Hey friends 👋
If you’ve been reading my blog or following along on twitter these past few years, you’ll know I’m a big fan of PoolTogether.
In case you missed it, PoolTogether is a prize-savings protocol on Ethereum and several other EVM compatible chains. What this means is that you deposit tokens—currently just USDC though that may change in the near future—and those tokens are put to work earning yield in Aave. The interest generated is then pooled together (hence the name) and doled out as prizes to randomly selected users.
This combination of saving and winning, sometimes termed a no-loss lottery (since your deposit is always able to be withdrawn in full) is modelled after a fiat version from the UK known as Premium Bonds.
Where PoolTogether’s version differs is its open source and transparent design and its implementation on a public blockchain. Another place where PoolTogether differs is in its continuous push to innovate around this financial primitive.
In earlier versions the design was simple, deposit more money and you have a better chance of winning. Think of this like buying tons of lottery tickets (only when you don’t win you can just cash out the money you spent on tickets). The only flaw in this system was that it was gameable. Whales could deposit large amounts into the protocol and would typically sweep the prizes. Now thanks to the random selection, small depositors did still ocassionally win, but the desire to change this was the impetus for the protocol redesign of v4, which I wrote about here.
With the introduction of v4 and the Time Weighted Average Balance (TWAB) that helped end whale’s gamification of the system, also came some much-demanded features including the inclusion of more prizes of varying sizes. Holders of the POOL token voted to award prizes daily and voted subsequently on several experiments around prize sizes, settling on a multi-tiered system with some large prizes and many smaller prizes.
The value of those prizes was tailored to the chain it was on since $1 prizes on Polygon were popular, but on Ethereum those prizes weren’t worth claiming due to higher gas costs.
One thing that was missing from this system though was high value, “life changing” prizes. So, the community and the developers continued to work on ideas that would allow for the best of both worlds.
Thanks to the TWAB, large prizes would be possible without the whales being guaranteed to win, but in order to implement the hybrid system something else was needed. That something is the DPR.
Drawn and Quartered
Up until recently, prizes in v4 had been awarded in daily draws. The Finance Team set the total daily prize amount and how that amount was split across prize "tiers". Each tier had a certain number of prizes, so the Finance Team would decide to allocate for example 10% to tier 0 (the grand prize) and 90% to tier 7 (where there are 128 prizes).
Here's what that looks like 👇
The problem with that model is that there was no way to allocate a portion of the yield to more irregular prizes such as weekly or yearly prizes.
The Draw Percentage Rate (DPR) adjusts the odds of prizes occurring to ensure that the prizes should closely match the expected returns. This allows for parameters to be set such that certain prizes occur less often, like say once a week, once a month, or even once a year.
In fact, Tim who hosts the PoolTogether Community Podcast, changed his name on Discord to Milly Yearly to manifest reaching a $1M yearly grand prize. He added that once we reach that goal, he’s changing it to Milly Monthly, and eventually, Billy Yearly ($1B yearly prize) 🤞
A deeper explanation, including a mathematical example, can be found in the original governance proposal for this upgrade (from which I summarized the above explanation).
But Wait There’s More!
As if smaller daily prizes, and large infrequent prizes wasn’t enough, don’t forget that depositors on Optimism, can also earn a steady APY of OP tokens. I wrote all about that in this post.
This combination of prize savings and guaranteed yield has made PoolTogether one of the most popular apps in all of DeFi by daily active users. Check out this tweet from Token Terminal highlighting that fact 👇
And you can check it out for yourself at app.pooltogether.com
That's it for this update, but I promise there's lots more exciting stuff in the pipeline.
Until next time 👋
This content is funded by the PoolTogether Growth Team Coordinape Circle. All opinions are my own.
If you liked what you read and would like to support, consider minting my patronage NFT.