Add Rocket Pool's rETH on Aave v2 Mainnet Market

Summary

This is a proposal for adding borrow/lend support for Rocket Pool's rETH on Aave.

Motivation

Aave is a premier lending platform and basis for broader DeFi integration. The rETH token will offer many benefits to Aave if onboarded, just as rETH holders would benefit from making their assets more productive. The rETH token is important as a hedge against the risks of other ETH staking services (particularly because of its decentralized and permissionless nature) and will be an important addition to the DeFi space in general.

Right now, Rocket Pool is bridging its rETH token across chains to make liquid staking more accessible for the masses - it is currently available in Optimism, Arbitrum, and zkSync. As the second largest liquid staking token, Aave is missing a key asset in demand.

Relevant Links

• Website: https://rocketpool.net/

• Dune Dashboard: https://dune.xyz/KIV/Rocketpool

• Audits:

  • https://consensys.net/diligence/audits/2021/04/rocketpool/
  • https://rocketpool.net/files/SigmaPrimeAudit.pdf
  • https://github.com/trailofbits/publications/blob/master/reviews/RocketPool.pdf

• Documentation: https://docs.rocketpool.net/guides/staking/overview.html

• Medium: https://medium.com/rocket-pool/rocket-pool-staking-protocol-part-1-8be4859e5fbd

• Github Page: https://github.com/rocket-pool

• Communities:

  • https://discord.gg/GWtjmc4c
  • https://twitter.com/Rocket_Pool
  • https://dao.rocketpool.net/

• MakerDAO Risk Evaluation: https://forum.makerdao.com/t/reth-collateral-onboarding-risk-evaluation/15286

• Aave Governance Discussion: https://governance.aave.com/t/proposal-add-support-for-reth-token/3585

Specifications

What is the link between the author of the AIP and the Asset?

I'm Marceau, an Aave lending participant and Rocket Pool community member. I care a lot about democratizing the liquid staking derivative marketplace and helping to bring options to the market for the health of the broader Ethereum network.

Protocol Description

The Rocket Pool (RP) protocol is a decentralized Ethereum 2.0 Proof of Stake infrastructure service. Without staking pools, only wealthy network participants who meet the 32ETH threshold are rewarded for validating transactions. Rocket Pool democratizes participation in network validation by providing a service that lowers the wealth threshold. Abstracting staked ETH as rETH, participants can retain commodity properties of their stake (transfer of ownership).

Unlike beacon chain ETH, rETH can be freely transferred and traded as it implements the ERC-20 interface. Further, unlike competing stETH by Lido, rETH passively gains value against ETH. This ratio is updated regularly by the oDAO—an oracle DAO composed of major ecosystem players such as Etherscan, Bankless, Prysm, and more.

Lido produces the stETH and wstETH tokens. The wstETH token acts just like rETH – allowing users to passively gain ETH staking rewards. The stETH-ETH Curve pool is one of the largest by TVL. However, the Lido network does not allow for permissionless node operators. All validators are hosted by a select set of nodes. As such, rETH provides decentralization support in a unique way.

There are 2 primary users in RocketPool:

rETH Stakers

Stakers can deposit as little as 0.01 ETH in exchange for rETH. rETH is a redemption token representing staked ETH. This token can be burnt at the Rocket Pool contract or website in exchange for ETH and accumulated staking reward. They do not need to run a machine. The returns are subject to a commission to node operators, which is a % of the staking rewards earned.

Node Operators

Node Operators deposit 16 ETH, along with a minimum 1.6 ETH worth of RPL tokens as collateral to stake on behalf of the pool. This is permissionless, so anyone can run a node as long as they have the infrastructure and collateral. They will receive RPL inflation rewards, as well as ETH commission from the pool, along with staking rewards on their own 16 ETH.

The rETH and stETH token’s price histories can be found roughly on coingecko, however, the most liquid price for rETH is found here 4 with the oracle price dictating the rETH deposit pool.

Governance

Rocket Pool is governed by a dual DAO model. Responsibilities are split between the pDAO and the oDAO. The oDAO’s primary responsibilities come from the fact that the consensus layer needs to interact with the execution layer. Some tasks include setting the protocol accepted RPL/ETH ratio as well as updating the exchange rate for rETH/ETH based on protocol results.

Until recently, the oDAO was in ‘bootstrap’ mode allowing the Rocket Pool team to modify contracts and tweak parameters. This was removed and now the oDAO is self-governing between 14 members (https://rocketscan.io/dao). The pDAO is yet to be released. Currently, the Rocket Pool team manages inflation destined for the pDAO. At some point in the future, these assets and control of adjustable parameters in the protocol will be turned over to this DAO. It is unclear if all RPL holders will be able to vote or if a sybil mechanism will be installed such as limiting votes to only staked RPL holders. These functions are controlled by bootstrap mode.

The rETH token is available on numerous DEX contributing to a very stable peg. These diverse pools allow for a strong arbitrage market to keep the peg steady including the native deposit pool where rETH can be burned for the protocol oracle valuation against ETH.

The Curve wstETH-rETH pool is the most liquid exchange of rETH and single largest holder of the asset. This pool has benefitted from high capital efficiency and charitable incentives.

These are recently updated DeFi TVL metrics:

• Alchemix (beta) WETH + rETH: $796,950 TVL
• Curve rETH + wstETH: $43.4 million TVL 6
• Balancer WETH + rETH: $15.3 million TVL
• Uniswap: $102,000 TVL
• Bancor: $334,000 TVL
• Yearn Curve rETH Vault: $1.3 million TVL 1
• Arbitrum - L1 ERC20 Gateway: $3.29 million TVL 1
• Optimism - Gateway: $2.29 million TVL
• Polygon (Matic) - ERC20 Bridge: $145,000 TVL 1
• zkSync: $359,000 TVL 1

Security Considerations

Rocketpool recently passed 6 months live on mainnet which is still fairly new for a protocol. Despite this, the protocol has not seen any down time nor experienced any major losses nor hacks. Rocket Pool also has an active bug bounty programme with Immuni.Fi and is looking to progressively increase the bounty with time.

The protocol is susceptible to ETH execution risk on all major upgrades that involve the beacon chain. This includes potential complexity creep as SSV and MEV become core topics. There is governance risk between the oDAO and pDAO with the pDAO being more centrally controlled by the team bootstrap mode. The oDAO operates with majority consensus and so malicious attacks would require compromising many core Ethereum teams. Staking risk is low for rETH as slashing is insured against by Node Operator collateral and RPL stake.

Proposed Risk Parameters

• LTV: 70% (vs 82.5% for ETH)
• Liquidation Threshold: 75% (vs 85% for ETH)
• Liquidation Bonus: 7.5% (vs 5% for ETH)
• Reserve Factor: 10% (vs 10% for ETH)

The proposed rETH risk parameters are presented vs those of ETH and are in line with the current risk parameters of stETH and are identical to the proposal by sETH2. ETH and rETH are highly correlated, and as such, have similar volatility profiles. The LTV and liquidity threshold below that of ETH account for the extra risks associated with liquidating rETH.