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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.

SIMETRI gains of 484%

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

Tesla Reports $23 Million Impairment From Its Bitcoin Holdings

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Tesla, Elon Musk’s electric car manufacturer, released its quarterly earnings results, reporting more than $1 billion in profits for the first time since its launch.

It’s not all fun and games, though. To the delight of Elon’s crypto Twitter fans-turned-haters, Tesla’s investment in Bitcoin made it $23 million in losses after the markets crashed during the second quarter of 2021.

Oddly enough, the only mention of bitcoin appears in the “profitability” section of the report, mentioning the loss.

“Positive impacts were partially offset by growth in operating expenses including increased SBC, Model S/X ram (negative margin in Q2), additional supply chain costs, lower regulatory credit revenue, Bitcoin-related impairment of $23M and other items.”

Tesla Lost $23 Million… But Did It?

The $23 million loss might seem digestible considering Tesla invested about $1.5 Billion in Bitcoin. An almost 50% drop from its ATH could certainly trigger concern among investors, especially those who fear for a continuation of the downtrend that could accelerate upon Bitcoin’s drop below $30K.

However, this stat may be due more to the exploitation of a legal loophole than to an actual monetary loss.


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According to the US norms, accountants must record the value of their cryptocurrency investments at the time they are procured. If cryptocurrencies go up in price, nothing happens as long as the company hodl. The business only has to record the transaction in case of a sale. However, when prices go down, the company must record the decrease in its investment as an impairment charge.

Therefore, even though sales gains may be recorded, the tax incidence may be softened by the declines during the time the company hodled its tokens.This is due to the classification of cryptos as an “indefinite-lived intangible asset.”

In short, Elon haters probably don’t have much to celebrate, as it’s really all about a technicality… Although on second thought, $22 million seems like spare change for the world’s wealthiest man.

The Musk Effect

Tesla’s Bitcoin purchase was crucial to the Bitcoin price history.

After a brief exchange of tweets between Elon Musk and MicroStrategy CEO Michael Saylor, Tesla announced a massive purchase that put it on the podium of publicly traded companies with the most significant Bitcoin holdings.

As a result, the price of bitcoin skyrocketed at a frenetic pace, reaching an ATH in April 2021. At that point, Tesla had made more money with Bitcoin than it did with its entire car production.

However, another Tesla decision contributed almost decisively to killing this trend, driving bitcoin to its most significant decline since late 2017. The company’s announcement to stop taking payments in Bitcoin because of its environmental implications caused a panic in the markets that ended with a nearly 50% drop as the days passed.

However, recently Elon Musk acknowledged that Tesla could accept Bitcoin again if the network becomes environmentally friendly enough. After an online conference with the CEO of Twitter and a dose of optimistic rumors related to the possibility of Amazon accepting Bitcoin, cryptocurrencies had a significant rally today.

It seems that the “Musk Effect” is still alive after all.

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Source: https://cryptopotato.com/tesla-reports-23-million-usd-impairment-q2-2021/

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Blockchain

Tesla Reports $23 Million Impairment From Its Bitcoin Holdings

Published

on

Tesla, Elon Musk’s electric car manufacturer, released its quarterly earnings results, reporting more than $1 billion in profits for the first time since its launch.

It’s not all fun and games, though. To the delight of Elon’s crypto Twitter fans-turned-haters, Tesla’s investment in Bitcoin made it $23 million in losses after the markets crashed during the second quarter of 2021.

Oddly enough, the only mention of bitcoin appears in the “profitability” section of the report, mentioning the loss.

“Positive impacts were partially offset by growth in operating expenses including increased SBC, Model S/X ram (negative margin in Q2), additional supply chain costs, lower regulatory credit revenue, Bitcoin-related impairment of $23M and other items.”

Tesla Lost $23 Million… But Did It?

The $23 million loss might seem digestible considering Tesla invested about $1.5 Billion in Bitcoin. An almost 50% drop from its ATH could certainly trigger concern among investors, especially those who fear for a continuation of the downtrend that could accelerate upon Bitcoin’s drop below $30K.

However, this stat may be due more to the exploitation of a legal loophole than to an actual monetary loss.


ADVERTISEMENT

According to the US norms, accountants must record the value of their cryptocurrency investments at the time they are procured. If cryptocurrencies go up in price, nothing happens as long as the company hodl. The business only has to record the transaction in case of a sale. However, when prices go down, the company must record the decrease in its investment as an impairment charge.

Therefore, even though sales gains may be recorded, the tax incidence may be softened by the declines during the time the company hodled its tokens.This is due to the classification of cryptos as an “indefinite-lived intangible asset.”

In short, Elon haters probably don’t have much to celebrate, as it’s really all about a technicality… Although on second thought, $22 million seems like spare change for the world’s wealthiest man.

The Musk Effect

Tesla’s Bitcoin purchase was crucial to the Bitcoin price history.

After a brief exchange of tweets between Elon Musk and MicroStrategy CEO Michael Saylor, Tesla announced a massive purchase that put it on the podium of publicly traded companies with the most significant Bitcoin holdings.

As a result, the price of bitcoin skyrocketed at a frenetic pace, reaching an ATH in April 2021. At that point, Tesla had made more money with Bitcoin than it did with its entire car production.

However, another Tesla decision contributed almost decisively to killing this trend, driving bitcoin to its most significant decline since late 2017. The company’s announcement to stop taking payments in Bitcoin because of its environmental implications caused a panic in the markets that ended with a nearly 50% drop as the days passed.

However, recently Elon Musk acknowledged that Tesla could accept Bitcoin again if the network becomes environmentally friendly enough. After an online conference with the CEO of Twitter and a dose of optimistic rumors related to the possibility of Amazon accepting Bitcoin, cryptocurrencies had a significant rally today.

It seems that the “Musk Effect” is still alive after all.

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Source: https://cryptopotato.com/tesla-reports-23-million-usd-impairment-q2-2021/

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Blockchain

Goldman Sachs Files for “DeFi” ETF to Track Tech Giants

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The banking giant filed an application with the U.S. Securities and Exchange Commission (SEC) on July 26 for a DeFi ETF that would offer exposure to public companies.

According to the filing, the proposed fund called the “Goldman Sachs Innovate DeFi and Blockchain Equity ETF”, seeks to provide investment results that closely correspond to the performance of the Solactive DeFi and Blockchain Index from the German indices provider.

The details were thin on the ground but the fund will invest at least 80% of its assets into securities, stocks, and fintech firms featured in the index.

DeFi Fund Without The DeFi

It appears that Goldman may be a little confused over the definition of “DeFi”. A closer look at the Solactive Index reveals that it is largely comprised of U.S. tech giants and international telecoms companies.

Of the top twenty components in its July 23 report, not one of them could be described as a DeFi or blockchain project or organization. The top three were Nokia, Facebook, and Google’s Alphabet.


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Also in the list of stocks tracked were payments giants Visa, Mastercard, and PayPal, tech giants Microsoft, IBM, and Intel, and Chinese e-commerce and telecoms monopolies Baidu, Alibaba, and Tencent.

Hardly what anyone would describe as “decentralized finance”.

It is not the first time Goldman Sachs has got its wires twisted over the crypto industry.

Confusion Reigns at Goldman

In a June 14 report, titled “Digital Assets: Beauty Is Not in the Eye of the Beholder”, the bank concluded that Bitcoin is not “a long-term store of value or an investable asset class”.

They contradicted a May 21 report titled “Crypto: A New Asset Class?” which was largely positive about them with the global head of digital assets at Goldman, saying “Bitcoin is now considered an investable asset”.

Earlier this month, analysts at the investment bank outlined their reasoning behind the claim that Ethereum will eventually become a better store of value than Bitcoin. It also reported that 45% of the ultra-rich are interested in crypto.

In April, Goldman added Bitcoin to its year-to-date returns report, and in March, the bank filed for a Bitcoin ETF with the SEC according to crypto custody firm New York Digital Investment Group (NYDIG).

Now it seems that Goldman has equated DeFi with the likes of Facebook, Google, and Microsoft!

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Source: https://cryptopotato.com/goldman-sachs-files-for-defi-etf-to-track-tech-giants/

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