Proposal: Onboard rETH (RocketPool staked ETH) as Collateral

💡Idea Discussions
1

Context

The Rocket Pool (RP) protocol is a decentralized Ethereum 2.0 Proof of Stake infrastructure service. Without a stake pool service, only wealthy network participants who meet the 32ETH threshold are rewarded for validating transactions. Rocket Pool democratizes participation in network validation by providing a service that lowers the wealth threshold. Abstracting staked ETH as rETH, participants can retain commodity properties of their stake (transfer of ownership).

There are 2 primary users in RocketPool:

  1. rETH stakers
    Stakers can show up with as little as 0.01 ETH to be deposited in exchange for rETH. rETH is a redemption token representing staked ETH. rETH can be burnt at the Rocket Pool contract or website in exchange for ETH and accumulated staking reward. They do not need to run a machine. The returns are subject to a commission to node operators, which is a % of the staking rewards earned.
  2. Node Operators
    Node Operators can show up with 16 ETH, along with 1.6 ETH worth of RPL tokens as collateral to stake on behalf of the pool. This is permissionless, so anyone can do this as long as they have the infrastructure and collateral. They will receive RPL inflation rewards, as well as ETH commission from the pool, along with staking rewards on their own 16 ETH.

Unlike beacon chain ETH, rETH can be freely transferred and traded as it implements the ERC-20 interface. Onboarding rETH to Abracadabra would allow users to borrow against rETH.

Motivation

Abracadabra is a fast-growing multichain protocol that would make a strong partner with RP and its community. Right now, RP is bridging its rETH token across chains to make liquid staking more accessible for the masses - it is currently available in both Optimism and Arbitrum. Abracadabra currently offers other ETH staking vaults, such as Yearn stETH. rETH is important to hedge against the risks of other ETH staking services (particularly because of its decentralized nature) and will be an important addition to the DeFi space in general.

As a protocol that aspires to keep in line with Ethereum’s ethos, the protocol aims to be fair and is actively engaged in research to share all MEV and proposal rewards with rETH stakers, increasing the chance that the protocol will outperform other staking services, or at the very least, provide the fairest reward possible.

Proposal

Allow rETH as collateral with the same pool specifications as yvcrvSTETH (Maximum collateral ratio 75%, liquidation fee 12.5%, borrow fee .5%, interest .5%)

Benefits

  1. Diversified risks and potentially higher return on ETH staking for Abracadabra depositors.
  2. Creates a non-LP liquid staking position that does not depend on the continuation of any liquidity mining incentives.

Considerations/Risks

Rocketpool is quite new on mainnet - since November 9, 2021. However, the risk can be considered to be mitigated to a great extent because of:

  1. Staged rollout has been successful
  2. TVL is over 70 million USD as of writing
  3. The protocol has undergone 3 betas
  4. The protocol has undergone audits by 3 separate auditors
  5. The protocol has an active bug bounty program with immune.fi
  6. The code is open-source

rETH stakers are exposed to smart contract risks, primarily. Even if node operators get slashed, the rETH staker’s ETH is still safe, as the node will be booted from the beacon chain when the validator balance reaches 16 ETH - the entirety of the slashed balance will be subtracted only from the node operator’s balance.

As of now, rETH price can only be derived from uniswap’s liquidity pool. The dev team is looking to add a chainlink oracle soon.

As with anything to do with ETH staking, the usual risks apply - protocol risk and implementation risk of ETH staking, withdrawal methods, and RP’s implementation of withdrawals.

Links and resources

Resources

rETH contract address

Ethereum mainnet: 0xae78736Cd615f374D3085123A210448E74Fc6393
Arbitrum: 0xec70dcb4a1efa46b8f2d97c310c9c4790ba5ffa8
Optimism: 0x9bcef72be871e61ed4fbbc7630889bee758eb81d

16 Likes
2

I support this

Rocket Pool has been around for a long time and RPL collateralization is a great cooperative venture for both Abra and Rocket Pool

I also own a huge bag LFG

-Tetranode

3 Likes
3

Agree to add rETH as collateral.
But
How about change the Maximum collateral ratio to 65%?
I know the protocol earns revenues from liquidations but it’s never pleasant to be liquidated.

1 Like
4

People are free to choose a lower collateral ratio if they wish to have a lower liquidation price → I believe that the risks should be in line with (or even lesser than) yvWETH and yvcrvSTETH in the long run, which have a maximum collateral ratio of 75%.

That said, I think it might be wise to start with 65% on the premise that rETH is relatively new and that we will adjust this in the future (if this is indeed possible).

2 Likes
5

Lowering the min ratio is a pretty pessimistic view of rETH/ETH peg. I can only see rETH losing its peg if a black swan happened within the Ethereum 2 merge process or from an external economic event where people need exit liquidity. Don’t think we need to do this.

1 Like
6

Hi Acedabook. It’s not about the rETH/ETH peg if I understood correctly. It’s rETH/MIM

1 Like
7

I agree, it’s better to think in rETH/MIM terms. I think a lower max coll ratio is good because of the limited rETH liquidity. Fewer liquidations means less slippage.

1 Like
8

I support this. Also, just want to say, appreciate the well-laid out proposal and analysis.

2 Likes
9

I strongly support this idea

2 Likes
10

Strong supporter as well, I don’t see any specific risk for using the same max LTV parameters as the current ETH collaterals. RPL seems solid and well thought overall, with clean deployment habits.

1 Like
11

I strongly support this, rETH will lead to a supercharged DeFi economy due to being a yield bearing derivative of the native ETH token.

12

I strongly support this. Appreciate the thoughtful approach.

13

This is a great idea–let’s make it happen

14

100% for it, Rocket Pool is solid and great for decentralization.

15

I am please to see rETH as an upcoming token to onboard to our new VAR INT cauldrons, the main think we’ll have to keep in mind the cauldron size (MIM) respective to the LPV for rETH to avoid imbalances in borrowing and liquidations.

1 Like