Rocket Pool University

5.3

Commission

The commission is a percentage of rewards paid by the passive staker to the active staker, that is, it is taken from the potential rETH rewards and paid to the Node Operator. This is to incentivize the Node Operator who must maintain the node hardware and pay for things such as networking and upgrades.

The reallocation of these funds is done automatically via smart contract. For example, the minipool contract takes commission into account when distributing Consensus Layer rewards.

How big is the commission?

Originally, the commission was variable from 5% to 20% of rewards, depending on the demand for new minipools. When the deposit pool was full, the commission would increase to as high as 20% to encourage new minipools and as the pool ETH decreased to zero, the commission would fall to as low as 5%.

After a short time, it was decided to set the commission for new minipools at a flat 15% to help keep rETH APR more competitive. The concern was that people were purposefully waiting to activate validators until the commission was 20% and that 20% creates drag on rETH returns.

With the advent of LEB8s in the Atlas release, a flat commission of 14% was chosen. This number was chosen to balance need for a low rate (to keep rETH APR competitive) with making migration from 16 ETH minipools to LEB8s attractive. Two LEB8s at 14% commission gives slightly higher returns than one 16 ETH minipool at 20% commission (2 $\times$ 35.5% vs 60% - see below for formulae to calculate these numbers).

For these reasons, there are 16 ETH minipools with rates varying from 5-20% and LEB8s with commission rates of 14%.

How are rewards split?

Each Node Operator gets the commission they signed up for, whereas, rETH holders "pay out" an average over all minipools¹. For a Node Operator with commission, c, running a validator with rewards, r, the reward split for a 16 ETH minipool would be:

R_{NO} = \frac{1}{2} r (1+c)

R_{rETH} = \frac{1}{2} r (1-c)

where $R_{NO} ~ \text{and} ~ R_{rETH}$ are the rewards for the Node Operator and the rETH contract, respectively. The LEB8 looks a little more complicated, since the Node Operator gets 1/4^th of the rewards (8 ETH/32 ETH), but gets the commission on all "borrowed" ETH (24 ETH), so for a LEB8:

R_{NO} = \frac{1}{4} r + c \times \frac{3}{4} r = \frac{1}{4} r (1 + 3c)

R_{rETH} = \frac{3}{4} r - c \times \frac{3}{4} r = \frac{3}{4} r (1 - c)

The commission applies for Execution Layer rewards, as well...

¹ For an rETH holder, the rewards and fees are socialized (not from one particular validator), but rather averaged over the entire protocol. Thus, all rETH has the same value that grows with time. An rETH holder might mint at some time where all rETH is valued at 1.02 ETH/rETH and then sell some time later at 1.12 ETH/rETH, giving them 0.1 ETH/rETH earnings.