Protocol History
The PoolTogether protocol has gone through several major versions over the last 4 years. Each version of the protocol has built on learnings of the last to better create a protocol. The ultimate goal is a protocol that can be the foundation of global prize savings.
Throughout the versions, the core invariants of the protocol have remained the same – no loss, the ability to withdraw your deposit at any time, and the chance to win prizes. However, while keeping these things the same, the protocol has still changed in meaningful ways.
This document outlines PoolTogether Inc’s views on what has been learned in the recent major versions and what is needed to create a final version that can last as a true hyperstructure for prize savings.
PoolTogether Version 3:
PoolTogether V3 was the first version of the protocol to gain widespread adoption. The V3 launched in October of 2020 and took off in February of 2021 when the POOL token was introduced and automatically distributed to all depositors.
The V3 launched with a single asset supported – Dai. Shortly after being launched USDC, UNI, and COMP were added. The V3 initially only supported one yield source, Compound. But additional yield sources and tokens were added.
At its peak, the V3 protocol hit $235 million in total deposits and was distributing $180,000 in weekly prizes. In many ways, this was the realization of a long time goal – the protocol had life changing no loss prizes! However, there were a couple of issues that arose and made the growth unsustainable and prevented the growth flywheel from really going strong.
The first issue was simply gas fees. At the time, it could easily cost $100+ to deposit into PoolTogether on Ethereum. This precluded mass adoption from happening where all the largest prizes were. As an alternative with lower gas fees, the PoolTogether protocol was deployed to Polygon. However, there was no connection between the networks or assets so the prizes on Polygon had to start from scratch. They were far smaller averaging $6,000 per week at the peak. Users had to decide between large prizes and high gas fees or low gas fees and much smaller prizes and TVL on Polygon never grew past $10 million.
The second issue is the prize distribution on Ethereum was severely limited. There were only 5 winners per week and the prizes were evenly split among the winners. This made it almost impossible for small depositors to win anything and meant the average winners had millions of dollars in deposits. This created a huge amount of user frustration. Because of the way the protocol was built, the prize distribution could not be adjusted so short term fixes that didn’t solve the problem were pushed while the ideas for V4 started.
The third issue was the distribution of the POOL token. Some depositors were there solely or primarily to get the POOL distribution. POOL was distributed in real time meaning it was especially susceptible to yield farming because it could be accrued and sold in real time. This ran counter to the designed purpose of the POOL token distribution which was intended to get tokens into the hands of long term users.
In summary, the V3 finally had large no loss prizes, however, they were not accessible to normal people due to high gas fees, the inflexible prize distribution meant the prizes couldn’t scale and the over-reliance on POOL to drive deposits meant it was not sustainable and the growth flywheel couldn’t start.
PoolTogether Version 4:
The biggest improvement was moving to an unbounded prize distribution. This meant that there could be an unlimited number of winners and variable prize sizes. Instead of a $100,000 prize being split equally between 5 winners the protocol could distribute those prizes in any way! This introduced a far higher level of regular engagement and excitement. Instead of having 5 winners per week, the protocol now had thousands.
The V4 also fixed the Ethereum gas issue by creating a cross-chain prize distribution. That meant you could deposit on chains like Polygon and Optimism with low gas fees and still have the same chances to win prizes as Ethereum. The chains no longer fragmented prizes but combined prizes reinforcing growth.
The V4 didn’t solve the POOL issue, instead POOL token distribution was simply stopped with the introduction of V4.
The V4 introduced other great upgrades like “Chance Delegation” and the ability to distribute tokens to users based on their time weighted average balance. Like V3, fixed token distribution has proven to be a major driver for deposits with TVL going to new all time highs driven by $OP token distribution.
The V4 protocol though also had some new issues. The biggest is that large prizes disappeared, the largest prize ever awarded by the V4 protocol was $2,500. This was due to a limitation in the prize distribution that required prizes to all be awarded on the same frequency.
Another problem with V4 was that adding deposit tokens or yield sources to the network was no longer permissionless – they needed to be approved by POOL token holders. As mentioned, a problem with V3 was that no network existed, every new asset and yield source fragmented prizes. This meant people on Polygon could not access the prizes available on Ethereum, people depositing Dai could not access the USDC prizes, etc. The V4 fixed this by introducing a network to share prizes but there was no permissionless way to add more pools to the network. This became a big problem as yield rates for USDC went to historic lows.
Finally, the V4 did not have an autonomous and reflexive prize distribution. In the V3, the prize distribution was reflexive to yield generated. It automatically adjusted to match the generated yield. In V4 prizes were not directly tied to yield. This made the protocol less reliable to build against because the prize distributions could change in unpredictable ways. Ideally we want a prize distribution that adjusts according to immutable rules.
In summary, the V4 improved upon the V3 by unlocking the prize distribution design space and creating a shared prize network but growth was limited because no large prizes ever happened and there was no way to add new pools and asset types to the network. Additionally, the absence of the POOL token distribution removed a large growth lever.
What’s next?
It’s PoolTogether Inc’s belief that after 4 versions of the protocol a final version is in sight. A version that combines all the learnings thus far and can act as the long term, immutable layer for prize savings globally. A version that can be built around and extended but with a solid core that does not change.
The PoolTogether Inc team has been ideating, researching, and prototyping what we think this could look like over the past ~6 months. In the coming weeks, we will share more details around what we have built. Ultimately, as we are just contributors to the protocol it will be up to POOL token holders to decide to accept our contributions.
At a high level, we believe a new version would improve on the V4 in a few key ways:
- Enable the permissionless addition of new asset types and yield sources to a prize network
- Enable the prize distribution to be autonomous and automatically adjust based on yield
- Combine life changing large prizes with small prizes
- Integrate the POOL token into the protocol
We believe these changes can unlock an organic growth flywheel and ultimately provide a better way for the world to save money.
