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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/

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TrustToken and Syscoin Partner on a Stablecoin Bridge

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Decentralized marketplace and e-commerce protocol Syscoin has partnered with the stablecoin platform TrustToken.

The goal of the collaboration is to speed up payments and to provide further solutions to Ethereum’s blockchain. It also means that the five stablecoins of TrustToken, namely TUSD, TGBP, THKD, TCAD, and TAUD, will run on Syscoin’s blockchain and be available for users.

A Collaboration Between Syscoin and TrustToken

According to a release shared with CryptoPotato, the popular decentralized marketplace and e-commerce protocol Syscoin has teamed up with stablecoin platform TrustToken.

Right off the bat, this means that the stablecoins provided by the platform will now run on Syscoin’s blockchain as well. These are TUSD, TGBP, THKD, TCAD, and TAUD.

Stablecoins have grown in popularity over the past few months, mainly because of the DeFi boom, where they are used to enable staking, liquidity provision, and so forth. However, there was also an obvious challenge with all of it – scaling. Supposedly, Syscoin is intended to help with that. Using Z-DAG (Zero Confirmation Directed Acyclic Graph), the protocol claims to be able to settle transactions in less than 10 seconds with comparatively low fees.

The partnership will also enable users to mine two cryptocurrencies at the same time – SYS and BTC.

Distribution of the Roles

While Syscoin’s task would be scalability, TrustToken comes in for the stablecoin part. It’s a platform that aims at an open financial system through a selection of stablecoins.

The stablecoins it offers are collateralized, and it has also partnered with Chainlink, as well as other protocols.

The overall partnership is aimed at creating a solution for scalable and secure token payments at a lower risk interoperability with Ethereum’s network. It should make TrustToken’s stablecoins function quicker and cheaper following the enabling of the bridge.

Speaking on the matter was Syscoin’s Foundation Chairman Jag Sidhu, who said:

“Digital assets have growing needs for better usability, robust decentralized security, and a scalable way of ensuring every transaction complies with regulations. Syscoin uniquely aligns with all of these requirements. We look forward to TrustToken’s family of stablecoins becoming future-proof and gaining significant advantage with Syscoin.”

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Source: https://cryptopotato.com/trusttoken-and-syscoin-partner-on-a-stablecoin-bridge/

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Visa And BlockFi Partner To Release A Bitcoin Rewards Credit Card

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  • The US-based cryptocurrency lending company BlockFi has partnered with the American multinational financial services corporation Visa to bring Bitcoin to the masses.
  • Bloomberg reported that the two US companies will offer a credit card that rewards clients’ purchases with the primary cryptocurrency, instead of traditional options such as cash and airline miles.
  • Dubbed the Bitcoin Rewards Credit Card, it will allow customers to receive 1.5% of their purchases back in BTC. 
  • Should the user spend more than $3,000 in the first three months after receiving the card, he will be entitled to a bonus of $250 in bitcoin. However, the innovative card will come with a $200 annual fee.
  • Evolve Bank & Trust, a subsidiary of Evolve Bancorp Inc, will be the card’s issuer. All three parties involved plan to launch the card in early 2021.
  • Founder and Chief Executive Officer (CEO) of BlockFi, Zac Prince, commented that his company is “excited to add credit cards to our suite of products and expand Bitcoin’s accessibility to a broader set of customers.”
  • With the BlockFi partnership, Visa has doubled-down on its endeavors with bitcoin-related collaborations. Earlier this year, the US giant and the BTC-friendly shopping app Fold launched a Visa co-branded debit card that rewards users with up to 10% of BTC back for every dollar purchase on retailers like Hotels.com, Nike, Starbucks, and Uber. 
  • BlockFi raised $50 million in Series C funding earlier this year, and Morgan Creek Capital’s Anthony ‘Pomp’ Pompliano joined its board of directors.
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Source: https://cryptopotato.com/visa-and-blockfi-partner-to-release-a-bitcoin-rewards-credit-card/

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Australian Crypto Exchange Accidentally Exposes Over 270,000 Customer Emails

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The Australian cryptocurrency exchange, BTC Markets, has inadvertently exposed more than 270,000 emails of its customers. The company apologized for the inconvenience and reassured that all other data, including users’ funds, is safe.

BTC Markets Exposes Customers’ Emails

A user going by the Twitter handle Stevosxrp.crypto took it to Jack Dorsey’s social media giant and Reddit to first complain about BTC Markets’ screw up. The Australian-based exchange later confirmed the breach on its official Twitter account.

The statement explained that BTC Markets “uses an external system to send client-wide emails.” Although the exchange has used this service for years “without an incident,” including sending test mails, this time, the testing “didn’t pick up that the sample email addresses in the batch were added to the same email, rather than sent individually.”

Consequently, the names and email addresses of account holders were exposed. BTC Markets claimed that this process was instant; therefore, “it was not possible to stop the batch send once the error was realized.”

The CEO of BTC Markets, Caroline Bowler, later revealed that all account holders were affected because the emails were sent in batches.

Funds Are SAFU, But The Damage Is Done

The exchange said that it will “self-report” to the Office of Australian Information Commissioner and “fully comply with the data breach reporting requirements.” Furthermore, the company plans to conduct an internal review.

Despite the data leak, BTC Markets reassured its users that the platform is still secure, no passwords were revealed, and all customers’ funds are safe.

Nevertheless, the exchange suggested that users’ should enable two-factor authentication (2FA) to enhance the security of their accounts.

None of those reassurances seemed to have an effect on the users, though. The Twitter thread explanation was met with numerous complaints from customers.

While most highlighted their disappointment with having their personal emails and names revealed, some took it a step further. One user claimed that the BTC Markets’ name is “now as good as dog s**t.”

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Source: https://cryptopotato.com/australian-crypto-exchange-accidentally-exposes-over-270000-customer-emails/

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