Rocket Pool University

3.3

Passive Staking via rETH

Passive stakers receive Rocket Pool's Liquid Staking Token (LST), rETH, in return for depositing ETH into the deposit pool on the RP frontend or by trading for rETH on an exchange, for example, cowswap or 1inch. rETH accrues value representing passive stakers' share of validating rewards. The deposit pool ETH from passive stakers (called borrowed ETH¹) is bundled with Node Operator, or bonded, ETH to activate validators. Therefore, passive stakers' ETH is not associated with any specific node, i.e., rETH is fungible.

Also, note that rETH is not a rebasing token. You do not receive more rETH tokens as validator rewards are taken into the rETH contract. Rather, the rewards add to the original deposited ETH as increased backing for the rETH token. Thus, the value of rETH rises relative to ETH with technical exceptions over short terms for off-peg behavior².

Example:
Suppose you want to buy 1 ETH's worth of rETH. You check the current exchange rate on the RP frontend and it says:

1~\text{ETH} = 0.934~\text{rETH}

1~\text{rETH} = 1.07~\text{ETH}

You then mint 1 ETH worth of rETH and receive 0.934 rETH.

Over time, rETH per ETH will always decrease. Meaning, rETH becomes more valuable relative to ETH (it takes less rETH to buy one ETH).

Sometime in the future you decide to sell your 0.934 rETH (the amount of rETH does not change). The RP frontend lists the exchange rate as:

1~\text{ETH} = 0.91~\text{rETH}

1~\text{rETH} = 1.1~\text{ETH}

You burn your 0.934 rETH and receive 1.03 ETH since $0.934~\text{rETH} \times 1.1~\text{ETH per rETH} = 1.03~\text{ETH}$ .

You spent one ETH and received 1.03 ETH, so you profit 0.03 ETH.

Stopping Passive Staking

When the passive staker wishes to exit their position, they simply exchange their rETH back to ETH which can be done either via the RP frontend, where rETH can be burned for ETH, or via the exchanges.

Tokens and rewards are discussed in more detail in Lessons 4 and 5.

¹ If you see past discussions about nETH vs pETH, these are shorthand for "Node Operator ETH" and "Protocol ETH", which are now denoted as bonded and borrowed ETH, respectively.

² Short Term Depegging

It can happen, on occasion, that rETH depegs more from its nominal value than usual. For example, if very large amounts were bought or sold in a short period of time on the exchanges. Depegging is when people are willing to pay more or less than what rETH is backed by.

rETH is fairly resistant to depegging and should recover quickly. During these times, though, someone wishing to enter and exit rETH quickly could lose money even though, generally, rETH always gains relative to ETH.