[NEW POOL PROPOSAL] Adding a utility token to the Pooltogether ecosystem

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kokoon
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Motivation

  • Adding utility – Many community members have asked for POOL token to have more tangible utility. As POOL is used for governance, changes to its core functionality must be done very cautiously. That’s why we propose the KKN token, which will pay out guaranteed income to its holders. As KKN is an independent token, we can make more experimental design choices.
  • Reaching a broader customer segment – Some users will prefer to have a guaranteed income while hoping to win a marginally smaller grand prize.
  • Rewarding loyalty – Long-term users of the pool will receive an increasing share of the fixed income as they accumulate KKN tokens. This has also been requested many times.

How it works

We will be extending Pooltogether with “Kokoon” branded pools, where users will earn the KKN token. After a successful launch of the Kokoon Dai pool, other Kokoon pools could be added in the future.
75% of the interest generated by the pooled funds will be paid out to random winners, as with current pools. The remaining 25% will be paid out among KKN token holders, awarding them a fixed income. KKN tokens will be distributed to users of the Kokoon pools based on their share of the pool, through the same mechanism as is currently used to distribute POOL.
There will be no airdrop. Only Kokoon pool users will receive KKN.
The “no-loss” property of Pooltogether is preserved.
Kokoon is a fixed-income flavor of a Pooltogether pool.

kokoon infographic
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Tokenomics

The KKN minting schedule will use a Bitcoin-like model. Rather than having a “halving” by 50% every 4 years, the new KKN minted will be reduced by 15% every 6 months. This means KKN has a finite supply, just like Bitcoin. The total supply will be 2 million KKN. If the pools grow faster than new KKN tokens get issued, the interest a single KKN earns will increase with time.
If there are multiple Kokoon pools, the new KKN emissions are split among them. KKN holders get interest from all Kokoon pools.

Tangible value

Unlike governance tokens, the value of KKN tokens is simple to understand. It is based on the cash flow they generate, which is in turn dependent on current and future interest generated by the Kokoon pools.
All KKN holders are rewarded with a portion of the total interest, paid out in Dai. Loyalty is rewarded in the sense that people’s shares grow over time as they accumulate KKN.

Marketing opportunity

The POOL token launch was a huge success: Within a week, the Assets under Management increased by 20x, generating a lot of free publicity for the platform.

While it would be overly optimistic to expect similarly strong effects from the introduction of a fixed-income token, one cannot deny that launching KKN represents an opportunity to boost the platform’s publicity even more, translating to new deposits into both the existing and Kokoon pools.

Extending the Pooltogether product palette

The time has come for the community to proactively extend the protocol. Kokoon will be the first governance-managed pool created by the community, rather than by the Pooltogether core team. There will be custom smart contracts required, which we are prepared to design and implement. In addition, we are optimistic that our code will find further use cases in the future: For instance, we would greatly encourage the creation of a charity pool that could be easily realized with the custom prize strategy we will create for Kokoon.

Most importantly, Kokoon will be the ultimate proof that Pooltogether – supported by an active & creative community – carries the flag in the emerging no-loss DeFi lottery industry.
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Why we need a new token at all
There has been a lot of feedback that the same goals may be accomplishable without introducing a new token. I think the most important points are that it:

  1. rewards people that have been in the pool for a long time.
  2. enables liquidity mining, which as we have seen with POOL and many other projects massively boosts AuM and publicity.

The KKN token does not take away any monetization options from POOL holders. It exists as its own closed subsystem where users can opt-in to a different prize model.

I think there is a good comparison to be made between KKN and Uniswap LP tokens. LP tokens exist separately from the UNI token, and keep track of who is owed the trading fees generated by a particular trading pair. The KKN token would keep track of who is entitled to the 25% interest that is captured by the prize strategy.

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Who we are

We are @Torgin, @Valentin, and @Dominic, a dynamic and well-coordinated team with strong Computer Science background from ETH Zurich.

Torgin’s activity in the Crypto Space (dating back to 2017) has given him a deep understanding of the mechanics of DeFi projects and their communities, while Dominic and Valentin have experience in both agile project management and marketing for web applications.

We believe that a very bright future awaits Pooltogether and hope that our ideas and our enthusiasm enable the platform to develop its full potential.

What you get from us

  • Complete implementation of the required smart contracts
  • Deploying the Kokoon Dai pool and related smart contracts
  • Marketing Kokoon as a Pooltogether product

What we need from you

  • Adding the Kokoon Dai pool to the “governance-managed pools”
  • Listing of the Kokoon Dai pool on app.pooltogether.com
  • POOL distribution for users of Kokoon pools
  • Incentivize the awarding of Kokoon pools with POOL
  • [Optionally] Funding of a smart contract audit

Kokoon pools will be governance-managed, so they should enjoy the same privileges as existing pools.
Calling the award functions on any pool is quite expensive on gas. It is important to decentralize this action by incentivizing it, as proposed by @Brendan here: [PROPOSAL] Incentivizing Protocol Operations

We leave it open whether an audit will be necessary, as the additional smart contracts will be relatively simple and small. A peer review could be sufficient, whereas a formal audit would be the safest, but possibly an overkill solution for the situation at hand.
User funds will be stored in the fully audited “prize-pool” contract, just like all existing pools.

What’s in it for us?

The development team will receive vested KKN tokens (20% of total supply) that gradually unlock over 3 years. Locked tokens will not receive any interest. This incentivizes us to keep working on Kokoon, and by extension Pooltogether, long-term. 80% will be fully allocated to being distributed to users of the Kokoon pools.

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Please give feedback on any aspect and let us know if you 1. are interested in using the Kokoon pools and 2. support governance voting to fulfill the requests stated in “what we need from you”.

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There will be a poll here to measure the community’s opinion on the idea eventually. For now we are taking the feedback we’ve received and working on improvements to the design.

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Related discussions index:
Calls for utility:

Calls for rewarding loyalty:

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Ok, so to clarify you want to:

  1. Create a pool with a custom prize strategy that captures 25% of the interest earned.
  2. Distribute the Kokoon token via liquidity mining of the pool.
  3. Users who hold Kokeen tokens can burn their tokens for their share of the captured interest.
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Yes, 1. and 2. are spot on.
3. is not correct. Users stake their KKN tokens to receive a share of the captured interest.
They don’t burn their tokens.

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To be honest, I’m not sure that this is a good solution. It appears to add lots of complication and inserts an extra rent-seeking token into the system.

If the aim is to let users generate some long term yield while maintaining some element of luck you could:

  1. Split the income 50:50 between eh price pool, and compounding yield for the deposits. You get 1/2 the prize pool and 1/2 the income from compound (althout you may be better putting 50% of your deposit in a standard pool and 50% in Compoound.
  2. Guarantee a fixed return on the deposit (2%?) with the rest going into a prize fund.

I don’t see what additional benefit your proposal has to users or POOL holders.

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@Overanalyser What you suggest would also be possible, but not it would not accomplish the same goals our proposal does.

The idea of a token with utility has been widespread in the Forum and also the Discord, as referenced in the “related discussions index”.

The token also allows us to give a larger share of the fixed-income to long-term users, as they will have liquidity mined more KKN tokens. Thus accomplishing the calls for rewarding loyalty.

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Yes, friends, I think the kokoon project is very nice for pool together in terms of awareness, but we are pooltoken holders and we want the pooltoken to generate revenue for us, if we open one of the kkn pools for pooltokens and deposit the kkn token we receive as a reward, yes I am.
But unfortunately, in your project here, the pool token does not add any value other than a management token!

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Not totally sold yet on the new token idea. Maybe I could be convinced, just not sure why we couldn’t just skip the new token part and have revenue from all pools taking a very small amount in fees go to POOL holders.

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@TheRealTuna The reason we want to introduce a new token is so that the guaranteed interest is an opt-in option. If interest capture would be implemented for POOL, it would affect all governance-managed pools. WIth KKN, people can choose if they want to take part or not. Also, with KKN we can be more experimental in our design choices. If we were to add interest capture to POOL, it would have to be in the 0.5-3% range. 25% would be a huge change to “force” upon all pools.
I think of Kokoon as an “experimentation ground” for token design.
Similar to how Altcoins are experimentation grounds for Bitcoin. They explore the design space.

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My vision of a revenue share would be something like 0.5-2% of the interest earned on all pools and you’d opt in by staking POOL on the pooltogether platform. I really think all pools should be generating some revenue for the platform. People looking to try and win wouldn’t really be impacted much by the low fees associated and it would make POOL very desireable to own. Maybe even a combination of the 2 would work.

Edit: Another thought I wanted to throw in is that I wouldn’t want to force this upon all pools, it would be voted in through governance. It would be a nice idea that someone creating a new POOL could opt-out of having it be a revenue sharing pool if they should so choose. I bet you most would want to be generating revenue anyways.

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Thanks for writing this up Torgin! I think you are right on in articulating a lot of what the community has expressed and I’d love to see more experimentation with prize pools that have different parameters. I’m not however convinced this implementation makes the most sense.

If ultimately the KKN token is about giving depositors a way to receive a fixed return in addition to the prizes. I think this could be done much more simply by creating a new prize pool with a custom prize strategy. I’d love to see that done and I’d support a more narrow proposal to test that out.

If it’s more about simply having a token with more utility, I think there would be a lot of support for proposals centered on doing that for the POOL token. We’ve already see quite a bit of support for it.

Overall, I don’t think having an additional protocol token is out of the question but I would like to explore a bit more on what we can do with custom prize pools plus the POOL token before introducing a new token, it’s only been 7 days since POOL has been introduced! :slight_smile: Furthermore, in the example you gave, there is no relationship between the POOL token and the KKN token except for POOL token holders covering all the costs of managing the pool for the KKN token holders. I would assume in an arrangement like this, something like 20% of the KKN Token supply would be given to POOL governance. That would create mutual incentives.

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@TheRealTuna I think the 0.5-2% interest captured by POOL could be implemented aswell, separate from KKN. If this was the case, the Kokoon pools being large would also translate to revenue for POOL owners and governance, as I expect Kokoon to increase the total AUM of the protocol.

@Leighton Giving KKN tokens to POOL governance could be a cool idea!
I hadn’t thought of that before, but it seems to make a lot of sense.

You say POOL governance would cover costs of managing the pool for nothing in return.
Isn’t that the case for all existing pools? They currently don’t generate any value for POOL either.
I don’t see what would be different about this pool not generating direct value.

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I think the nuance here is that the POOL token completely controls the protocol and all the prize pools. It depends a bit on how it was structured but if you’re putting a pool under governance control that has a separate token and that separate token controls a portion of the value accrued on the prize pool then it is not the same as a prize pool completely controlled by the POOL token.

Again, I think these ideas are really good (more utility for the token, guaranteed interest as well as a prize) but I think implementing them by introducing another token so quickly complicates things. Everything you outlined in your post could be done without introducing another token by adding utility to POOL and creating a new prize pool with a new prize strategy. So I’d advocate for starting there.

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@Leighton I disagree that everything could be implemented using only POOL.
I want to see a token that captures a substantial amount (around 25%) of the interest generated by a pool.
Making the POOL token capture such a high percentage of all pools’ interests would not be feasible long-term in my opinion. There need to be alternative options too.

To your other point that KKN token controls a portion of the value accrued on the prize pool, that’s not quite accurate. KKN only controls 25% of the money that arrives in the prize strategy. If there was for example a 1% global interest-capture on all pools, that amount would be deducted before the money ever reaches the prize strategy.
The Kokoon pools would be paying their fair share.

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The standard interest on all pools could be something like 2% to POOL holders and you could allow user created pools to have an adjustable revenue share if they wanted. Then they could create something like a 75/25 winner take all pool that’s heavier focus is revenue sharing. Utility should be built into POOL and can easily be created without another new token.

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Ah! Gotcha, okay yes, that is a bit different than I was understanding. In that case, this would truly be a token designed to facilitate a fixed interest return in addition to prizes. I like the idea, I’d want to think a bit more on implementation but it would be cool to see! As always, appreciate your work @Torgin

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Following the discussion, I see much reason in @TheRealTuna’s idea of having a fixed (low) percentage of the interest of all pools shared among all POOL holders both for gas fees and revenue, combined with an OPT-IN for heavier interest sharing.

However, as Pooltogether is in an extreme growth phase I am not convinced that the time is right to introduce strong monetization of the platform just yet, and as @Torgin mentioned, the topic is also somehow independent of and not in conflict with the concept we proposed.

There is just so much more to gain by just introducing an additional product in the current environment.

@Leighton, @Overanalyser
Considering the debated necessity of a token for the fixed interest return I think that besides the solution’s fairness, flexibility and modularity, the benefits coming along with the token add some nonnegligible value for the pool members over simple revenue sharing:

  • The gamification “Save and Win” is extended to “Save, Collect and Win” which is arguably more attractive for many participants.
  • A reward for loyalty is included in a very natural way, giving positive incentivization for long-term membership.
  • The KKN are likely to later become valuable for early adopters (especially in case of quick growth), adding a light “no-loss investment” touch to the game

While I also completely understand @bhdrsln’s argument of not yet generating direct cash flow for the POOL holders, I would like to highlight the benefits from a community point of view:

  • The long-term incentivization adds certain stability to the ecosystem
  • The token launch is a magnificent marketing opportunity, likely to fill yet another pool with fresh money from a slightly different customer segment while inducing a certain hype potential
  • The signal effect of a semi-independent Kokoon brand as part of PT (and in particular its success) will greatly encourage other teams to start developing concepts based on the protocol, which is one step towards our vision to become the go-to platform for DeFi no-loss concepts
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I think you pointed out a very important point here @Leighton! KKN is not intended to subvert or undermine POOL, or any pools in the PT ecosystem. Instead, it is the easiest, most straightforward way to modularly add fixed return while keeping control with pooltogether, and most importantly, POOL owners.
KKN pools will be treated like any other pool, governed by POOL owners, and at the same time extend the pooltogether offer with a smart-contract implementation of fixed return.

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@Overanalyser @TheRealTuna
A lot of you talked about implementation, so here’s my easy go:
You can think of KKN being a “plug-in”.

  • This “plug-in” is placed at the very spot where conventional pools would determine the winner.
  • At this point, the total interest to be distributed is already determined by existing POOL-governed logic.
  • Any fees that apply to conventional pools will also apply to KKN pools.
  • Any governance decisions will apply to KKN pools, to the point where the total interest to be distributed is determined.
  • As with plug-ins they are meant to be decoupled. Pooltogether does not have to modify, maintain, or create, any additional complex logic related to fixed returns, distribution, or similar.
  • This “plug-in” will be independently developed, placing a minimal burden on other pooltogether developments.

Thus, the implementation as proposed should be the least concern.

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