As is pretty clear from the name, staking is the central part of any Proof-of-Stake (PoS) blockchain. This process not only helps keep PoS networks secure but also incentivizes people to help keep it running.
Let's use the biggest PoS blockchain, Ethereum, as an example. As a peer-to-peer network, Ethereum relies on some of its participants to act as network validators. These validators operate blockchain nodes and verify new blocks so they can be added to the blockchain.
However, to prevent bad actors from acting as validators, Ethereum requires its validators to lock up some Ethereum to serve as validators. They must have a financial stake in the network, to prove their trustworthiness. In return for doing this and operating a node, validators receive staking rewards.
But let's face it: staking ETH on your own is a complex process and is not for everyone. It requires technical know-how, a dedicated computer connected to the internet ~24/7, and – not least of all – a hefty 32 ETH, making it a no-go for many. This is where Rocket Pool comes into the picture.
What Is Rocket Pool?
Rocket Pool is one of the leading liquid staking platforms for Ethereum. Basically, Rocket Pool allows its users to stake ETH without losing their liquidity.
Liquid staking platforms accomplish this through the use of Liquid Staking Tokens (LSTs), also called Liquid Staking Derivatives. These tokens are pegged to the value of the initial asset that users stake and, crucially, can be used on DeFi platforms and other decentralized apps, just like any other token. To that end, Rocket Pool gives its users the liquid staking token, rETH.
Today, Rocket Pool is one of the largest ETH staking pools in the ecosystem. Since its launch in October 2021, users have staked over 1M ETH on the platform.
What Is Rocket Pool For?
Rocket Pool is an open-source, decentralized, and trustless platform, aligning it closely with the ethos of Ethereum. The platform has become a very popular ETH staking solution since its launch for several reasons.
Staking With Less Than 32 ETH
Ethereum's native staking requires users to stake at least 32 ETH. In contrast, Rocket Pool's barrier to entry is much lower — the platform allows you to stake any amount, starting as low as 0.01 ETH.
Staking Without Running Hardware
Ethereum's native staking requires you to run your own node — a resource-intensive, technically challenging, and time-consuming process. Rocket Pool, on the other hand, allows you to start staking ETH simply by buying the ERC-20 token, rETH. While the value of rETH is pegged to ETH, its value goes up over time as holders earn staking rewards.
Removing the Need to Lock up Liquidity
Rocket Pool provides users liquidity by enabling them to use their locked funds. The platform's liquid staking mechanism gives you rETH in exchange for your staked ETH. You can then utilize rETH just like any other ERC-20 token in the vast DeFi ecosystem.
Those who want to earn more rewards can do so by becoming a Rocket Pool node operator, which has a minimum requirement of 8 ETH. There are currently more than three thousand node operators in Rocket Pool's network.
How Does Rocket Pool Work?
The Rocket Pool protocol consists of three main elements: smart contracts, the Smart Node Network, and Minipool Validators.
Smart Contracts
Smart contracts fulfill two roles within the protocol. Firstly, they accept ETH deposits from users and assign them to node operators. Secondly, the smart contracts are responsible for issuing and tracking the various tokens within the protocol.
Smart Node Network
This is a decentralized network of Ethereum nodes that run Rocket Pool's Smart Node software. These nodes are specialized to run custom processes, allowing them to communicate with Rocket Pool's smart contracts and provide network consensus.
Anyone can run these Smart Nodes and stake their ETH without incurring a fee, provided they fulfill the minimum 8 ETH requirement. In return, you earn extra rewards on top of standard staking yield — paid out in RPL, the Rocket Pool governance token.
Minipool Validators
Minipool Validators are special smart contracts that fulfill a key role in the network. A node operator deposits 8 ETH (or 16 ETH) on their node. The Minipool Validator then receives the remaining ETH from regular stakers to reach a total of 32 ETH, which is then used to create a new Ethereum validator.
What Is RPL Token?
The Rocket Pool Token, or RPL, is the governance token of the protocol, giving the community a say in its future direction. RPL is also required as collateral by node operators — they must stake at least 10% of their ETH's value in RPL as insurance.
If a node's poor performance causes the network to lose ETH, it can be recouped by selling the node's RPL collateral. Operators are incentivized to stake as much RPL as possible (up to 150% of their stake's value) to maximize rewards. RPL has a current inflation rate of 5% per year.
What Is rETH?
rETH is the liquid staking token that users receive in return for their staked ETH. After depositing into the protocol, you immediately receive rETH. As validators accumulate rewards, you receive returns proportional to your stake. rETH can be used like any other token — as collateral for loans, to provide DEX liquidity, or across the broader DeFi ecosystem.
Risks of Rocket Pool
As a leading decentralized ETH staking protocol, Rocket Pool is integral to the Ethereum staking scene, but it is not without its risks.
- Smart Contract Risks: Rocket Pool is potentially vulnerable to bugs that could lead to breaches or exploitation. While the protocol has open-source code and has been audited, this is by no means foolproof. A bug bounty program helps reduce such risks.
- Risk of 51% Attacks: Rocket Pool's lower staking cost could theoretically enable malicious actors to accumulate enough nodes to attempt a 51% attack — a concern raised publicly by Ethereum co-founder Vitalik Buterin.
- Market Volatility: Demand and market conditions can affect rETH's value. Issues with Ethereum itself could also impact Rocket Pool's performance.
- Governance Risk: If the Oracle DAO were somehow compromised, it could negatively impact the protocol or implement malicious changes — though this risk is considered relatively low.
How To Stake ETH on Rocket Pool in Ledger Live
- Install Rocket Pool on your Ledger device. Navigate to 'My Ledger', select the App catalog, search for Rocket Pool, and click Install.
- Go to the Rocket Pool dashboard and select the Ethereum account that holds the ETH you want to stake.
- Input the amount of ETH you want to use and click 'Stake'.
- Sign the transaction on your Ledger device.
- Once done, you'll receive rETH tokens. The amount will differ from the ETH staked because the value of rETH depends on a dynamic exchange rate.