• General
  • Request for Comment: Stake 5% of Olympus DAO’s Eth reserves in Rocket Pool

Hello everyone. Rocket Pool launched recently, and a few ohmies and Rocket Pool community members have gathered together to draft a proposal for Olympus to invest some of its treasury with Rocket Pool. Before we make a formal OIP proposal, we’d love feedback from the Olympus community and DAO on our draft. Please let us know if this proposal interests you! And please comment with additional information you’d like to see, questions you feel this proposal leaves unanswered, etc.

Overview:

We propose that we stake 5% of our eth reserves, 340 eth at the time of writing, with Rocket Pool.

Rocket Pool is a decentralized, permissionless, community-owned, non-custodial eth2 staking service. Since its conception in 2016, it has remained committed to the principles of decentralization and non-custodial trustlessness that is core to Ethereum and DeFi.  Our networks must not be beholden to any one party - nor only to wealthy participants. By removing technical and financial barriers to staking and validation, Rocket Pool makes these services available to everyone. Of course, Ohmies don’t need to be reminded of the importance of decentralization. Olympus embodies the same ethos, building new community-owned financial infrastructure for the world, and demonstrating the power of trustless, cultural coordination. 

Rocket Pool has held 5 public betas over the life-span of Eth2 development, and completed its 4-tiered rollout on Mainnet on November 21st. The network has since amassed a TVL of over $140 million and is composed of 402 Node Operators registered from 55 different time zones. All signs point to Rocket Pool being a pillar of Ethereum going forward.

Rocket Pool Details:

  • Users deposit eth into Rocket Pool’s staking contract, and receive a token called rEth in return.

  • This token represents your share of the staking pool. Its exchange rate with eth increases over time as staking rewards accrue. For example, upon deposit, the exchange rate may be 1 rEth = 1.01 eth. A few years later when withdrawing, the exchange rate may have increased to 1 rEth = 1.15 eth.

  • When you’re done staking, you can exchange rEth back for eth using the same Rocket Pool contracts.

  • rEth is a ERC-20 token, so it can be transferred, swapped, deposited, or used in any number of potential defi integrations

  • The site to stake is https://stake.rocketpool.net/ and a breakdown of token addresses can be found in the #resources channel of the Rocket Pool discord, and in this medium article from the Rocket Pool team: https://medium.com/rocket-pool/rocket-pool-rpl-token-upgrade-new-addresses-e96c12c55adf

Returns: 

  • ~5%. This is the eth2 staking APR, minus a roughly 10% commission paid to node operators. 

  • In the short term, as more people stake on the beacon chain this APR will trend downwards by a percentage point or so.

  • After the merge, when priority fees are paid to stakers instead of miners, this is projected to increase to nearly 25% APR.

Risk:

  • Eth2 staking itself is a very low-risk investment. Black swan liquidation events you might see in lending protocols, for example, are impossible.

  • One potential source of lost funds is from getting slashed, an event where a staker’s funds are taken away as punishment for behaving dishonestly. Rocket Pool places all of this risk on node operators’ shoulders, ensuring that rEth holders will never lose funds during slashing events.

  • Rocket Pool is very new, and so its contracts haven’t had the long-term battle testing of other staking providers. However, there are several factors helping to mitigate Rocket Pool’s risk:

Exit Liquidity:

  • Even though Rocket Pool is an Eth2 staking provider, withdrawals will be available before the merge. This is because they have a deposit pool containing eth recently deposited by stakers, which hasn’t been paired with a node yet. As long as there is eth in the deposit pool, rEth holders can burn their rEth to get eth back.

  • The deposit pool isn’t guaranteed to have eth in it. In an emergency, rEth is a ERC-20 token, meaning it can be swapped freely in dexes. There is already liquidity on Uniswap to exchange eth and rEth, although this would subject us to slippage and should be used as a last resort.

Future Integrations:

  • rEth is an ERC-20 token, so it’s capable of being integrated into defi protocols, bridged to other networks, etc. Proposals are underway to accept rEth as collateral in Maker and Abracadabra, among others. 

  • A star example in this case is Alchemix. Alchemix lets users take out risk-free, zero-liquidation loans, which repay themselves over time. Alchemix V2 will support many kinds of collateral, and it is very likely that rEth will be supported as collateral. With this integration, we could take out a loan on our rEth deposit, and use that loan to generate further yield, all with zero risk of liquidation.

Allocation Process:

  • Initially, this would be a one-time deposit of 5% of the treasury’s eth: 350 eth as of this writing.

  • At some point in the future, we’re hoping to make a proposal to increase this allocation to 10%, but that will be contingent on Rocket Pool establishing itself as a reliable, stable, robust service.

  • If Olympus DAO decides it’s a big fan of Rocket Pool, a possible future alternative to one-time deposits is rEth bonds!

Community Growth and Network Mutualism:

  • Rocketpool and Olympus communities have little overlap, despite their aligned principles and goals for decentralization. Most likely this is a product of time (Rocketpool conceived in 2016 and Olympus in 2021). This presents an opportunity for our networks to attract investment and participation from each other’s members. This network effect is innately 3,3. A Node Operator with sOHM now has a second reason to hodl their staked OHM.

We also have some final thoughts on some more intangible benefits of staking with Rocket Pool. Olympus DAO is inextricably linked to Ethereum, and Rocket Pool represents an investment in a decentralized future for Ethereum. Rocket Pool is the only staking protocol that supports Ethereum’s vision of a blockchain secured by a decentralized, permissionless Proof of Stake network.

Rocket Pool has already started delivering on its promise of decentralization. 400+ node operators have registered so far from 55 different time zones, and dozens more are signing up every day. By supporting Rocket Pool, Olympus DAO will be directly supporting a secure, decentralized network on which the world’s first decentralized reserve currency can flourish.

    This sounds like a good idea to me! Refresh my memory though, are we currently doing anything with our ETH at all?

    Well written proposal and I really like how you highlight risks and a risk management strategy (staggered deposits). I hope others learn and get inspired by this. Risk analysis should be part of all proposals.

    Even if initial risk might be fairly high, depositing and battle testing the system are lowering the long term risk for us and others.

    Great proposal! I believe a formal risk assessment will need to be completed by the Treasury team, but the methodology listed looks great.

    Looking forward to this being the first foray into staking for ETH2.

    I think this is an excellent idea, I've been watching the project and been active in their discord for a good while now and they really are an amazingly capable team.

    since the DAO would be holding a sizable amount of ETH and rETH indefinitely, would there be any downside to the DAO providing liquidity on a ETH/rETH pair?

      Noobulon That would be great! Liquidity is one of the biggest things Rocket Pool needs right now, especially on L2s.

      How do treasury allocations work mechanically with OlympusDAO? I'm hesitant to get too deep in the weeds of liquidity proposals, purely because of ignorance on my part of how feasible it is. But Rocket Pool has uni v3 eth/rEth pools on L1, optimism, and arbitrum, and liquidity added to any of those would be extremely valuable.

        letters in this context the liquidity owned is treated as a producing asset, the rationale being that if ETH is safe enough for the DAO to hold, and rETH is safe enough for the DAO to hold, that holding a position in the liquidity pool should also be safe and would provide additional revenue. I think this would be separate from either the "DAO owned liquidity" and Olympus pro as the pair really has nothing to do with Olympus and isnt the result of a partnership

        This might also be worthy of its own oip

          Noobulon This might also be worthy of its own oip

          Yeah, maybe this is the right approach. Get consensus on holding rEth at all, separately from any attempts to do anything with it. Based on looking through other policies, it seems like something like that might not be so straightforward - only some platforms are whitelisted for that kind of deployment, etc. Sushiswap is approved, but i don't think sushiswap's pair algorithm is great for eth/rEth. A uniswap v3 position could work, but uniswap v3 isn't whitelisted. rEth doesn't have a curve pool yet, although it sounds like they want one - but that isn't whitelisted either. So it will take some planning.

          All that said, if it happened eventually I'm sure a lot of people would be thrilled.

          This seems like a sensible proposal, with limited to no downside. Ppl smarter than me should discuss whether 5% (or more in the future) makes sense or if it should be a different percentage. Voting in favor.

          letters My concern is this; We are wanting to add 5% of the ETH we hold to be put into a project that as you say is having issues with their own liquidity issues. Why would we throw cash into something that has not been able to acquire other liquidity?

          Not taking a jab at you but out of the comments that one stuck out. I have no issue voting to allow money to go into income producing endeavors, but how would we know it is a lack of liquidity that is keeping rocketpool's useage rates down vs people just have better options to do the same.

          I would just hate to see us throwing good money after bad.

            millunare no hard feelings, that's a totally fair question, and worthy of your concern. Your comment makes it sound like you're worried that low liquidity is a reflection of poor confidence in the project, and I can say for sure that that isn't the case. The reason for low liquidity is simple -- it's addressed by the first few words of the post: "Rocket Pool launched recently". Partnerships to establish liquidity incentives haven't been built for example.

            Additionally, dex liquidity isn't at all central to the protocol, and so the team so far has placed liquidity towards the bottom of the priority list. It's a great convenience feature for users who need to pull their money out, but if all you're planning to do is buy and hodl, you don't need that liquidity.

            In the long term, I'm hoping to convince Rocket Pool to partner with Olympus Pro to fill out liquidity, but I imagine we'd need the community to crystallize on an incentivizable pool like curve before that's possible.

            millunare Chiming to emphasize that rETH liquidity will be a nonissue soon. Wouldn’t be surprised if momentum builds by the time this proposal (if we get the opportunity) becomes official (incentives/options are being evaluated as I type). We will incorporate liquidity plan/recent steps in proposal to make this more clear.

            If anything the current lack of liquidity is indicative of the strength/commitment of our current user base. The flow of ETH into the protocol - supporting nearly 500 minipools - is by people who have no plans to sell; they are in it for the long term.

            That said, liquidity is understood as important, and will be addressed soon @letters said - it’s all just getting going!

            Smart investors never put more than 1% of capital into any 1 investment so, 5% is a no-go from my perspective. I'm struggling to understand your statement about nodes in 55 timezones. Is there really a place on this planet that sets their clocks 4 minutes and 12 seconds behind those that live just east of their timezone? The Alchemix integration has piqued my interest.

              IceKohl first of all, warren buffet suggests that if you have more than 6 investments then you're too unfocused, so I dont know where you're getting this rule from.

              second, it's not 5% of the treasury balance, it's 5% of the eth reserves we're talking about here

              IceKohl When Rocket Pool node operators register with the network, they may opt to disclose their timezone. The network uses the TZ database to define an operator’s time zone, and in the TZ database there are 500+ time zones. https://en.m.wikipedia.org/wiki/Tz_database

              I understand the confusion; most people (me included) typically define time zones with respect to the prime meridian. But, many computer systems leverage this TZ database, and it defines a time zone as any national region where local clocks have all agreed since 1970. This definition concerns itself first with geographic areas which have had consistent local clocks.

              IceKohl When you consider that some areas of the US respect daylight savings time and some don't, computers need some way to represent that. For example, some counties in Indiana in the US doesn't respect daylight savings time. So from a computer perspective, even though indiana is in the Eastern time zone, you'd want a different time zone than Eastern for those Indiana counties, so that computers know the correct way to keep time in those counties.

              That's just one example out of countless examples. time zones are very, very, very complicated. If you're interested, check out https://www.zainrizvi.io/blog/falsehoods-programmers-believe-about-time-zones/

              Voting in favour, rETH has been heavily audited and bears very low smart contract risk; a decentralized yield bearing derivative of native ETH.