A Quick Look at the rETH Risk Assessment Report Released by MakerDAO
Original compilation: TechFlow intern
Original compilation: TechFlow intern
MakerDAO's risk assessment team released a report on RocketPool's pledged token $rETH. The most consistent protocol for ETH pledges in the stablecoin market is undergoing integration. Let's take a brief look at the report and see what the impact of the integration will be.
The Risk Team took a deep dive into the entire RocketPool protocol to understand the security partnership between Maker and Rocket Pool. Based on their findings, they proposed a debt ceiling of 5 million DAI with a liquidation ratio of 170%. Let's see why.
The assessment is divided into 3 parts:
(1) Protocol overview
(2) $rETH indicator
Protocol Overview
Protocol Overview
At Rocket Pool, there are now two main ways to participate in staking. Liquidity stakers can mint $rETH in deposit pools for the safest staked tokens on the market, with lower barriers to entry for node operators.
The protocol relies on a dual DAO structure. Oracle DAO is made up of major ETH players such as Etherscan, BanklessHQ, and Superphiz. Protocol DAO is managed by RPL holders who also manage the inflationary treasury.
$rETH indicator
At the time of writing this report, RocketPool has deposited 10.8k ETH, of which 3525 addresses hold an average of 25 rETH, while $stETH averages 57, suggesting that rETH may be less concentrated.
The CurveFinance rETH/wstETH Pool is the largest holder of $rETH at 18.6% of all rETH, a larger percentage of supply than the $stETH Curve Pool. It is worth noting that the largest holder of stETH comes from Aave's leverage, which is a potential risk.
The team writes that the rETH/wstETH pair is highly capital efficient, but also amplifies the risk of liquidity flight if $stETH is critically wrong. However, they understand that recent governance initiatives to incentivize Uniswap V3 positions will further improve liquidity.
Dynamics of $RPL in the protocol
$rETH is partially backed by $RPL as all nodes are required to post >10% $RPL collateral. This makes the RPL token highly stable relative to ETH, as the venture team shows in this graph. (Note that rETH is floating against ETH, there is a slight difference)
general overview
"There are currently 5,528 mini-pools in Rocket Pool, controlled by 1,177 node operators. In comparison, Lido currently has only 22 node operators."Being permissionless enables more node operators, but also limits the supply of $rETH.
The report concludes with a summary of risks and mitigations. In general, smart contract risk (mitigated through 4 audits and Immunefi bug bounty), ETH merger risk, governance risk and liquidity issues. Considering the risks, the team supports the integration of $rETH.
what does that mean?
Philosophically, MakerDAO and RocketPool have an uncanny similarity. The Maker team has never attempted to expand the supply of DAI if it compromised long-term sustainability or credible neutrality. The importance of this was clearly demonstrated in the UST debacle.
The RocketPool team has been with the Ethereum protocol since they wanted to use Casper as collateral, without any compromises on $rETH. Overcollateralized by ETH in a highly distributed network, $rETH avoids the risk of long-tail assets despite its slow growth rate.
This alliance will be a great start - a large decentralized ecosystem centered on ETH. Minting DAI with your rETH will allow MakerDAO to venture wider adoption and diversity. This has never been more important when Lido spans 33% of the network.
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