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In the competitive landscape of cryptocurrency staking, rETH has been lagging behind its major competitors in terms of staking yield. This underperformance can be attributed to two primary factors: high staking reward fees and a congested validator queue.
As of this month the current APR of rETH vs. other LSD protocols is:
- rETH: 3.3%
- stETH: 4.3%
- sfrxETH: 5.2%
- cbETH: 3.3%
- BETH: 4.1%
Firstly, the fee structure of Rocket Pool, the protocol behind rETH, has been a significant factor. Newly created minipools within the system are subject to a fixed 14% fee. This rate was previously set at 15%, and even earlier, it was a configurable fee ranging from 5% to 20%. Existing minipool nodes retain their original fee rate, resulting in the largest node operator having an 18.21% fee rate. When compared to competitors, these fees are considerably higher. For instance, stETH, a notable competitor, charges a 10% fee on rewards.
The second factor contributing to rETH's lower staking yield is the congestion in the validator queue. The Atlas upgrade, introduced by Rocket Pool, brought about 8-ETH bonded minipools. This feature allows node operators to earn higher yields. However, since the upgrade's implementation in mid-April, many operators have been migrating their operations. This migration involves exiting and re-entering validators, a process that has led to a temporary congestion in the validator queue, subsequently reducing the staking yield of rETH.
These challenges highlight the need for strategic adjustments in Rocket Pool's operations to enhance the competitiveness of rETH in the staking yield market.
Ethereum staking rewards are directed to validators who are rewarded for confirming blocks and confirming the state of the network with sync committees. In contrast, consensus layer rewards are based on a fixed system determined by the amount of ETH that is staked.
This is calculated from the following formula:
Yields = (c*F) / sqrt (total staked ETH)
In the above formula, c represents the constant factor of ~2.6 which is the estimated number of epochs in one year, where F is the base reward factor (64) set by validators.
Source: Delphi Digital
Execution rewards are variable and depend on the level of activity on the blockchain. The more users submit transactions, the greater the rewards are for validators as their workload increases with more blocks. The rewards themselves consist of MEV tips and transaction priority tips. Bullish markets have higher network activity, greater demand, and higher gas fees which reward validators in more MEV and priority tips. In addition to these mechanics, Rocket Pool charges its own commission fee of 15% on rewards. Thus, there is a slightly lower yield for validators utilizing Rocket Pool. In comparison, Lido (10%) and Frax (8%) both offer lower commission rates, meaning that users keep more of their rewards than on Rocket Pool.
