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What is rocketarb?

Rocketarb is a third party Rocket Pool tool that operates during Rocket Pool minipool creation. It works by harvesting arbitrage value from the market premium on rETH compared to the creation cost of rETH. Rocketarb uses a flash loan to deposit 16 ETH into the rETH deposit pool at the same time as the capacity becomes available, then selling that 16 ETH on the open market and reaping the arbitrage value. As the market matures, rocketarb will become a valuable tool for stabilizing the market price of rETH.

The Premium LSD

Outside of short-term fluctuations the price of rETH will tend to trade at a premium on secondary markets such as Uniswap or 1inch due to the laws of supply and demand. Demand for rETH is effectively unbounded, while supply will always be limited by minipool operator collateral availability and efficiency. This environment often creates an arbitrage opportunity between the higher price rETH trades at on decentralized exchanges, and the “correct” price calculated by Rocket Pool’s Oracle DAO network which is referred to as the primary, pegged, protocol, NAV, or reference price.

Setting the stage

A core part of Rocket Pool’s staking design that is relevant to this arbitrage is the deposit queue, where ETH can chill out and await the creation of a new minipool at which point the ETH will be staked and start earning a return. The deposit pool needs to be capped at some nominal size (currently 18000 ETH) because while queued ETH immediately mints new rETH, it is not yet generating yield and hence slightly dilutes the APR of all participants. Because of the high demand for rETH the queue tends to be full more often than not, and when this is the case it means that no more ETH can be deposited until space opens up.

Highly profitable arbitrage strategy

The arbitrage exists every time a new minipool is launched and 16 ETH of space opens up in the deposit queue while the secondary market price premium prevails. If you deposit 16 ETH to stake it with Rocket Pool and receive rETH in return, you can then immediately turn around and sell that same rETH on secondary markets to get back more ETH than you staked. At the time of writing, the average return is about 2% of 16 ETH, or 0.32 ETH per arbitrage. A free money printer? Sounds good! Well unfortunately the bots think so too, and they are much faster than you.

Gotta go fast

The only way to beat the bots and claim the free ETH for yourself is to complete the entire process in one go - deploy the 16 ETH collateral (plus RPL bond) to launch a new minipool and simultaneously deposit a separate 16 ETH into the deposit queue. Rocketarb is a third-party smart contract created by a Rocket Pool community member to do exactly this. While unofficial and not audited, the code is fully open source and has been executed over 600 times during the past two months to generate more than 220 free ETH. In addition, the Rocket Pool team has recognised the value of rocketarb and is looking to more closely integrate it into the Rocket Pool ecosystem in the future.

Where to from here

The Rocket Pool protocol continues to evolve over time. In the future when ETH withdrawals are possible and minipool collateral has been reduced the price premium percentage will probably be lower but each new minipool will allow more than 16 ETH to be arbitraged. Rocketarb will likely remain a useful value-creating tool for node operators, and a price-stabilizing tool for rETH. You can learn more about rocketarb at the following links:

Arb the rETH premium when you create a minipool!

How to? Here are the steps... Message me (ramana#2626) on the RocketPool Discord if you have any problems!

Optional Prerequisite: Using the 1Inch API

If you want to use the default funding method (Balancer flash loan) and/or to use the --premium option to print the current rETH premium, you need an API key for 1Inch. Get one from https://portal.1inch.dev and put it in a file called .env as a single line in this format: API_KEY=put_the_api_key_here.

Docker mode

If you have Docker installed, you can run rocketarb with no extra dependencies.

  1. Try almost creating the minipool the normal way with the Rocketpool smartnode (>= 1.7.0). Stop before the final ARE YOU SURE... prompt and cancel it.
  2. Clone this repo (git clone https://github.com/xrchz/rocketarb), and cd rocketarb.
  3. Run ./scripts/rocketarb-docker.sh. It should be fine with no arguments.
    • Pass the --help to see more options if something goes wrong.
    • A typical flow might involve, first: ./scripts/rocketarb-docker.sh --dry-run
    • Then if that succeeds without any reverts: ./scripts/rocketarb-docker.sh

If you have used rocketarb before and want to upgrade to the latest version, you can simply run:

  • git pull on your clone of this repo.
  • ./scripts/rocketarb-docker.sh --build to update the Docker image.

Native mode

Without Docker, the standard way to run rocketarb is as follows.

  1. Try almost creating the minipool the normal way with the Rocketpool smartnode (>= 1.7.0). Stop before the final ARE YOU SURE... prompt and cancel it.
  2. Ensure your node's RPC port is exposed locally as described here.
  3. Install the requirements on your node machine: nodejs (>= 18), and npm.
  4. Clone this repo (git clone https://github.com/xrchz/rocketarb), cd rocketarb, and npm install to download the js dependencies.
  5. Run ./rocketarb.mjs. It should be fine with no arguments.
    • Pass the --help to see more options if something goes wrong.
    • A typical flow might involve, first: ./rocketarb.mjs --dry-run
    • Then if that succeeds without any reverts: ./rocketarb.mjs

If you have used rocketarb before and want to upgrade to the latest version, you can simply git pull your clone of this repo.

What does it do?

  • Ask the smartnode to create a minipool deposit transaction from your node account.
  • Create a transaction to call the rocketarb contract, which will flash loan 16 WETH, unwrap it to native ETH, deposit it in the Rocket Pool deposit pool (using the newly created space from the minipool deposit), sell the resulting minted rETH using 1Inch, repay the flash loan, and send any profit back to your node account.
  • Submit the two transactions above in a bundle using Flashbots to prevent frontrunning.

This way you get to benefit from the rETH premium by the space temporarily created in the deposit pool by your new minipool.

Tips

  • The smartnode needs to be at least version 1.7.0.
  • Try --rpc http://<your node local ip>:8545 if the default (http://localhost:8545) does not work.
  • You can try submitting the Flashbots bundle again (in case it failed) without recreating the transactions. By default, if the bundle save file exists, rocketarb reuses the saved deposit transaction and only recreates the arb transaction (with fresh 1Inch swap data); use the --resume option to reuse both transactions. (The bundle gets saved in bundle.json by default.)
  • The gas fee needs to be attractive enough for Flashbots to accept the bundle: the target block base fee per gas is burned and the block proposer receives any additional fee per gas up to the specified maximum priority fee per gas limited by the specified maximum fee per gas. The priority fee is what makes a bundle attractive. rocketarb uses the same maximum fees for both the deposit and arbitrage transactions, and the total gas will be about 2.7 million (approximately: 2 million for the deposit, 800k for the arbitrage -- these vary and can be hard to predict exactly).
  • rocketarb will try to ensure to refund at least some (2.8M gas worth by default, change it with the --gas-refund option) of your gas costs with the arbitrage profits. This is ensured by making the arbitrage transaction revert (not enough profit) if it does not produce at least this much profit.
  • If your bundle is not getting included (BlockPassedWithoutInclusion) most likely the transactions are reverting with some failure (try the --dry-run option to investigate), or the gas fees are too low for the current base fee.
  • If the simulation returns execution reverted without further details, probably the gas limit for the arb transaction is too low; you could try increasing it with the --gas-limit option (and you might also like to increase --gas-refund accordingly).
  • Every time we ask the smartnode for a deposit transaction, it increments its internal validator index (saved in your node's wallet file). If you need to re-run (e.g. to use a different maximum fee per gas) and don't want to waste the index, you can manually decrement it by editing the wallet file. Wasting indices is not a problem for your node, however - the generated validator keys for an unused index will simply remain unused.
  • It is safe to unexpose your node's RPC port after you're done with rocketarb if you prefer leaving it hidden.

Control how the transaction is funded

Pass the --funding-method option to control how the arb is funded:

  • --funding-method flashLoan (the default) will take out a dedicated flash loan, and then use the loaned funds for the arbitrage. The swap is done via 1inch, ensuring an optimal route.
  • --funding-method uniswap will swap directly with a Uniswap pool, getting a flash loan from the pool and using it to fund the rETH deposit. This is relatively cheap on gas, so it's more efficient when the premium is small.
  • --funding-method self will use funds in the local wallet to fund the arbitrage.

Why choose one over another? Each has tradeoffs:

  • self and flashLoan allow more flexibility in the route the swap takes, so big swaps might give more optimal arbs with these two options.
  • self and uniswap don't require an explicit flash loan step, reducing gas costs.
  • self allows you to keep the minted rETH for yourself, rather than selling it back for a profit

Our overall recommendation is:

  • use uniswap if the premium is small (less than 0.5% or so) to keep gas costs down
  • use flashLoan when the premium is larger to ensure an optimal swap
  • use self if you have the funds and want to do something special like keep the minted rETH for yourself.

Additional funding notes

  • You can control the gas limits with the various --X-gas-limit options.
  • Warning: with --funding-method self there is no check for minimum profit, i.e. the --gas-refund option is ignored. Check the premium is healthy (e.g. >1%) with the --premium option first.
  • By default rocketarb tries to arb both the minipool deposit amount and any free space in the deposit pool. With --funding-method self, if you do not have enough capital to additionally cover the existing free space in the deposit pool, pass the --no-use-dp option.

Do it without connecting to the smartnode

By default rocketarb uses the smartnode daemon to sign all transactions. For security, you can instead use the --daemon <program> argument to avoid running rocketarb on your node. The <program> supplied will be called in three ways by rocketarb, with different arguments:

  1. <program> api node deposit <amount> <commission> <salt> <credits> false

    The program should output a signed minipool deposit transaction (without any leading 0x), just as the smartnode daemon api would output with these arguments. (You could run the smartnode daemon once first to get the data then save it for further use by rocketarb.) The argument is only supplied if the version (see item 3 below) is at least 1.9.0.

  2. <program> api node sign <inputSignedTx>

    The program should output JSON for an object containing two keys: {status: "success", signedData: <signedTx>} where signedTx is a version of the transaction represented by <inputSignedTx> signed by the account you want to do the non-deposit transactions with. <inputSignedTx> is a signed transaction (without the leading 0x) signed by a random account. signedTx should be a string that includes a leading 0x.

  3. <program> --version

    The program should output rocketpool version <maj>.<min>.<patch>....