Really neat to see gas fees taken into account for APR.
8% USDC APR is plenty competitive in paper, however when you take it to the prize distribution, with our current tools, it suddenly may not be that exciting.
The typical users of PoolTogether Part 1: Maybe smaller than you think ← In this post I go about the median balances of PT depositors
According to this data, the typical Polygon user will have wait almost 4 months (!) on average to win a prize with option A prize distribution (1 in 162). That’s no good in my eyes.
Still, you may argue that “Well, as infrequent as it may be, they are still earning 8% APR on average”
And yes, that’s true, but is that… exciting?
When we think in terms of an average annual yield, we are thinking in traditional savings account logic, 8% over a year may sound good to you and me, but Prize-Linked Savings accounts precisely appeal to the people who are not attracted to normal interest rates, either because they believe they don’t have enough money to make it worthwhile or because of not really grasping the concept of compound interest over the long term.
This is why historically PLS products have been a tool to onboard people into savings / the financial system.
In 2008 a large South African retail bank saw that within 18 months of the start date of their Prize-Linked Savings program, there were more PLS accounts than regular savings accounts at the bank.
These new clients already had access to the same yield through regular savings, but they were only attracted when that same yield was presented to them in the form of prizes.
So yes, while on average the APR would stay the same regardless of the size of prizes, frequency may just be as important to the user experience.
With option B prize distribution ($1 prizes) the typical polygon user would just have to wait 35 days to win on average (1 in 50), while the APR may remain equal, it’s a much pleasant journey, especially considering the type of users we are targeting.
From that same whitepaper I just quoted, comes this interesting finding:
Prize winners on average keep substantially more in their accounts than those who did not win prizes. In some cases, prize winners increase their account balances in PLS by more than the amount won, indicating that this increased investment in PLS is more than just a wealth effect*.
This increased savings is persistent for at least one year after winning.
*For example, increased investment after winning a prize could be due to a “house money” effect, in which gamblers are more willing to accept risks after a prior gain.
We know from V3, that not a small amount of people often felt like it was a “whale’s only game” we could throw at them all the statistical analysis we want, but at least on my case, it wasn’t until I won my first ever prize on V4, that I actually went like: “Woah! So this thing actually works!” And right at that moment I actually started pouring more money into it.
According to the quote from above, my sort of behavior may be more common than we think…
In the case of this South African bank, the smallest prizes were of R1,000 (around ~$100 at the time). Could this sort of behavior also replicate with $10, $5, or even $1 prizes?
That’s certainly a good question to be answered!
(Remember that even $1 is not necessarily an “small” amount in many parts of the undeveloped world…)
We also find that large prize winners create a “buzz” that generates more demand for PLS in the local area. In particular, bank branches which had a R1,000,000 (~100k USD) prize winner experienced 11.6% excess growth in PLS deposits (over and above the amount awarded as a prize) in the month after the win, relative to all other bank branches. Thus, the excitement of winning a prize has spillover effects that also serve to increase savings by other individuals.
We want people to talk about PT! And what better way to do so than posting about your latest win? We often saw people bragging about even their $1 prize in Discord and Twitter, that’s earned marketing right there! More winners = More natural free publicity
I would also like to share some data I didn’t end up including in my last post:
$100 ← This is the median amount that brand new users deposit when using the protocol for the first time. (Avalanche)
This is data from Valentine’s Campaign participants, it’s excluding dummy wallets (<$10) and is only from users who stayed after the campaign was over, meaning these were the users actually interested in using PoolTogether beyond just claiming the NFT and then leave.
$20 That same number in Polygon
Now, does this mean we should also do 10 cent prizes so even these users win often? Probably not. But I show this so people keep in mind than when a new user is trying out a brand new protocol, they likely won’t go all in with $2000 (especially if it’s their first ever DeFi experience, AND especially if the users we are targeting are the ones that usually don’t have savings at all!).
My standing is that the grand prize is what users look forward to, their objective, while small prizes are their hopium that keeps them engaged and going.
Are $1 prizes the perfect tool for this? No, no at all, they unbalance yield between chains, they make us too reliant on Polygon, and they leave us with less money for the grand prizes. $1 prizes are not our only option either (This will come in a future post). But they are what we can use right now and to me, in these times of highly needed growth, their benefits by far outweigh the cons.