RPL TOKENOMICS

To start with, I predict ETH will continue piling in to stake until the APR for staking is at least under 5%. Right now the staking rewards don’t include tips because those are going to PoW miners still but after the merge that’s going to change. The more ETH staked, the more diluted the tips become and the smaller the APR per staker from issuance.  So where are we right now? Official data at https://beaconscan.com/. 247285 validators * 32 ETH per validator = 7,913,120 ETH. Let’s call it 8M ETH.

According to official data at 8M ETH staked, issuance is ~450k and according to a projection of the tip rate from https://watchtheburn.com/ over the last month there’s another 600k per year that will go to stakers after the merge. This is undershooting a little bit but it’s good enough for illustration. 1.05M ETH rewards distributed amongst 8M ETH staked would be about a 13% APR. So what would it take at current gas levels to dilute the APR to 5%? Approximately 21M ETH staked. RPL notwithstanding that’s a huge ETH vacuum coming our way with demand for another 13M ETH for staking to a market with only about 18M supply on exchanges at the same that issuance will be reduced about 90%.

With that out of the way let’s cover the RPL staking market share prediction and why it matters for the token value. As I said above, the protocol captures no revenue from stakers directly. Instead the actual use of RPL is to be staked by node operators as a bond for good behavior. The minimum bond is 10% of the staked value. The maximum bond is 150% of staked value. The motivation to stake more is to get an increased share of RPL inflation.

When dealing with speculative values I try to set the minimum, the maximum, and then a justification for some ground in between. In this case there are multiple variables which leads to compounding uncertainty. If the market share is 0 then RPL is worthless. That was easy. Any floor assumes RPL adoption. If the market share is 100% and the assumed total ETH staked from the argument above is 21M then the node operators use half of that so there will be ETH value of 10.5M needing to be bonded. So what percent of the staking market share do you think RPL will capture? The centralized exchanges will run their own pools. Solo staking is what is recommended by the Ethereum devs so I assume some people will respect that. IMO, even half is generous. In my opinion we’ll end up in the 20-30% range. You can adjust the remaining numbers for yourself as we go along to arrive at your own speculative price.

Next we have to speculate on the bond percent. Imagine you have some multiple of 440 ETH worth of assets to stake. This makes everything whole numbers. Your choices are:

1. Stake 25 nodes bonded with 10% RPL.
2. Stake 11 nodes bonded by 150% RPL.

Which do you do? I presume the node operators are rational yield seeking agents. Unless you are making more APR on your bond than your ETH you will choose option 1. What would have to be the case for you to choose option 2? If issuance is high then you’re just diluting supply and unless it is soaked up by expanding demand you should take option 1 because you’ll be getting more RPL but the value of all your RPL will be perpetually falling. If issuance is low then you’re losing out on 5% ETH staking rewards for less than 5% RPL issuance and you’ll take option 1. The only way to profit with option 2 is for the ETH bonded by node operators to expand faster than the inflation rate of RPL so that RPL demand exceeds supply while also having >5% yield on your bonded RPL. That’s a tall order. We’ve already covered that there’s a hard ceiling on the maximum node operator ETH demand. At most it’s 10.5M ETH. A more reasonable estimate is about 2-3M ETH. Once that range is reached, everyone should be choosing option 1. Therefore I expect a bonding percent in the 10-20% range after market saturation. A 10% bond on 2-3M ETH gives you an RPL market share floor of 200-300k ETH. As I write this ETH is priced at about $3500. This would give RPL a rational market cap after saturation of about $700M. The current market cap is about $477M. So there’s room for growth even if I think it’ll take another 2 years for us to reach 21M ETH staked. Let’s set the target bond percent to 15% for the sake of a calculation and move on.

“But Logris’, that assumes 100% of the RPL circulating supply is bonded.” Yes, I know, that’s why it’s called a floor. What is a more reasonable percent of the supply that will be used as a bond by node operators. Other RPL will find a home in governance, liquidity pools, as collateral in Defi, etc. Over 30% of the supply is taken up by the governance council right now. Let’s say another 20% finds it’s home as collateral in Defi and LPs. That doubles our saturation market cap because there’s less RPL to go around to fill those bonds with.

The only thing remaining is to adjust the market cap by token supply to generate a reasonable RPL/ETH ratio sell target.

ETH supply: ~118M (targeted inflation at 0% a year)

RPL supply: ~16M (targeted inflation at 5% a year)

RPL market cap: 21M (eth staked) * .25 (Rocketpool market share) * .5 (node operator half) * .15 (bond percent) / 0.5 (bond percent of supply) = 787,500 ETH * $3500 ETH = $2.756B

RPL token price at current circulating supply: 2.756B / 16M ~ $172.265

RPL/ETH ratio: 0.049

It’s going to be a turbulent ride but I don’t think any of these estimates are outlandish or even resembling moon boy targets and even if I’m off by a factor of 2 that’s still like a 5x on the ETH ratio. Definitely worth having some of this in your portfolio.