Prize Adjustment #3

Overview

It’s been approximately 2 months since the last change on the prize distribution was made, so it’s time to start thinking about the next one. I’m going to try to keep this concise and objective for people to make their own opinion. Let’s get straight into it!

Current situation

We are currently using the following prize distribution:

CURRENT DISTRIBUTION ($11,160) → 3: 1000 48: 50 192: 10 768: 5

Total number of prizes: 1011

SMALL FISH ON POLYGON
12.92 % APR

WHALE ON POLYGON
7.01 % APR

SMALL FISH ON AVALANCHE
11.85 % APR

Keeping this APR is roughly costing $6K daily to the PT treasury.

Proposed change

In order to promote sustainability, we are looking to reduce these yields to around 8% APR (value which we feel is competitive compared to other options):

  • Curve USDC/USDT/DAI at 6%

  • Quickswap and Apeswap USDC/DAI at 6% and USDC/USDT at 4-6%

This change would mean that the estimated cost for the treasury would be reduced to $2K roughly. To get to that point, there are multiple solutions, such as the following ones (note that this are just some examples to get a feeling of what the majority prefers, from there, we will adjust the distributions to propose in a future PTIP):

OPTION A ($6,720) → 1: 1500 3: 100 12: 50 48: 10 768: 5

Total number of prizes: 832

SMALL FISH ON POLYGON
7.71 % APR

WHALE ON POLYGON
3.68 % APR

SMALL FISH ON AVALANCHE
6.41 % APR

  • Relatively low number of total prizes (no $1 prizes)
  • APR is evenly distributed (kind of) in different chains
  • Overall balanced structure (more prize tiers)

OPTION B ($6,752) → 1: 1000 3: 200 12: 50 48: 10 192: 5 3072: 1

Total number of prizes: 3328

SMALL FISH ON POLYGON
7.34 % APR

WHALE ON POLYGON
3.44 % APR

SMALL FISH ON AVALANCHE
4.00 % APR

  • Bigger number of prizes (plenty of $1 prizes increase the odds))
  • $1 prizes reduce the APR in chains with higher gas costs (see Avalanche example)
  • Overall balanced structure (more prize tiers)

OPTION C ($6,752) → 1: 2000 12: 100 48: 10 3072: 1
Total number of prizes: 3133

SMALL FISH ON POLYGON
7.22 % APR

WHALE ON POLYGON
4.30 % APR

SMALL FISH ON AVALANCHE
4.09 % APR

  • Bigger number of prizes (plenty of $1 prizes increase the odds)
  • $1 prizes reduce the APR in chains with higher gas costs (see Avalanche example)
  • Bigger headline prize ($2,000)
  • Less different prize tiers
Poll 1: Do you think that the APR should be reduced to try to get closer to sustainability?
  • No, I’d rather keep current APR
  • Yes, I like the idea of aiming for 8% APR
  • I’d propose a different objective APR (explain in comments)

0 voters

Poll 2: Regardless of the answer in the first question, which proposed prize tier is more appealing?
  • Option A
  • Option B
  • Option C
  • Custom Option (explain in comments)

0 voters

Poll 3: Are you in favor of $1 prizes?
  • Yes
  • No

0 voters

4 Likes

In the past I gave this input:

I don’t like fixed APR prizes because for me they have the same problem of taxes brackets. Too rigid.
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I read that on the Discord. Although I would need to chat a bit to understand exactly what you’re proposing, unfortunately I don’t think that we have enough tools to make this work as of now.

Due to how the smart contracts are deployed, we need to have a fixed structure regarding the number of prizes (which is what you’re seeing in the post). What we can decide is the amount for each prize within the given structure.

1 Like

Absolutely. If you have $100 or a couple deposited, you almost never win. Dopamine is not hit at the needed levels. $1 prizes do give some dopamine. And they would lead to the efficient levels (not lead, but it’d be closer). Basically, with $1 prizes you would make PT more addictive. We should strive for that. We want all grandmas playing PoolTogether within the next 10 years.

1 Like

I do think $1 prizes are extremely important. Especially with:

  • Multi-delegator being launched
  • Valentines NFT campaign
  • Pool NFT campaign

These things are all going to drive lots of smaller deposits. We’ve seen from the valentines campaign that the average deposit size went way down. Correspondingly, we should make sure people are getting some return even on small deposits

1 Like

Option A looks pretty popular so far - highest APR and the least prizes. Still there is some strong sentiment in the polls and replies for more prizes.

I am not sure $1 prizes are a good way to go, but am hesitant to have an opinion on that after lobbying so hard last time for Polygon gas concerns and having been proven wrong thus far. I do think if we can sustain the current odds that we will retain more depositors. Depositors are thinking about the metrics easily available to them - both odds and prize apr. Until we have DPR I don’t think prize totals are much of the attraction. What if we had an option that did not change the odds significantly one way or the other? That way we aren’t alarming users with both prominent metrics taking a significant haircut. One idea could be to do

1: 1000
3: 100
12: 50
48: 10
192: 5
768: 5

Adding the 192: 5 we raise the total number of prizes from 832 to 1024. This would be a slight odds boost to the “current situation”. Instead of cutting both average prize apr AND odds. By reducing the 1st tier by 500 (I think 1500 is a little funky anyways), the additional tier doesn’t change the cost that drastically.

192 * 5 USDC prizes = 960 additional prize
960 - 500 removed from tier 1 = +460 to overall distribution

Adding +460 to the prize value should get us more in the 8% vicinity for average prize apr. Personally I’d rather see us at 8% or a little above than below. Our short analysis on yields around the ecosystem presented here does not include Avalanche where yields have been a bit higher. It’s also relevant to note we might expect that by distributing more small prizes there will be more subsidy saved by the prize cap. We could even afford to beef a little more into the top, like 3: 200 instead of 3: 100.

I think this change in prize tiering is important at this stage and all of the options presented will be an improvement over our current situation. While we wait for our next growth push it’s important that we tighten up any excessive spending. I’m pretty confident that with a proposed change to ~8% we will still be the best place to save, and to win.

5 Likes

This is a good idea. I like extending the smaller prize tail while reducing the overall distribution. Great work

I like the look of this option. What do the numbers shake out to in terms of APR and daily treasury shortfall?

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.

:point_up_2: 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.

4 Likes

I see that the proposal points out other APY strategies on the market like “Curve USDC/USDT/DAI at 6%” and “Quickswap and Apeswap USDC/DAI at 6% and USDC/USDT at 4-6%” . My main question is if the protocol has consider depositing into this kind of strategies instead of depositing on Aave, and in this way significantly reduce cost to the PT Treasury.

1 Like