POOL Prize Tokenomics: Motivations

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POOL Prize Tokenomics: Motivations

Last week Leighton presented the POOL Prize tokenomics strategy to the community (Time for a POOL Party! (Part 3)). There have been questions around why we should distribute POOL, and how it will affect the POOL token. This post is intended to shed more light on the motivations and impact.

Protocols achieve growth and high TVL by supporting a diverse range of assets. We can dramatically scale the number of assets PoolTogether supports by distributing prizes in POOL tokens.

Need for Multiple Assets

Weā€™ve always envisioned PoolTogether as being the underlying infrastructure for prize savings around the world. Anyone can have a chance to win a massive prize with no risk to their principal.

The blockchain world has a multitide of assets, with many varieties of stablecoins, governance tokens, and more. Protocols grow and capture a large TVL by supporting many assets. To maximize our addressable market and TVL, we need to do the same.

However, our prize model does not currently scale well when adding assets. We need to adjust our model.

An Example

Suppose we do accept multiple assets, and each one accrues yield separately:

Asset USD Value of Accrued Yield
USDC $2000
DAI $1500
wETH $500
wBTC $350
CRV $80
Total $4430

In total $4430 has accrued in prizes. Now we need to distribute them.

There are two ways we could distribute prizes:

  1. We split the accrued assets among the winners.
  2. We liquidate everything for a single asset which is then distributed

If we split the assets among the winners, some prizes would be reduced to dust and become worthless. Being a multi-chain protocol, weā€™d also need to bridge these assets constantly to satisfy prize claims on different chains. This would be extremely complex, from both a code and human operations standpoint.

If we liquidated all of the assets for a single token, then it would be much easier to split the $4430. All prizes would be awarded in a single token, so no one would ever win ā€œdustā€. However, which token do we award? Do we award USDC? Do we award a more decentralized asset such as Dai?

POOL Prizes

We can unify prize liquidity across assets by awarding all prizes in POOL tokens. Winners would receive POOL tokens, no matter what asset they deposit.

The POOL token is a natural choice for a number of reasons:

  1. POOL prizes turns users into owners
  2. The narrative remains simple: win and use the POOL token for PoolTogether
  3. Focused liquidity: we just need to deepen POOL liquidity
  4. Existing adoption
  5. The protocol has a large reserve of POOL tokens
  6. The protocol controls POOL token issuance

Turns Users into Owners

By winning POOL tokens, users can go deeper into the game. Prizes are a funnel in which we turn users into owners of the protocol, and make deeper engagement fun and rewarding. Staking POOL to distribute odds is just the first step for these deeper governance games.

Focused Narrative

Focusing the narrative on the POOL token keeps the narrative simple. The POOL token is the token you win and the token you use for PoolTogether. When users win POOL, they can immediately turn around and use it to improve their odds and earn APR. Our governance token is a great fit.

Focused Liquidity

For optimal performance, the protocol will likely provide liquidity for the prize tokens. By using POOL as the prizes, we can focus all of our liquidity efforts on a single token. Itā€™s better to have deeper liquidity in a single asset than fragment it across two.

Existing Adoption

Being more than a year old, the POOL token has existing liquidity and integration across Defi protocols. The token has existing adoption which makes roll-out much easier.

Significant POOL Reserves

When we branch out to more chains, we will need to hold sufficient prize liquidity across these different chains. The protocol holds a significant number of POOL tokens, making it easy to bootstrap prize liquidity across multiple chains.

POOL Token Issuance

The protocol controls POOL token issuance. The buybacks should suffice to refill the prize liquidity, but it is possible for the protocol to mint more.

Impact on POOL

The POOL prize tokenomics model turns the prize distribution into a powerful lever of control. The distribution defines the rate of outflow of POOL tokens. By changing the prize distribution, the protocol can change the ratio of outflow to inflow (liquidations).

Assuming that 100% of POOL prizes are liquidated, we see that:

  • When outflow is greater than inflow, then liquidations will be insufficient so users will have to dump their POOL on external markets. This adds sell pressure.
  • When inflow is greater than outflow, then users will need to acquire more POOL from the markets to buy liquidations. This adds buy pressure.

To minimize impact on the POOL price, this data tells us that governance will want to balance POOL outflows against inflows. As the price of POOL moves up and down the inflow of POOL tokens will change. The outflow should be updated to reflect the inflows. This means that users will receive the same dollar value of prizes, no matter what the price of POOL.

Just as we do now, we will need to assign a team to manage the prize distribution. Later, once we establish the system and better understand its dynamics, we can begin to explore automation.

Summary

I hope this sheds more light on why the POOL token is our best option for distribution. Please continue to ask questions or provide critique!

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Agreed, with more people onboarding into the space every day, PoolTogether will benefit from allowing players to deposit more diverse assets. It was an exciting time when the Olympus community got involved in the OHM pool. That was under V3 and siloed prize pools, so some of the potential there was left untapped. There was still a lot of excitement around it all and it would be great to see that fun spread to other crypto communities.

This idea greatly expands on that inclusivity without fracturing the prize pools like we had done in V3. This proposal ramps up the inclusivity tenfold. PoolTogether could be a natural option for people to park their assets and take part in something fun. The POOL prize tokenomics proposed finally put the POOL token at the forefront of the protocol and has the added benefit of turning users into owners, which is really neat. Perhaps that will boost governance participation as well.

This is the most exciting PoolTogether evolution since V4 and Iā€™m all for it.

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But as a random user, I donā€™t care about that and probably donā€™t knowā€¦ I just want my prize to be paid in stable coin especially if I give you a stable coin.
Being paid in POOL as a new user would not make me want to use the protocol like before. If I want to be part of the governance I can buy some POOL myself.
What can you respond to me about this? Because it seem to be an issue

Also, the POOL token is a creation ex nihilo even if there were investors so getting all prizes from something ā€œyou made upā€ seems not right.

For me this is an option but only an option, POOL can not be the only prize.

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We can still have the same experience of claiming your prizes as tickets! The economics are separate from the user experience, which can be very similar to what we have now.

Users should, in a single click, be able to liquidate their prizes, swap for USDC, and deposit in one go.

On Friday weā€™ll present visuals to illustrate what the user experience could look like. It will be much clearer!

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For those that werenā€™t available for the call, are you able to quickly condense what was discussed?
Just some quick bullet points would do. If it mostly consisted of visuals that explored how the user experience could look like, I think we will just have to wait and see.

I noticed the community call wasnā€™t recorded from the beginning and I know these calls are chock-full of information, any distillation of the call would be nice. Thank you! If you feel like I can find all this information in the recording, by all means let me know, ha.

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Iā€™ll do you one better @AtomicNuclei; this week Iā€™ll write an in-depth post on the mechanics of the new tokenomics. Itā€™ll be better than a piecemeal summary of the call, anyway.

In terms of product & design, Iā€™ve been speaking with the designer who put together the mockups that were shown on last weeks call. Heā€™s going to begin researching and designing the user experience. Soon weā€™ll have more visuals to help illustrate the new approach.

More to come!

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Thatā€™s awesome to hear! Very excited to read it. Iā€™ve missed the majority of the Community Calls in 2022, so I definitely feel a little left out in this area. Glad to see that will be remedied this week, ha. I have been keeping up with the forum and governance as a whole, so thatā€™s a silver-liningā€¦

Iā€™m glad that the most important happenings in the PoolTogether protocol and community are posted on the forum. They can easily be missed in the Discord!

Canā€™t wait to see whatā€™s next!

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Alright so I donā€™t know about everyone else, but I do find it somewhat discouraging to have prizes received in the POOL tokenā€¦

Thatā€™s the issues with most protocols, that they offer to pay back in a token you donā€™t necessarily want, some people donā€™t mind it but for regular users theyā€™ll be turned off by it especially with our past performance with the token.

Donā€™t get me wrong this is WAY better and an obvious improvement to the token itself. But maybe we should think about another way of doing this without being exclusively set into thatā€¦

This will obviously create a demand and a surge in price, and would benefit everyone but I think this is just propagating some of our issues even more without really fixing it because 97% of prizes will instantly be exchanged for another asset.

In my vision for the protocol, this is a savings dapp, so why would you add an extra step for people to reap their rewards.

So X person decided to save money with PT, but their profits are now forcing them to have exposure to this asset you donā€™t really care for and is volatile (even though I understand that you can adjust the amount of pool tokens to represent the Fiat value of the prize).

Is it just me? Or does anyone else see this as somewhat a problem, we are gamefying a savings account, yet we plan to basically expose users to an asset that has nothing to do with what theyā€™re trying to accomplish and is just an extra step in the process of saving money.

So Iā€™m not totally against this idea but I think there has to be a middle ground because I donā€™t think it would be beneficial in the long-runā€¦

Plus, this is a Governance token, it should be used as somewhat a share % of the company(protocol), why would we hand that out willy nilly to people?.

You should only have ownership in this protocol if you truly believe in it and want to form a part of us and also get some extra ā€˜Perksā€™ and advantages (Utility of the token).

Just adding my 2 cents and hopefully we can have a debate about it.

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