Fee Distributors and the Smoothing Pool#

Now that the Merge has passed, node operators receive priority fees (tips) from the transactions they include in any blocks that they propose to the Ethereum chain. These fees come from and stay on the Execution layer.

Unlike most validation rewards which are generated on the Consensus layer and automatically withdrawn periodically, these fees are immediately liquid. In general, priority fees provide almost as much ETH to you as Beacon Chain rewards do, so they are a very nice benefit of the Merge.

Your Fee Distributor#

Your Fee Distributor is a unique contract on the Execution Layer that's specific to your node. It will hold all of the priority fees you've earned over time, and it contains the logic required to fairly split and distribute them to the rETH pool stakers and your withdrawal address. This distribution process can be called by anyone (including rETH stakers), and can be done at any time. It does not have a time limit before rewards expire.

The address for your node's Fee Distributor is deterministically based on your node address. That means it is known ahead of time, before the Fee Distributor is even created.

New Rocket Pool nodes will automatically create (initialize) their node's Fee Distributor contract upon registration. Nodes that were created before the Redstone upgrade will need to do this process manually. This only needs to be run once.

One interesting ramification of this is that your Distributor's address may start accruing a balance before you've initialized your Fee Distributor contract. This is okay, because your Distributor will gain access to all of this existing balance as soon as you initialize it.

By default, your node will use its Fee Distributor as the fee recipient for your validators.

Viewing its Address and Balance#

You can view your fee distributor's address and balance as part of:

rocketpool node status

The output will look like this:

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Initializing the Fee Distributor#

To initialize your node's distributor, simply run this new command:

rocketpool node initialize-fee-distributor

When your distributor has been initialized, you can claim and distribute its entire balance using the following command:

rocketpool node distribute-fees

This will send your share of the rewards to your withdrawal address.

The Penalty System#

To ensure that node operators don't "cheat" by manually modifying the fee recipient used in their Validator Client, Rocket Pool employs a penalty system.

The Oracle DAO constantly monitors each block produced by Rocket Pool node operators.

If a node is opted out of the Smoothing Pool, the following addresses are considered valid fee recipients:

• The rETH address
• The Smoothing Pool address
• The node's fee distributor contract

If a node is opted in to the Smoothing Pool, the following address is considered a valid fee recipient:

• The Smoothing Pool address

A fee recipient other than one of valid addresses above is considered to be invalid.

A minipool that proposed a block with an invalid fee recipient will be issued a strike. On the third strike, the minipool will begin receiving infractions - each infraction will dock 10% of its total Beacon Chain balance, including ETH earnings and send them to the rETH pool stakers upon withdrawing funds from the minipool.

Infractions are at a minipool level, not a node level.

The Smartnode software is designed to ensure honest users will never get penalized, even if it must take the Validator Client offline to do so. If this happens, you will stop attesting and will see error messages in your log files about why the Smartnode can't correctly set your fee recipient.

The Smoothing Pool#

The Smoothing Pool is a unique opt-in feature of the Rocket Pool network that is available to our node operators. Essentially, it becomes the fee recipient for every node operator that opts into it and collectively accumulates the priority fees from blocks proposed by those node operators into one large pool. During a Rocket Pool rewards checkpoint (the same ones used to distribute RPL rewards), the total ETH balance of the pool is distributed fairly to the pool stakers and the node operators that opted into it.

In essence, the Smoothing Pool is a way to effectively eliminate the randomness associated with being selected for block proposals. If you've ever had a streak of bad luck and gone months without a proposal, or if your block proposals only have low priority fees, you may find the Smoothing Pool quite exciting.

To make the math easy to understand, community member Ken Smith has put together a massive analysis comparing the profitability of the Smoothing Pool and the Fee Distributor, which is summarized nicely with this chart:

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In short, as long as the Smoothing Pool has more minipools than you do, it's more likely that you'll come out ahead by joining it. You can view how many nodes and minipools are opted in using community member Peteris's excellent Rocketscan website.

The Rules#

The Smoothing Pool uses the following rules:

• During a Rocket Pool rewards checkpoint when the Smoothing Pool's balance is distributed, the contract's total ETH balance is split in two.

  • rETH stakers receive 1/2 (for 16 ETH bonds) or 3/4 (for 8 ETH bonds aka LEB8), minus the average commission of all opted-in node operators
  • The remainder goes to the node operators that opted in.

• Opting into the Smoothing Pool is done on a node level. If you opt in, all of your minipools are opted in.

• Anyone can opt in at any time. They must wait a full rewards interval (3 days on Holesky, 28 days on Mainnet) before opting out to prevent gaming the system (e.g. leaving the SP right after being selected to propose a block).

  • Once opted out, they must wait another full interval to opt back in.

• The Smoothing Pool calculates the "share" of each minipool (portion of the pool's ETH for the interval) owned by each node opted in.

  • The share is a function of your minipool's performance during the interval (calculated by looking at how many attestations you sent on the Beacon Chain, and how many you missed), and your minipool's commission rate.

• Your node's total share is the sum of your minipool shares.

• Your node's total share is scaled by the amount of time you were opted in.

  • If you were opted in for the full interval, you receive your full share.
  • If you were opted in for 30% of an interval, you receive 30% of your full share.

If you are interested in the complete technical details of Smoothing Pool rewards calculation, please review the full specification here.

Joining and Leaving the Smoothing Pool#

To opt into the Smoothing Pool, run the following command:

rocketpool node join-smoothing-pool

This will record you as opted-in in the Rocket Pool contracts and automatically change your Validator Client's fee recipient from your node's distributor contract to the Smoothing Pool contract.

To leave the pool, run this command:

rocketpool node leave-smoothing-pool

This will record you as opted-out in the Rocket Pool contracts, and once a small delay has passed, will automatically change your Validator Client's fee recipient from the Smoothing Pool contract back to your node's Fee Distributor contract.

Claiming Rewards from the Smoothing Pool#

Rewards from the Smoothing Pool are bundled together with RPL at the end of each rewards interval using the Redstone rewards system. Claiming them is as simple as running:

rocketpool node claim-rewards

If opted into the Smoothing Pool, you will notice that the amount of ETH you receive for each interval is more than zero:

Note that the Smoothing Pool rewards in Interval 1 here indicate that the node was opted in during that interval and received rewards accordingly.

We'll cover more about claiming RPL and Smoothing Pool rewards later in the guide, in the Claiming Rewards section.

Next Steps#

Once you've decided on whether or not you want to join the Smoothing Pool, take a look at the next section on MEV and MEV rewards.