As of August 30, 2023, the Liquid Staking sector has established itself as a lucrative and widely embraced segment within DeFi, boasting a TVL (Total Value Locked) of $21 billion. This places it ahead of the second-largest sector, Lending, with approximately $13.3 billion in TVL.
These numbers are truly remarkable, especially considering that Liquid Staking is a relatively new industry. It gained significant momentum following the Ethereum upgrade, which introduced a shift to a proof-of-stake consensus algorithm. This pivotal change ushered in a new era for the most heavily capitalized smart contract blockchain in the cryptocurrency market.
In this article, we’ll explore Rocket Pool, currently the second-largest Liquid Staking platform, trailing only behind Lido Finance, which we have previously explored in one of our whitelisted token articles here on Kassandra.
What is Rocket Pool?
Rocket Pool stands as a pioneer in the Liquid Staking sector, initiallying its development journey in 2016, a time when Ethereum's ambitious 2.0 update was already in the pipeline for migration.
The platform is designed to help two main types of users. The first group includes people who want to join tokenized staking with just 0.01 ETH. The second group includes those who want to stake ETH and run a node in the network to make more money compared to staking outside since they earn commissions.
At its core, Rocket Pool operates on the fundamental principle of ensuring that the network remains free from undue influence by any single entity. This foundational tenet aligns closely with the ethos of Ethereum and ETH itself, and it has guided every stage of Rocket Pool's evolutionary journey.
How does Rocket Pool work?
Rocket Pool operates as a Liquid Staking platform, and to grasp how it functions, you can refer to our article that explains its mechanisms.
On Rocket Pool, there are two main groups of users who can benefit from the platform: Node operators and ETH holders. Node operators use the platform to run nodes and stake the tokens delegated by ETH holders who wish to earn rewards from staking on the Ethereum blockchain.
What sets Rocket Pool apart is that node operators don't need 32 ETH to run a node; they only need 8 ETH, along with 2.4 ETH as collateral for the RPL token. This adds up to 10.4 ETH to run a node (currently), including the technical aspects of maintaining it properly.
In this way, Rocket Pool creates a platform that connects node operators with ETH holders who can't run a node themselves but want to earn rewards on their ETH. This also makes their ETH easily tradable as a liquid staking token (rETH), which can be used for trading and leveraged in other platforms like AAVE to earn extra rewards and employ various strategies.
Additionally, rETH functions as a reward-bearing token. This means that holders don't receive extra tokens to represent their yield, as seen in the stETH mechanism, which employs a rebasing token model. Instead, rETH holders enjoy the staking rewards through an increase in the token's price. This streamlined approach simplifies the experience for holders, especially when it comes to reporting capital gains. Consequently, under typical circumstances, the price of rETH will consistently exceed that of ETH.
RPL, short for Rocket Pool's native token, plays a pivotal role within the Rocket Pool protocol. It serves as the voting tool wielded by node operators when it comes to decisions about protocol governance. Additionally, RPL functions as insurance for stakers, offering coverage against validator penalties and slashing.
This token is not static; it undergoes a projected 5% annual inflation, with the current distribution structured as follows:
- 70% of the newly created tokens are allocated to node operators who stake RPL.
- 15% is channeled to members of the oDAO (Oracle Data Organization) in recognition of their contribution.
- The remaining 15% is deposited into the pDAO Treasury, securing the protocol's financial foundation.
The initial distribution of RPL tokens was the following:
The concept of liquid staking stands as one of the most compelling narratives in the cryptocurrency market. If you're considering exploring this space, RPL presents a strong contender, ranking as the second-largest in the market, just behind LDO. It offers an excellent opportunity to diversify your exposure to liquid staking, especially if you're already invested in other projects within this domain.
Always remember to DYOR and good luck!
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