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4.1
rETH
rETH is Rocket Pool's Liquid Staking Token (LST). rETH holders share in staking rewards by "lending" out their ETH without having to run nodes. The rETH holder pays a small commission to the Node Operators to incentivize their originating and upkeep of nodes and minipools, but this is all done behind the scenes via smart contracts.
To earn staking rewards, one literally just needs to have rETH tokens. Rewards come in the form of increased rETH value relative to ETH.
How to get rETH?
The two primary ways to get rETH are to mint it by depositing ETH into the Deposit Pool or to buy it on an exchange. Minting is done on Rocket Pool's website. Buying can be done on most exchanges but many prefer Cowswap or 1inch. Cowswap in particular has built in protection against sandwich attacks.
Either way, make sure to verify before you buy that the token is Rocket Pool's rETH! Any token can use the same name. It is only rETH if it matches the contract address on Rocket Pool's website or in the discord.
Deposit Pool
The Deposit Pool is where ETH is sent to mint rETH. The difference between minting and buying is that minting creates new tokens, whereas, with buying you are exchanging for already minted rETH. rETH is fungible, however, so it doesn't matter where or when you get it, it is all the same value at any given time.
The Deposit Pool is a holding contract for ETH that is waiting to be matched with a Node Operator to create a 32 ETH minipool. When ETH is sent to the Deposit Pool, rETH is immediately sent to the depositor, then a check is made for minipools awaiting a match. If there is enough ETH, that amount leaves the pool and a new minipool contract is deployed. If it isn't enough, or if no Node Operators are awaiting ETH, the funds sit in the Deposit Pool until they can be used.
You can mint as little as 0.01 rETH. There is a maximum amount you can mint, as explained below.
Maximum Deposit to Mint
First, note that even though the Deposit Pool has a maximum, you can always get rETH on the open market!
Above, we learned that if no Node Operators are awaiting matching ETH, newly minted rETH funds will sit unused in the Deposit Pool. The rETH has been minted, so those holders gain the same rewards as everyone else (rETH is fungible), but their ETH has not been matched with a Node Operator, yet, so their ETH is not helping create rewards. Thus, Deposit Pool ETH dilutes rETH value.
A balance must be maintained between allowing deposited ETH to dilute rETH value and having a Deposit Pool large enough to accommodate passive stakers wanting to stage ETH for bundling without constant monitoring. Rocket Pool has adopted the following rules to best achieve those objectives:
When demand for rETH has been high, the Deposit Pool buffer (beyond the Node Operator queue) has been as much as 18,000 ETH. Note that Rocket Pool does not run minipools on behalf of passive stakers (as do some non or less decentralized competitors).
rETH rewards accrual
For each minipool, rewards are fractionally split; (bond/32) is for the node operator (plus their commission) and (32-bond)/32 is for the rETH holders (minus the commission), where the bond is 8 ETH for a LEB8 or 16 ETH for a standard minipool. The commission is set to 14% of rewards, but note that in the past it ranged from 5-20%, so some older minipools will have different values.
Although each node operator receives their individual minipool rewards with their specific commission, the rETH portion is socialized to make rETH fungible. rETH is not associated with one particular minipool/validator.
Rewards accumulated for rETH are sent to the rETH contract. These total rewards are added to the total amount of ETH deposited for minting rETH to determine rETH's value.
For example, if before the very first rewards period, a total of 100 ETH were used to mint 100 rETH, and the first rewards interval generated 1 ETH of rewards, each rETH would be backed by 100 + 1 ETH. Each rETH would then have value:
1 rETH * (101 ETH/100 rETH) = 1.01 ETH
See lesson 5 for more information on rewards. Note that rETH holders do not share in RPL awards.
Since rETH is non-rebasing (you don't gain rETH rewards by getting more rETH tokens), the relative value of rETH to ETH always goes down (it takes less rETH to buy one ETH)1. Since rETH is not a rebasing token and you do not accumulate more rETH over time, holding does not trigger taxable events. Consult a tax professional, however, as different regions have different tax law.
This also means rETH comes already prepared to use in defi applications without needing to be wrapped.
For a reminder on how rETH value accumulates, see the example in section 3.3.
1 Can rETH/ETH value ever go up? What does going off-peg mean?
The ratio of the total number of rETH to the total amount of backing ETH is called the nominal rETH value, that is, the value you would expect rETH to have (the exchange rate at which it mints/burns).
However, rETH bought on the open market is not fixed to that price. Individuals set market prices and can choose to buy or sell rETH above or below nominal value. This is called going off-peg. There are many reasons for this that are beyond the scope of this course, but, as an example, there have been times when the Deposit Pool is full, but demand for rETH was very high. In these cases, people had to buy on the open market and were willing to pay a premium beyond nominal value to secure their rETH. This leads to upside de-pegging.
As can be seen on the below plot, comparing de-pegging of rETH and Lido's stETH, rETH has been very resistant to de-pegging and, in particular, has been much more resistant to down-side de-pegging.
Note that there are arbitrage opportunities when rETH drifts off-peg. Consider the following example when rETH rises above its nominal value:
Example: Suppose rETH is selling at a premium and one wants to create a new LEB8 minipool. The creator has already deposited their 8 ETH bond and needs 24 ETH from the Deposit Pool to make a 32 ETH bundle. The new minipool creator can deposit another 24 ETH (to match to their bond) to the Deposit Pool which will mint them some amount of rETH at nominal value. That rETH can then be sold on the open market at the premium price and the creator pockets the difference (to guarantee this succeeds, a flash loan should be used).
This makes them a small profit and helps drive the price closer to nominal value by increasing rETH supply. In fact, Rocket Pool user Ramana has integrated such an arb script to do this semi-automatically for Node Operators and many have profited from this arbitrage.