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DeFi Project Spotlight: Rocket Pool, Staking Service for Ethereum 2.0

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DeFi Project Spotlight: Rocket Pool, Staking Service for Ethereum 2.0 | Crypto Briefing



















Key Takeaways

  • Rocket Pool is a staking service for Ethereum 2.0, which democratizes and streamlines staking for node operators and users.
  • Despite the project being in beta, over $200 million in ETH have been deposited.
  • The team has been working on Rocket Pool since 2016.

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Ethereum has been around since 2015. The technology was groundbreaking at the time of its launch. It enabled blockchain-based applications, such as DeFi and games.

Five years later, Ethereum’s tech looks inferior to competitors, most of which emerged during the 2017 ICO boom. 

Low throughput significantly throttles the performance of Ethereum-based dApps. The project utilizes a secure but slow Proof-of-Work (PoW) consensus, which only allows 15 transactions per second (TPS) at best.

Meanwhile, other Layer 1 platforms like Polkadot and Solana can handle hundreds or even thousands of TPS because they run more efficient consensus algorithms like Proof-of-Stake (PoS).

PoW consensus requires nodes to run specific algorithms, committing their computing power to the network’s security. PoS, on the other hand, uses financial incentives to keep nodes from behaving maliciously.

Ethereum planned to transition from PoW to PoS for years, but it has been difficult from a technological standpoint. Moreover, as the network expanded and absorbed more value, the stakes grew higher. If the transition goes wrong and users lose money, Ethereum will lose much of its reputation.

Still, the team is working on moving Ethereum to PoS. It decided to separate PoW-based Ethereum 1.x from PoS-based Ethereum 2.0. The two blockchains will exist in parallel until a full transition from one to another is possible. 

After years of development and weeks of running testnets, the date for launching Ethereum 2.0 was finally published. Along with it, the team revealed a staking contract, where node owners can deposit their funds.

PoS systems incentivize node owners to stake funds by offering them rewards. The opportunity of earning rewards in a leading cryptocurrency is appealing, so many users are interested in staking on Ethereum.

However, staking isn’t only locking ETH and getting rewarded. A node’s stake is essentially a bond, which the network takes away partially or in full if the node doesn’t contribute to the network’s security. 

Running a node requires appropriate hardware, a stable and fast network connection, and an understanding of the software. In many ways, it resembles a full-time job.

On top of that, Ethereum has a minimum staking requirement of 32 ETH (around $17,000 at the time of writing), which may be high for some node owners. Meanwhile, users with enough ETH may not have enough time or knowledge to run a node.

Rocket Pool helps make staking on Ethereum 2.0 more accessible, convenient, and decentralized. The project’s team builds a system to streamline the staking experience for ETH whales and node operators.

Rocket Pool Value Proposition

The advantages of using Rocket Pool instead of staking natively are different for node operators and stakers.

Node operators can lower their barriers of entry and increase rewards. The protocol requires 16 ETH to run a node; the other half of the minimum stake comes from pooled users’ funds. 

Sharing the minimum stake is beneficial both for small and large node operators. Node operators with 16 ETH get the opportunity to stake, while whales can spin up two times as many nodes as they could natively and enjoy a better return on their investments.

Like node operators, stakers get lower barriers of entry. On top of that, they can deposit more than 32 ETH, socialize losses with other stakers, and are freed from technical hassles.

Since users’ funds are pooled, stakers can start earning rewards on as little as 0.01 ETH, and there is no maximum deposit. Rocket Pool splits the pooled funds in chunks of 16 ETH and distributes them across node operators.

Spreading ETH among nodes provides better protection against slashing. If a node operator fails to meet Ethereum’s requirements, it will lose part or all of its stake. If a user stakes natively, they risk losing all of their funds due to slashing. Rocket Pool reduces potential losses because if a platform’s node is slashed, the entire pool of stakers shares the loss.

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To better protect stakers, Rocket Pool provides additional incentives for node operators, which stake the protocol’s native RPL tokens. If a node’s 32 ETH stake is wiped, the RPL stake is burned to compensate for the loss.

By creating a system that benefits smaller ecosystem players to participate in staking, Rocket Pool solves top-heavy consensus. 

PoS platforms generally have a handful of nodes with large stakes, which practically control the consensus and game the system to retain the control. Consequently, centralization concerns arise.

By allowing smaller players with limited resources to join Ethereum 2.0 consensus, Rocket Pool democratizes participation in the network and makes it more secure. 

Finally, stakers enjoy the advantage of keeping access to their ETH through rETH ownership tokens. When a user deposits funds to a pool, they receive rETH, which grows in value over time as the rewards are accumulated. The earlier a user gets into the pool, the more rETH per one ETH they earn.

Despite the availability of staking, Etherum 2.0 is far from being fully functional. 

Moreover, it doesn’t have a bridge to Ethereum 1.x yet, so users who stake natively lose access to their ETH potentially for years. Meanwhile, rETH holders will be able to liquidate their ownership tokens at any time.

How Does It Work

Rocket Pool’s smart contracts receive funds from users and distribute them across the network of Smart Nodes, which are essentially nodes connected to the platform.

When a user deposits ETH to the pool, a smart contract issues a corresponding amount of rETH. Further, it creates a batch of four ETH and sends it to one of the Smart Nodes. 

If a node goes down, the smart contract stops depositing ETH to it.

Pooled funds distribution
Pooled funds distribution. Source: Rocket Pool

Deposits to the pool have fixed terms, currently ranging from three months to one year.

Once a Smart Node gets a total of 16 ETH from Rocket Pool, the platform’s smart contracts automatically batch the node’s 16 ETH with the pool’s 16 ETH and creates a 32 ETH validator. 

Pooled funds allocation to nodes. Source: Rocket Pool

On top of staking rewards, node operators in Rocket Pool receive commissions from users. The commissions range from 2%-20%, depending on the demand for nodes. If there is more ETH than Smart Nodes can take, the commission goes up to incentivize node operators to join and vice versa.

The nodes, which stake RPL tokens for extra insurance, get better chances to receive higher commissions.

Deposits, rewards, and commissions for Smart Nodes are represented by Rocket Pool’s nETH, which nodes receive if they stop participating in the system before smart contracts on Ethereum 2.0 are implemented. 

Ethereum 2.0 won’t have smart contract capabilities until the so-called phase 2 segment is expected 2021-2022. 

Once the network transitions to phase 2, users will be able to swap rETH and nETH for the regular ETH.

The Pros and Cons of Rocket Pool

Rocket Pool creates a base pillar for Ethereum 2.0 consensus. Transitioning to PoS consensus brings a new set of potential issues, including the centralization of consensus and insufficient security.

By making staking more accessible, easier, and more profitable than it can be done natively, Rocket Pool incentivizes more users to participate in Ethereum 2.0 consensus, therefore better securing the network. 

Crypto organizations and institutions like Grayscale or Binance can act as proxies to Rocket Pool too. Doing so allows them to offer users extra returns on their idle ETH without setting up any staking infrastructure.

Still, while it’s encouraging that the team has vast experience working on the project since 2016, Rocket Pool adds smart contract risk to staking and running nodes. If a smart contract has a bug, it can lead to the loss of stakers’ funds.

Moreover, the platform is somewhat centralized because some of its Smart Nodes are trusted. Although the team plans to onboard users and organizations with a reputation at stake as trusted nodes, trusted elements create bottlenecks in decentralized setups. 

Trust nodes will also be responsible for reporting data from Ethereum 2.0, effectively acting as an oracle. While it’s an understandable architecture decision, as Ethereum 2.0 doesn’t have smart contracts, it presents a risk of data manipulation.

The project plans to implement a decentralized autonomous organization (DAO), but it’s still developing.

Finally, Rocket Pool doesn’t have a backstop mechanism. RPL security bonding is not mandatory for the nodes. Consequently, if a major part of the pool’s nodes gets wiped by slashing, the system can become insolvent if not enough RPL were staked as insurance.

Rocket Pool Competition

The platform is unique in that it’s focused on the decentralization of staking. There are numerous staking service providers like Bison Trails and Staked, but their operations are centralized, and they don’t onboard any external nodes.

One of Rocket Pool’s closest competitors is Stakewise. The platform provides cloud infrastructure, streamlining the experience of operating a node. However, unlike Rocket Pool, Stakewise requires the full 32 ETH deposit to be able to stake.

Both Rocket Pool and Stakewise provide deposit tokens, which represent ownership in staking pools. These tokens can be integrated into DeFi protocols, opening prospects for users to generate additional yield. 

Whether one of the platforms will have an advantage over the other will depend on its token acceptance among DeFi platforms.

Community Reception

The number of users interested in staking ETH is substantial. For example, a corresponding subreddit has 6,800 users.

Currently, Rocket Pool is in beta. 440,544 ETH ($207 million) are staked across 631 node operators. 

Meanwhile, the nodes’ commission is 20%, and the node utilization is 100%, which means that more users are willing to stake ETH than Smart Nodes available. Considering that the project gained 5,700 users on Twitter since 2017 and has 700 users in Discord, it’s likely that a handful of whales deposited large amounts of ETH to the pool.

Still, considering Rocket Pool’s early stage of functioning and the early stage of Ethereum 2.0, its traction is adequate. 631 nodes represent almost 15% of 4,478 nodes that currently support Ethereum 1.x.

The Future of Rocket Pool

One of the advantages of Rocket Pool is that it piggybacks on the success of the smart contract platform with the largest community in the space. 

If Ethereum 2.0 pans out as expected, Rocket Pool can become a default staking-as-service platform, given its long history of development and early mover advantage. 

Rocket Pool’s focus on decentralization, trustlessness, and neutrality will become a building block for centralized and decentralized services on Ethereum 2.0. By the time phase 2 is live, Rocket Pool’s solution will be battle-tested, so it will make more sense for teams to plug into it instead of spinning up staking infrastructures.

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Source: https://cryptobriefing.com/defi-project-spotlight-rocket-pool-staking-service-ethereum-2-0/

Blockchain

Bitcoin: Temporary Correction or No ATH This Year? The Crypto Weekly Market Update

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Bitcoin has a way of surprising people. This week was no exception. A few days ago, almost everyone believed that the cryptocurrency is inevitably headed to a new all-time high. And how could they not? BTC was trading at a few hundred USD below the record from back in 2017. Unfortunately, things took a turn for the worst.

Yesterday was undoubtedly a bad day for bitcoin as it plunged a total of around $3,000 in less than 24 hours. From a high of about $19,500 down to $16,200, the bears poked and showed their faces. The entire market lost around $80 billion of its capitalization as altcoins actually had it worst.

During the market dive, Bitcoin’s dominance actually increased, showing that not only altcoins failed to hold their ground, but they dropped harder than BTC. Since then, there has been a slight recovery and at the time of this writing, the primary cryptocurrency is trading at around $17,000.

The move was seemingly propelled by the news that US regulators might seek to require identity verification from crypto wallet providers. Coinbase’s CEO, Brian Armstrong, commented on the matter, expressing his worries that if the new rules are implemented, they would be rather harmful to the users and the industry, in general.

At the same time, the popular cryptocurrency exchange OKEx opened withdrawals for the first time since they were shut down around a month ago, which might have prompted users to cash out the profits that they have been sitting on. In fact, CryptoPotato reported that around $500 million were withdrawn from the exchange as the crash started to take place.

In any case, the results are here, and it remains particularly interesting to see where will bitcoin go from here.

Market Data

Market Cap: $512B | 24H Vol: 181B | BTC Dominance: 62%

BTC: $17,132 (-7.98%) | ETH: $516.86 (+1.71%) | XRP: $0.56 (+74.08%)

Bitcoin Worth $500 Million Withdrawn From OKEx as Users Look for Other Alternative. Data shows that users withdrew a total of 29,300 BTC from the popular cryptocurrency exchange OKEx right after it resumed full functionality. This happened just as bitcoin plunged $3,000 in a matter of 24 hours. The exchange also resumed the withdrawals a day earlier than announced and during the Chinese trading hours.

Bitcoin Black Friday 2020: The Sales You Better Not Miss. It’s the end of November, and with this comes the long-anticipated shopping season. For many, this is a time to enjoy massive sales. We’ve taken the liberty of listing a few sales within the cryptocurrency field that aficionados might find interesting.

Facebook’s Libra Could Reportedly Arrive in January 2021 in a Scaled-Down Version. Libra, Facebook’s long-awaited cryptocurrency project, might be set to launch in early 2021. However, the version that’s potentially hitting the market is scaled-down and specifically intended to abide by the regulations of Switzerland’s FINMA.

Research Suggests Satoshi Nakamoto Launched Bitcoin From London. New research shows that activities associated with Satoshi Nakamoto from 2008 and 2010 might have taken place in London when Bitcoin’s network went live. This brings the experts a step closer to identifying who’s behind the legendary pseudonym.

6 Possible Reasons For Bitcoin’s $3,000 Daily Price Crash. Bitcoin went through a massive crash two days ago when it lost around $3,000 of its value in a sudden red candle. These are six reasons for which this may have happened and a brief outline of what might be next to come.

Coinbase CEO Fears Rumored Regulations Proposed By The Trump Administration. Brian Armstrong, the CEO of the leading US-based cryptocurrency exchange Coinabse, has said that he’s worried about the rumored regulations concerning third-party wallet providers having to identify their users. He said that this might harm users and the entire ecosystem.

Charts

This week we have a chart analysis of Bitcoin, Ethereum, Ripple, Chainlink, and Stellar Lumens – click here for the full price analysis.

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Disclaimer: Information found on CryptoPotato is those of writers quoted. It does not represent the opinions of CryptoPotato on whether to buy, sell, or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk. See Disclaimer for more information.

Cryptocurrency charts by TradingView.

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Source: https://cryptopotato.com/bitcoin-temporary-correction-or-no-ath-this-year-the-crypto-weekly-market-update/

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Ripple Plans To Cash Out 33% Of Its MoneyGram Stake With A Significant Profit

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  • The San Francisco-based payment protocol has filed a document on Friday with the US Securities and Exchange Commission (SEC). It reads that Ripple Labs has entered into an agreement with MoneyGram, which entitles Ripple to sell up to 4,000,000 shares of common stock.
  • Ripple’s option to sell these shares will expire “upon the earliest of March 31st, 2021, the time at which the maximum amount shall have been sold, or the occurrence of certain other customary events affecting the issuer.” 
  • CryptoPotato reported last year that Ripple and MoneyGram announced a strategic partnership. The initial term of the agreement was for two years. Ripple had agreed to provide a capital commitment amounting to $50 million in exchange for equity through the two-year period.
  • As per the SEC filing, Ripple owns 6.22 million shares of the giant money transfer company (or 8.6% of shares outstanding). However, the blockchain company has a warrant to buy up to another 5.95 million shares, amounting to a total equity position of 12.2 million shares or 17% of MoneyGram’s shares outstanding).
  • With the initial investment in 2019, Ripple purchased the MoneyGram shares at 4.10 per stock, which was a significant premium to the market price. 
  • Nevertheless, MoneyGram’s stocks (MGI) have surged in 2020, closing Friday’s session at $7.42. As such, Ripple can cash out with an 80% profit, despite the initial premium.
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Source: https://cryptopotato.com/ripple-plans-to-cash-out-33-of-its-moneygram-stake-with-a-significant-profit/

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South Korea To Postpone Previously Planned Crypto Income Tax

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Lawmakers in Korea are planning to postpone a recently considered tax on crypto assets profits. Reports say the tax rule delay will be about three months – instead of October 2021, January 2022.

The New Crypto Income Tax Rule To Wait Until January 2022

According to a recent media report, the South Korean congress plans to put off the recently considered cryptocurrency income tax rule. A planning and finance committee of the National Assembly has issued a report, which proposes the necessity of implementing the crypto income tax rule from at least 2022.

A few months ago, in July, a report stated that South Korea’s Minister of Finance and Economy believes that the country should come up with a tax on cryptocurrency trading and investing. Back then, he added that South Korea has been in discussion with other countries about introducing a new digital law.

In July 2020, the country’s Ministry of Economy and Finance amended its tax code, where it included the plan for charging residents a 20% tax on gains from cryptocurrency trading, which are worth more than 2.5 million Korean won (about $2,000).

Lawmakers in the National Assembly are to approve the Government’s plan, which was to carry into effect the cryptocurrency income tax rule from October 2021.

Reason For The Delay – Time Is Tight

As per the media report, the reason for the postponement of the crypto tax law is based on some concerns, raised by local crypto exchanges. They have claimed the lack of time to build their proper tax reporting system and infrastructure, needful for the process to begin.

The so-called “Specific Financial Information Act” would be enforced from March next year, so crypto exchanges have to complete the necessary reporting system by September 2021 for verifying their real names of deposit withdrawal accounts.

As CryptoPotato reported, South Korea announced the planning of the crypto income tax in June this year. The Asian country went through some different views on how and whether it should tax profits from cryptocurrency. Firstly, at the beginning of 2020, the Ministry of Economy and Finance did not consider that digital asset trading gains as taxable income. A month later, another local report said the Ministry believes that the nation could start label cryptocurrency trading profits as “other income.”

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Source: https://cryptopotato.com/south-korea-to-postpone-previously-planned-crypto-income-tax/

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