one thing I really like about the RPL token is that it's very modelable. If you take certain assumptions and work backwards from there, you can derive a price and assign a probability likelihood of occurring and things like that. So I have my own set of assumptions about where staking participation is likely to go and where rocket pool is likely to kind of fit into the ecosystem.

I'll share that in just a second. But if you take some reasonable assumptions, you can like kind of directly calculate approach. because of its role as a utility token and collateral in the ecosystem is a very direct connection. It is not at all driven by like speculation.

It is just pure, fundamentally like goodness driven. So anyways, like I think we are heading towards a world where staking participation is really high. You said 30 million. I think we're probably closer to 60 million, honestly.

And this is probably like a two-year time frame. 60 million in two years? I could see 60 million in like 10 years. I've never heard anyone say 60 million in two years. I think it's our saturation level. I think we get there sooner than folks realize. Okay. Like immediately post-merge, ether is just purely yield generating.

It's an internet bond, like you like to say. I think the value for a staking is super clear post-merge, and even more importantly, post-witrawls, because then the entire cycle is complete. So let's say six months to withdrawals, and then 18 months to kind of hit saturation is kind of how I'm thinking about it. And I'm targeting roughly, you know, it's more like 50 to 60 million in fairness,

but I'm looking at about half the supply being staked. And when you look at Rocket Pool, we have currently earned about a 5% market share since we've launched. It's 1.6% in total, but since launch has been 5%. Given all the excitement around the technology improvements, given all the excitement around liquidity incentives, integrations that are coming, given the renewed focus on decentralization, I think getting to 8% to 10% market share is pretty justifiable. And then the last kind of variable that I look at pretty closely is to what degree are node operators collateralizing their mini pools with RPL. And the answer there is a little bit technical.

It's a little bit speculative in nature. But for reasons I can get into, if it's interesting, I think the collateral rate is likely to stay pretty high. It's currently at 80%. I think we trend down to maybe 60% over time, but still quite high. The minimum is 10%. So if you put those in a calculator and you project it forward with those numbers, you arrive at like, to be honest, what is kind of Moonboy Math, like not intentionally, but that's just like what it looks like, the value prop for RPL is so good. When I look at the likelihood of events, the probability of them occurring with those numbers, I'm personally targeting a 0.18 number on the ratio, which is about a 12x performance

against Ether in its current form. So that's pretty significant gain against Ethereum, which is it's really hard to outcompete Ethereum. And, you know, it's a little bit speculative, obviously, but I feel really good about the sort of inputs and being able to justify where I think we can go with the information we have about what's coming. So in any case, it's modulable and it's kind of fun to play around with the numbers and see what, see what you get.

Right. So just to run through some of the assumptions, you're assuming 60 million ether staked, which I think is very, very high. I think we are going to be, if we get above 30 million staked by end of 2024, I think I'll be surprised. I could see it. Like, I could see myself getting surprised. I'll give myself like a 20% chance that we break 30 million ether stakes by the end of

2024, but these are just my personal shooting from the hip numbers. I haven't put too much thought into this. And I think the other assumption in there is that there's also a variable in how much RPL node operators can stake. And so we haven't talked about that yet. But the minimum is 10%. And you're saying like the average right now is like 80 or 90% as in like people are staking 32 ether, but they're staking like 28 ether's worth of RPL on average. And probably that's going to come down, but you're not saying it's going to come down too much. And so when you multiply and then also you're saying that rocket pool is going to eat into the market share of staking as a service token. So rocket pool, like penetration will like 5x rocket pool, uh, like, uh, therefore like rocket

pool nodes will spin up so more rocket pool will be collateralized. Uh, and then you're also saying just like more total nodes staking validator staking ether will also come onto the market. I definitely agree with that in like a 2x at least by a year from now or so. And so like you're throwing all these numbers together. Uh, and then you're saying, well, this much RPL will be staked. and if that's true, then there's probably going to be something like a 12x appreciation versus ether. Is that like the accurate summary of this?

Yeah, totally fair summary. And maybe what I'll do is to put a spreadsheet up on Twitter so people can kind of put input their own numbers, but it's very directly modelable. And so you mentioned 30 million ether. I think we'd probably disagree on that, but that's fine. Like, that would just be a 2x discount on my numbers then. So if I'm projecting a 12x increase, if you put in the same numbers and believe my other assumptions, you'd be projecting a 6x increase.

Versus ether, the important. one, yeah. Versus ETHER. Yeah, USD doesn't matter in this equation, because it's just strictly valued in terms of collateral against the ether pair. Right. So it's, yeah, I don't even think about dollars necessarily.

But yeah, you mentioned the collateralization rate. I mean, we can definitely get into that if it's valuable. On the one hand, you have new entrants coming in who are likely to come in with low collateral because they are more likely ETH maxis, right? Like if they were RPL maxis, they would have already been in the ecosystem. So new entrants are likely to kind of push the average down. but the sort of like counterintuitive thing is that to enter the ecosystem, they have to buy RPL to collateralize their node.

And doing that naturally pushes the price up, which then naturally increases the collateralization of everyone else in the marketplace. So you have kind of this push and pull effect where the average will trend down over time. But by the act of new people coming online, it's going to necessarily increase the price, which will also increase the average collateralization. So you have to kind of like speculate as to which of those two forces has a greater pressure. And I've been looking at this really closely for the past couple months because we've kind of gotten to that spot where everyone knew is coming in at minimum collateral. And I think there's a reason why our staking percentage, or sorry, our collateral percentage has stayed so high. And it's because the price of the RPL token is just so justifiable in terms of like when new people come online, it has to go up. And RPL number go up has been very consistent for the past six months, despite being in this kind of like terrible air market.

So it's interesting dynamics. We'll see how it plays out. But I'm overall more bullish on the collateral rate than I think some other people are. But still, you can put in your own numbers and assume whatever you want. And it's still very modelable. And it's still even in a very conservative, like kind of almost like failure scenario type of situation, it still, I think, holds its value really well. And it's kind of worth modeling every different type of possibility.

Ken, what are you thinking about right now? No, I mean, it's hard to beat Marcel on the inputs that you use. to do it, right? Now, what you want to value and what you want to kind of predict as what will happen to each of those five input variables in a spreadsheet. I mean, I'll leave that up to the viewer here to do. But the one thing I will say, David, do your thought about how much Ethereum is going to be staked? I think that's going to be very interesting. If you look at Ethereum versus some of the other EVE killers out there, like Avalanche, like Cardano, right? They're at like 50, 70 percent of their collateral stake, right? And Ethereum is only at 11 percent. So, you know, I think it's got a ways to go.

a lot of people are waiting for this merge. I've got complete confidence in it, right? But I think a lot of people are on the sidelines and just saying, let's see the merge go. And then we'll decide to get into Ethereum staking afterwards. I think two things will really drive that. I think one, as you've said many times, the price, the merge is not priced in. And the reason for that is my opinion is pricing is all supply and demand. And not until the merge happens, does the supply start to dwindle, right? And the demand can just hold where it is. And once that supply starts to dwindle, we'll see price action. And then I think they'll also see the return of tips and inclusion fees. And all of a sudden, no matter how you're staking, you're earning by most models about twice the amount of APR,

those things are going to combine in. And I think a lot of people are really going to want to get into the staking, staking aspect. And once they do that, they'll find Rocket Pull to realize the advantage. And just the way the tokenomics are designed, the RPL token will easily go up. Well, guys, you never had to actually convince me in the first place, but I appreciate you guys coming on and giving, I think, a very comprehensive of not just like the bullcase for RPL, but just like an overview of the rocket pool landscape. Is there any conversation point that we haven't touched on yet? You guys want to bring up? I don't think so. I think we covered it. I think one of the things, I mean, certainly we mentioned

in the beginning that we're just community members. And I will say that maybe the hidden gem of Rocket Pool is really the community that it has. There's a channel in the Discord called Trading. Don't let that name throw you. It's really our community channel, right? We not only talk about Rocket Pool, explain all these different very aspects to new people. But more importantly, we're just a whole bunch of people that are very excited about Ethereum. And so most of the topics in there are just about the Ethereum community in whole.

So if you've stayed with this this long in the episode, I certainly have. invite you all to drop by the Rocket Pool Discord, especially the training channel and say hi. Yeah, I definitely agree. Even in the Rocket Pool commercial, I mentioned like, oh, I'm in the Rocket Pool Discord, so come say hi there. That's sometimes, like, towards the end of the day, usually after I, like, crack a beer, I pull up, I like close down the Bankless HQ Discord and I pull up, open the Rocket Pool Trading Discord and to see what all the, what all the people are doing in there. But overall, like, also, it just feels like a very, I use this analogy before we started live streaming, but just like Athenian,

group of like hodgepodge hobbyists of eat stakers. I was like, oh, I'm staking over here doing this. I'm also trading and I'm also doing this and I'm also doing that. So it's much more just than a Discord channel of like people that focus on like one thing. It's actually just like a community that people talk about all their stuff including their life, their life events. So it's just kind of a cool community like fireplace there. So Ken Marceau, thank you for taking a break from trading and coming onto bank lists to talk about Rocket Pool. I appreciate it. Our pleasure. Thank you. Yeah, thank you so much. It was fun.

So I know you guys, we have a document that we're looking at. There's the sign-off at the end of the document. If you guys want to scroll down, either of you two want to read that? It's all yours, Ken. Oh, yeah, hang on. I wasn't following the document here, but hang on, let me get down there right now. I'd love to do that. Ethereum is risky. Crypto is risky.

Defi is risky. You could lose what you put in, but we're headed west on the frontier. but we're glad you're but we're glad you're with us on this bankless journey oh yeah sorry it is the shorthand that we have in there I need to write it out fully awesome Ken Marceau thank you so much for joining me here on bankless cheers guys

cheers cheers cheers cheers