It’s time for us to look again at the prize distributions! A few data points:
As of this writing there has been 87 claimable draws and $911,160 in prizes claimed, there is an additional 139,000 of additional outstanding prizes that can be claimed. (all calculated using @drcpu excellent data set!)
During this 87 days, deposits have generated $136,129. $71,332 has been in the form of USDC which has gone directly into the prize distributor contract and $64,807 has been in the form of Matic, Aave, and Avax token incentives which are currently held by the protocol.
This means net outflows over the first 87 draws was $775,031. If you divide that by 87 (the number of draws) you can see that our average net outflows per day is $8,908. This is a rate of $3.25 million annualized.
Operating at a net loss initially was expected and was why governance voted through the initial $1 million prize subsidy. However, now that ~77% of the initial $1 million has been depleted*. We need to take action, broadly our options are:
Vote to disburse additional USDC from the treasury to continue funding prizes
Vote to decrease total prizes to match inflows
So what should we do now?
It appears we’ve more or less topped with growth in the last 2 weeks (reference @sarfang excellent dashboard but note it does not include Avalanche deposits).
I believe some of this is a function of the holidays and marketing being down but regardless, my personal opinion is that since growth is slowed and USDC is a scarce resource it doesn’t make sense to continue funding at the same delta we are currently. We can ramp back up at times but right now I think it makes more sense to slightly scale back while we get out some of the newest tech.
So I’d propose scaling prizes to target a delta of around ~$4,000 USDC per day. That’s a solid ~40% reduction in the current rate of depletion. Much more sustainable and prize APRs still higher than the underlying yield sources.
What exact distribution we should do is likely requires a second post. It’s more complicated than it first appears because of the prize cap and statistical distribution. However, I’ve put together this doc as a starting point with one idea. This was built using @drcpu data on how many claimable prizes are available for each tier.
I don’t think it’s a fair expectation to achieve prize sustainability in the near term. But we should use any subsidizes wisely always ensuring they increase growth with an eye towards ultimately being sustainable.
This post is primarily talking about the short term considerations but I briefly want to mention our toolkit for the longer term to achieve prize sustainability.
The simplest but least attractive option.
This seems too obvious but there are actually lots of ways to potentially increase deposits, an incomplete list: move sponsorship into V4, partner with other protocols, venture funds, banks, exchanges, etc. that want to deposit sponsorship, use TWAB rewards to incentives more deposits (via POOL distribution or any other token), launch on more blockchains, create a more engaging prize distribution strategy that attracts more deposits, integrate NFTs into the protocol making the experience more engaging, partner with Neo-banks to deposit into the protocol, etc. Main point here is there are a LOT of ways we can increase deposits and most of them don’t rely on increasing prizes specifically.
Increase yield generated on deposits
This should also not be over looked. Our yield on deposits is quite low, we could double it just by recursively using Aave rather than supplying on only one side. As the prize pool network grows, this will be more of an option!
- Determine how much to reduce net out flows by
- Determine new prize distribution strategy
- Support a new prize strategy to reduce outflows
- Oppose a new prize strategy to reduce outflows
*It’s worth noting that because 1) ~50% of the total yield is in non-USDC tokens and 2) there has to be enough USDC stored on the different chains we are going to need to outlay much more USDC than we are actually giving out. Any analysis should always keep this in mind. We could of course claim and sell these non-USDC tokens for USDC but personally I think the diversification and potential upside is nice. Ultimately, I think treasury committee should decide.