Rocket Pool Community Voting Whether to Self-Limit its Growth

Voters governing the protocol for decentralized Ethereum validator service Rocket Pool are grappling with a philosophical proposal that could put bumpers around the ether staker’s own growth.

The proposal would establish a set of guiding principles by which Rocket Pool manages its trove of staked ether. Some stakers have gotten too big for Ethereum’s own good, according to author Valdorff, who doesn't want Rocket Pool to become one of them.

“Despite our best attempts to be decentralized and secure, we know that, like any entity, there will always be attack surface,” wrote the pseudonymous node operator Valdorff in the proposal. “The only thing we can do to ensure the safety of the Ethereum network is to avoid being a single point of failure by limiting our size.”

In the ongoing governance vote set to end on Feb. 12, the vast majority of votes cast have been in favor of establishing guiding principles that would prioritize the long-term health and decentralization of Ethereum over the success of the protocol. The proposal would establish Rocket Pool's preference “to damage itself before endangering the stability of Ethereum."

Rocket Pool isn’t anywhere close to being a single point of failure for Ethereum: it’s only got 1.66% of staked eth deposits, well below top competitor Lido who has 29%, per Nansen.

“It’s best to capture our ethos early in a concrete form to make it last well into the future,” said Rocket Pool contributors in explaining why the community ought to vote on principles that could self-limit the protocol to 22% of all staked ether, as one community member has suggested.

Rocket Pool General Manager Darren Langley said in a tweet, “As a core team, we fully support limiting @Rocket_Pool, if it threatens Ethereum’s credible neutrality or operational stability.”

Other examples for self-limitation include redirecting a percentage of the DAO’s income to support small permissionless protocols and a 3% fee to mint rETH, where the fee and percentage of the DAO’s income rise in conjunction with the growth of Rocket Pool’s dominance of staked ETH. Those ideas have been discussed in the community forum but are not being voted on currently.

While the vote - if passed - does not activate or execute any changes to the codebase, “this is probably stronger than a change in code.” said Valdorff, in a Discord message to CoinDesk. “This sets a framework for future code, which allows us to effectively react to the current state, while anchoring values and not letting them invisibly drift over time.”

Healthy Staking

The proposal defines four categories of staking – “healthier staking,” “as good staking,” “not as good staking,” and “unhealthy staking” – in its effort to impose a decentralization-first mindset to Rocket Pool.

Solo staking, which involves a user running their own hardware, is considered “healthier” under the proposal by being more decentralized, whereas Rocket Pool and fellow liquid staking protocol Stakewise fall into the “as good” category. (Stakewise has previously vowed to limit itself to 22% share.)

But centralized exchanges like Coinbase, Kraken and Binance – and even Lido, the most popular liquid staking protocol – are deemed “seriously dangerous to Ethereum’s health” under the proposal. That’s a major accusation given such entities account for 55.5% of all staked ether, per Nansen.

Lido, the largest staking-as-a-service provider, is “explicitly aiming for winner take all,” as stated in the Rocket Pool proposal. "Winner take all" refers to the concept where a single entity wins and dominates the entire market of ETH staking derivatives. With over $8 billion in total staking assets, Lido voted against self-limit inbound stake flow in July 2022.

Lido did not return a request for comment by presstime.

In Rocket Pool’s Discord, Superphiz, a maintainer of the website who also runs a node operator, said “Self limiting benefits Ethereum in the long run, and by extension Rocket Pool. Choosing not to self-limit will harm both groups and lead to less long-term financial reward.”

Users have staked over 377,000 ETH worth roughly $593 million through Rocket Pool. Rocket Pool currently offers 4.19% APR for users to stake and 7.29% APR for users to stake and run a node.