Reworking the POOL Token: Why It's Important and What to Do

1

Hi everyone,

I’m eagerly awaiting @Leighton’s post on updated POOL tokenomics, but in the meantime, I would like to list out some problems that I currently see with regards to our token and why it’s important! Hope you find this information useful.

Our DAO Is Our Greatest Strength

To start, by almost all metrics, the PoolTogether DAO is one of the most successful, well-functioning DAOs in the entire industry. The recent report by otherinter.net really showed this in full. For example, I was surprised to read that our governance proposals consistently generate relatively high engagement (>40%) compared to other DAOs. The Discord is also well-organized and always helpful.

I was most impressed by the pipeline of talent that has gone through our ranks. From our DAO, people have gone on to work for Zapper, Zerion, and more.

In all, the DAO has fostered good vibes all around. Frankly, everyone knows PoolTogether. We have strong social power and are widely seen as one of the ‘OG’ communities. Although we have some issues retaining talent at times, I really feel that we’ve got something special going on here.

Valuing the DAO

So, our DAO is strong… but the fungible representation (POOL) of its voting power and protocol ownership is not. As of now, participating in governance, using the protocol to garner governance power, and so on has been rewarded with relative losses in the real financial sense.

Our community is rightfully dismissive of large wallets who deposited into v3 simply to ‘farm-and-dump’ our governance token. Yet, what does it say when we consider the fact that those who did so are actually in a better position now?— While those who stuck around, believed in the protocol and participated in building the DAO only saw losses?

It’s an interesting problem and we should consider the following facts.

  • Few people want to participate in a DAO if it means holding a token that depreciates.
  • A constant, depreciating valuation immediately gives the impression to newcomers (completely unfairly) that something is going wrong.
  • It devalues our POOL treasury, and prevents us from using POOL as more effective means of payment (which may or may not be linked to our problem of retaining talent in the DAO).

On the protocol level itself, there are also repercussions.

  • If the valuation of POOL governance is poor, our entire protocol and treasury is at risk. As we have seen with Uniswap many times, entities can amass a large number of tokens if the valuation is low and give themselves free money or worse.
  • It limits our leverage on the protocol-level when it comes to deposits since our POOL emissions will be far less attractive. Low confidence means it will probably be farmed and dumped, since it worked well already for those previous actors.
  • A depreciating POOL valuation also dissuades deposits more generally since people may think there’s something wrong with the protocol itself because ‘line go down’, even though this is false. It simply becomes a lot harder to convince people.

In short, the key to runaway growth for our protocol is fixing POOL. The token is not tangential to the protocol, it is the fungible embodiment of the protocol itself and intimately linked to its success.

Before v4 launch, we talked about getting the narrative right for the next phase of PoolTogether. It got me super excited. Yet, it seems like our narrativizing efforts aren’t sticking. This is because, frankly, the narrative is far less salient and convincing if POOL itself is weak. It’s a lot harder to onboard people onto a narrative for a depreciating asset. I cannot give a clearer example of this than the success of
abracadabra.money. In short, people like to feel like they’re on a winning team. It’s not that complicated.

In my view, getting POOL right is what will really get the gears moving much faster and easier. It will make our narrative stick easier, encourage deposits, attract new talent (potentially), make our DAO more rewarding, and all-around make the protocol’s success much easier. So, why fight an uphill battle when it’s really not necessary? That’s my thinking at least.

Some Suggestions

So now, hopefully I’ve convinced you that the POOL token itself is not some sideshow. In fact, the way it exists now, puts a severe limitation on our growth which is a false problem we really don’t need to deal with. So, how do we strength the value proposition of the DAO’s governance? I have some suggestions.

  1. Incorporate POOL on the protocol-level. I am a huge fan of making holding POOL give one exposure to all lotteries on pooltogether. Additionally, maybe, we can make it so that you need to participate in governance to even be eligible. This would effectively make participating in governance the most fun out of any DAO. Game-fied governance. Fun!
  2. I’ve heard other ideas about holding POOL to affect your chances to win, slightly. Lock POOL for boosted odds. While I am not as convinced of this idea (since it may be difficult to implement on the protocol level), it is something to consider.
  3. Make PPOOL more interesting. As of now, the APY is pretty small and frankly very boring. It’s something I would expect from massive & established DeFi protocol, not really from a protocol like ours which hasn’t even begun its parabolic advance.

Finally, I would like to discuss one last thing which is exchange listings. Since I am merely a community DAO member, I can speak about this freely although I really have 0 idea about what’s happening behind-the-scenes.

Although I was not present for the last community call, I have heard through the grapevine that there is some skepticism toward CEXs. Of course, in the purest sense, we prefer DEXs. I do too, I use them almost exclusively. There’s also some expectation that CEXs will happen “naturally,” and we’ll eventually be listed somewhere. But we are stuck in a catch-22 here. Because of high gas fees (and the relatively poor demand for POOL itself), our trading volume has been pretty bad. No CEX is going to list a token with $100k in daily trading volume out of pure charity. So, we are stuck. Providing a fiat onramp to allow users to get involved with POOL is not secondary to the problems I outlined above, nor does pursuing CEX’s compromise our decentralized ethos—Rarible, Gitcoin, and so many other DAOs have pretty aggressively pursued CEXs which has worked out pretty good for them. I’m all for CEXs and find them incredibly important, even though I don’t use them much.

In Conclusion…

I am not writing this as someone who is new to PoolTogether. I have told dozens upon dozens of people about the protocol, onboarded many folks, have been involved in governance, try my best to vote whenever I can, and hang around the PoolTogether Discord often. I’ve been a POOL holder since spring 2021.

I suppose, in all honesty, I am just frustrated. I’m understandably frustrated that my participation is being devalued consistently by the POOL token. It is equally frustrating to have the most intuitive, easiest-to-explain DeFi protocol also be the worst-performing hold for me. If PoolTogether wasn’t so special and I didn’t see such promise, I probably would have left. I, like all of us, want to see POOL catch up to everything I see great about the protocol itself—and let the resulting positive feedback loop get those flywheels spinning.

Please, comment and give your thoughts! I really hope we can get this right before Avalanche launches on v4 on December 15. Thanks for reading!

20 Likes
2

These are great points and I agree there needs to be improvements to POOL utility and liquidity ASAP. Something I’ve been thinking about is negotiating with L2 dexes to provide LP rewards. With Avax and Arbitrum not far off we should be able to get LP rewards on Polygon, Avax, and Arbitrum ASAP. I have inquired with Swapr and they were very receptive to potentially work with Pooltogether. We should see who can give us the best deal on each chain and launch the LP’s in conjunction with a V4 POOL pool. If we can get liquidity right than it’s smooth sailing. The OHM and FEI deals have the potential to be big parts of that as well. Let’s get POOL trading on every chain.

7 Likes
3

You’ve pretty much hit the nail on its head here. All of the metrics surrounding PoolTogether are on an uptrend. The protocol and its community are just unmatched. The stickiness of the Discord is awesome. It’s welcoming and new-comers stick around and become active community members. The protocol is flourishing and you can see that with some awesome dashboard built by sarfang: https://dune.xyz/sarfang/PoolTogetherV4. This is without any POOL incentives! That is impressive.

Despite this, and unfortunately so, people tend to valuate a project’s worth by its token price. We see this rear its head in the Discord periodically with some, mostly emotionally driven, less-than-positive responses in the Discord. The past 6 months have been incredible for the protocol and DAO, but less than stellar for the token.

I’ve brought up incorporating POOL on the protocol-level, and it’s possible! It’s a bit of a technical hurdle, so the focus for now is to implement other EVM chains along with stables like FEI and Dai. But I agree, this one is a no brainer. It gives you exposure to the protocol’s growth as well as its bread and butter no-loss lotteries. I’ve often foregone depositing into V4 in order to purchase more POOL. While there are other and probably more interesting things to do with POOL, this one seems like one of the most attractive options for now.

The odds increaser on the other hand, less so. We have brought this up on numerous occasions, but opted not to introduce such a mechanic to keep the protocol as fair as possible. I was in favor of this one in the beginning, but now not so much. Perhaps if there’s a creative and fair way to implement this I’d rethink my stance.

This is an inconvenient truth in this space. Thankfully though, I have no doubt that we can strike a reversal here. The protocol is stronger than ever, as is the DAO. I think the first start is utilizing POOL on the protocol level by giving POOL holders exposure to the prizes. That way, it’s already more than just a “valueless governance token” as they say, ha.

Thank you for the post, it’s very well-timed. I think now is the time to start seriously thinking about $POOL and executing on the most supported use-cases. I will say that not all of the price action is a DIRECT result of our action, or inaction, with $POOL. Other DeFi projects with more attractive tokenomics have also depreciated over the last 6 months or more. I think that fact shouldn’t be ignored or omitted. It hasn’t even been 1 year since POOL even existed. That’s something to consider as well. We should recognize that, but also start to expand the ways that POOL can be used.

10 Likes
4

Thank you for your thoughts Andre. Thanks to Tuna and Atomic as well.

I think you’re absolutely right in that people perceive the token value as a measure of the health of a project. Market cap is really market sentiment, especially when you look at stocks like Rivian that have no revenue. A high POOL token value will give people confidence in the protocol.

A strong POOL token also reflects confidence in the protocol. In our core product. Many people measure the success of a protocol by the total value locked in the protocol. Whether or not this is the right metric is beside the point. Our core product has been losing TVL because we stopped yield farming and the upsides aren’t strong enough to retain them, and the token price reflects that.

PoolTogether V4 now offers strong upsides. There are thousands of prizes. It’s a totally different product and, in fact, I would argue that our narrative worked! The “new PT” vs “old PT” memes were simple and made sense to people. “PoolTogether is now cross-chain”. V4 is doing extremely well; even having been stunted by Ethereum gas prices.

But, while the PT V4 narrative was strong, I agree that our POOL narrative is weak. We have always promoted it as a governance token, even after offering the POOL pool which offers incentives to token holders. Our POOL token narrative is incoherent. My friends and family still ask me “where do I deposit POOL?”. We lack clarity in the narrative and in our POOL token user flows in the app.

This is something I highly respect about Olympus; their tokenomics is a narrative so simple that it’s memetic. Their narrative reinforces their tokenomics, and they’ve created a economic flywheel. Their app is all about OHM, and it’s very clear to the end-user what they need to do.

To me these two things are key:

  1. Create strong tokenomics & narrative for $POOL
  2. Have those tokenomics grow our core prize pool product

Our core product, prize savings, is significantly improved through our reserves. Interest from our reserves allows us to increase prizes for the benefit of our users. A very clear goal, then, is to grow our reserves. With a reserve of $50m we will be able to maximize our yield and have sustainable large prizes. We will continue to expand, and we will continue to grow.

Our treasury holds $45m in POOL tokens at the current token price. These tokens do not generate interest for us. We need to convert these tokens into interest-bearing reserves as efficiently as possible.

Growing the Reserve

We need design our POOL tokenomics so that the most beneficial action for a user also benefits the protocol.. I believe this is two pronged: we want to create mechanisms to achieve our goal, but we also need to establish a simple narrative so that users understand what we are trying to achieve. This is our (3, 3).

A user can take three actions with a token:

  1. Buy it
  2. Use it
  3. Sell it

If our protocol goal is to increase the reserve, what mechanisms should we put in place for each user action?

Buying POOL

Users will acquire the token somehow. How can this action benefit the protocol?

Protocol Owned Liquidity

This is a common thread- protocols control their own liquidity. PT would LP in AMMs.

  • Users have lower slippage way to access POOL
  • PT earns LP fees
  • PT is exposed to POOL value upside

Bonds

Our bond program allows users to buy POOL at a discount.

  • Users get POOL at a discount
  • Purchases add directly to the PT reserve

Using POOL

This is key. What drives the buy pressure? Why would someone buy POOL?

The POOL token:

  • Controls the treasury (reserves)
  • Controls the protocol (cash flow)

So, in a sense, the POOL token is backed by the reserve and controls cash flow. This is a compelling piece of the narrative.

However, we need to hold the reserves and cash flow for growth. So instead we distribute a promise of future share. Essentially, we distribute POOL to POOL holders.

Note: in a few years ‘minting’ is unlocked and the protocol will be allowed to mint up to 2% of the current POOL supply annually. So this can be sustainable.

Staking POOL

Users should be able to stake their POOL tokens so that:

  • They retain control
  • They receive upside (POOL tokens)

They could do so through a V4 POOL prize pool or a simple staking contract. Each has their benefits.

This is basically what we’ve done with the POOL pool, but it was never a strong part of our narrative or distinguished in our app. We also need a brand new shiny version of it :slight_smile:

Selling POOL

With a strong narrative our market cap should reflect our current value and potential. This means when a user decides to sell, for whatever reason, they can capture their share of PT through the market cap.

The protocol owned liquidity will support their exit. We’ll be sad to see them go but the protocol will capture LP fees. It also means the existing users will have a larger share of the reserves, which aren’t touched by AMM activity. There is a floor to any bank run.

Summary

A lot of recent thinking has been inspired by Olympus; their protocol-reinforcing tokenomics and simple articulation of it as a memetic narrative is inspirational. I think we can take some concrete cues from them while bolstering our core product.

I would love to hear everyone’s thoughts. I think framing the narrative in terms of the user’s journey of buying, using and selling is extremely useful. We have already implemented some of the mechanisms I describe above, but I think we can do it with better modern tools and by presenting it as a coherent narrative.

13 Likes
5

That’s a great feature then. We need to flow with this.

We have a resource whose:

  • inflows are predictable, and
  • outflows can be controlled.

A treasury is like a bank that gives out POOL and regenerates its stock. We need to make the entire ecosystem around POOL.

Here’s an example:

  1. Participant enters with $10,000 USDC and receives 1216 POOL equivalent from our supply. [MINT]

  2. Participant can redeem their deposit of $10,000 USDC with the 1216 POOL. [REDEEM]

  3. Users are now eligible to participate in the NoLoss lottery with the 1216 stake in POOL

  4. We change the prizes to POOL

  5. Protocol generates interest with USDC and I think we need to market-buy POOL here, before distributing prizes.

  6. At this stage 3 things happen:

    • We just market-bought POOL with the interest, driving its price.
    • The $10k USDC is still redeemable for the same 1216 POOL which might be worth more now.
    • The participant and the protocol are winning, because of POOL price going up.

  7. The user can continue to hold the POOL prizes they received or sell them. This is why it is also important to offer more POOL mini-games which the user can enter for even more rewards!

  8. The trick is to delay the user from selling POOL for as long as possible, while we hold USDC and generate interest.

  9. It’s also important to encourage consistent USDC deposits and delay redemptions with a timelock.

  10. At the end of the day the deposit is safe and you never lose. We try to minimize the selling pressure as much as possible, the more the better. Minimizing the possibility of a bank run is in everyone’s best interest.

So we’re like a bank that gives you the POOL token so you can play the No-Loss lottery.
This is where gamification comes into play. What other POOL minigames can there be?

  • We can make all kinds of rules for the pools, like 1 big prize, max deposit limited.
  • Lots of small prizes, high percentage to win
  • Partnerships and use of POOL across the ecosystem. Staking, governance, trading, exclusive member benefits, etc.

So the user is enthralled and excited with the possibility of their POOL stake and rewards exceeding the value of their deposit. If they sell POOL on the market, there is no way they can redeem their USDC deposit.

This needs to be worked on further, as I feel there’s something missing, or wrong in the tokenomic formula. But I think it’s in the right direction. What does everyone think?

7 Likes
6

Great thread @Andre. Everyone above touched on some amazing follow-up ideas as well.

I will just add 1 simple thought-provoking POOL token utility request (in the lines of Brendan’s framework - motivation behind a user’s “Buy it, Use it, Sell it” strategy

Hypothetical use case

  • Say in year 2025 TVL for PT protocol is $1B with millions of unique depositors
  • Let’s consider 2 user profiles - a POOL token holder from 2021, and a newbie who hears about pool together for first time in 2025

With same deposit amount (say $1000), if the odds of winning a prize in 2025 is same for (a) POOL token holder from 2021 and (b) the newbie from 2025, then it is a terrible look for POOL token holder

So in summary, I’d like to see a clear value proposition (outside governance), that will give me confidence or utility to “buy POOL token” now before its use case is widespread.

2 Likes
7

I’d like to see a clear value proposition (outside governance), that will give me confidence or utility to “buy POOL token” now before its use case is widespread.

This is a great question. This is what our narrative needs to answer.

In fact, we could continue a thread we already have: some time ago Leighton wrote an article that called PT a perpetual growth machine, since a portion of the interest from user deposits funnels back into the reserves, which grow perpetually. The idea of perpetual growth is powerful.

Short term we need to funnel all interest into the prizes, but in the future we’ll be capturing some of the interest. The narrative should describe the future, because that’s what POOL holders believe in.

For example, Olympus has both a long term narrative and a short term narrative: long term 1 OHM = 1 DAI, but short term the protocol is in growth mode.

With same deposit amount (say $1000), if the odds of winning a prize in 2025 is same for (a) POOL token holder from 2021 and (b) the newbie from 2025, then it is a terrible look for POOL token holder

I think this is apples and oranges. POOL holders and Ticket holders are playing different games.

In terms of why buy POOL now, it’s that you can stake it and have more ownership than someone who buys the equivalent amount later, thanks to the staking rewards.

2 Likes
8

Broadly, I see similar themes between what you’ve described and what I’ve described.

  • The protocol acts as market maker for POOL (LP)
  • POOL holders can stake their tokens

The mechanism you’ve described for market-making is complex, and we’ve found that buybacks using interest is ineffective. It’s much simpler for the protocol to LP and have POOL purchases provide the upward pressure.

In terms of the staking mechanism, I lean towards a simple fixed interest staking rather than a POOL prize pool. It’s set-and-forget, and the interest compounds.

2 Likes
9

Thanks @Brendan.

  • The first narrative point is clear for me (we can work on improved messaging). Protocol accrues a portion of interest into treasury reserves, and POOL token holder will have access to this reserves. Timing of buy is based on factors such as low POOL token price now, staking rewards to increase POOL quantity etc.

  • On the second narrative point, I like to hear more thoughts. POOL holders and ticket holders are apples vs oranges for now. But should it continue to be distinct in future? There has been 1-off conversations from multiple individuals (in the past) that were asking for things like - higher odds for winning prize if you are a POOL holder etc (not a fan of this idea…but just stating an example). So i would encourage everyone to think and share their opinion on this narrative.

5 Likes
10

Do you mean using $POOL as a ticket for the prize pool? As in $1000 of 2021 $POOL versus $1000 of 2025 $POOL? Regardless of token price, I do like the idea of holding $POOL giving you exposure to the prize pools.

They are playing different games now, but do we ever intend to allow $POOL holders to get exposure to the prize pools? @Brendan I do like the “Buy, Use and Sell” journey you outlined and how each stage should benefit the protocol. It’s great and the underlying groundwork is there, even some of the mechanisms proposed. I’m all for it.

Do you see any drawbacks to having $POOL give you exposure to the prizes that would deem the effort not worth pursuing? E.g. technical hurdles, or muddying the waters here by accepting anything other than stables. This is, of course, just an idea and I don’t have the technical skills or knowledge to know what the implications of this would be on the protocol level. It’s just a neat idea that has been thrown around a bit and an “easy” way to give POOL some added utility that’s easily understandable.

2 Likes
11

Exactly the discussion i wanted to spur. I like to challenge the idea that POOL token holder and a ticket holder has completely different goals/needs. I strongly believe POOL token utility narrative should be applicable for POOL token holders and ticket holders. I fall in both categories, and current experience is disjointed for me.

“How” we do it is an entirely different conversation, and i don’t want to get into that discussion now. Example: if we say POOL holders get preferential (or higher) odds for winning prizes, that could confuse ‘newbie small fish’ from a marketing perspective and affect our long term goals. So i don’t want to get into the ‘how’ we do it in this thread.

The important question to get a consensus from the community is to figure out if POOL token holders + ticket holders have synergistic goals and if POOL token narrative should help shape that effort.

5 Likes
12

Yes: complexity. Assuming you want to have POOL increase your odds of winning, you’d either need to update all prize pools across chains and actively manage the POOL fairness, or add a POOL prize pool (non-stable) to the stablecoin network. It is technically complex, either way.

In my mind we have a natural progression:

  1. Create a fixed-rate staking contract.
  2. Create a POOL prize pool network

Fixed-Rate Staking Contract

A fixed-rate staking contract would allow a user to stake their POOL while retaining voting power. They would receive a fixed rate of interest that compounds.

Why fixed-rate? Because we can easily control it across chains. No matter what chain you are on, you earn the same amount of POOL. Governance simply sets the interest rate, and stocks up the contract with POOL.

A fixed rate contract is interesting too because now PoolTogether has a yield source. What can we do with yield sources…

POOL Prize Pool Network

Once we have a POOL yield source, we can deploy a POOL prize pool network if we wish. Users can enjoy the game they already know and love.

Our governance Snapshot can include both fixed-interest holders as well as prize pool network holders.

4 Likes
13

That’s messy and it’d feel like we are shoehorning something into the protocol just for the sake of POOL holders. As much as I loved the idea, I don’t want to add complexity to the protocol where it isn’t needed. Any complex changes should be reserved for improving the protocol itself for ALL players and shouldn’t be taken lightly.

The “fixed-rate” is what would ultimately distinguish this from the existing POOL Pool?
We already have staking with our POOL Pool, so I can see this as a point of confusion for the more casual participants. It’s not anything that communication can’t resolve, so no real issue there! I think you mentioned revamping that whole process. With this new fixed-staking contract we could easily introduce the revamped staking UX/UI then!

I like this compromise. It gives POOL prize utility, but keeps it siloed from the main game. Overall, I think we made great progress on defining a narrative for $POOL. Thank you everyone for your input so far! Excited to see how this progresses.

4 Likes
14

Can the protocol start burning POOL? For example, just have one $10 prize per day go towards buying POOL off the market and burning it. People get excited when tokens (that aren’t there’s) get burned.

But now that I think about it, that’s probably not good for POOL long term - since it’s our governance token. Instead of sending to burn address, it may be better off as fee generating liquidity in a DEX and then use those fees to buy more POOL!

By the way, is coinmarketcap correct in saying ~20% of POOL is in circulation? Where’s the rest?

1 Like
15

The rest is held in the protocol treasury. Essentially it’s POOL that has been minted but not distributed.

2 Likes
16

See here for where the rest of the POOL tokens are: https://info.pooltogether.com/

Everything you see here is controlled by the POOL token holders.

2 Likes
17

Just wondering, how is this different from what we already have?

As of now, you can deposit into the POOL pool and earn an APY and also have a chance to win POOL. Seems like what you are proposing is not much different, or am I wrong?

I like the idea @sanneh put forward a lot, but it seems like it require reworking our entire protocol. I am not a dev, so I can’t really comment on whether that’s feasible. But right now, the experience of being a POOL holder and being a depositor are basically different worlds. That’s an issue.

It seems the simplest solution would be to put a portion of the reserve as a potential prize in the POOL pool to make it more interesting. Moreover, we really need a POOL pool on v4 as well.

3 Likes
18

The POOL pool has sub-par mechanics, high gas costs, and doesn’t support a fixed interest rate. If we’re still using the “prize” mechanics, then we have the additional overhead of having to run the prizes. It should be replaced by a clean, simple staking contract that we can replicate across chains.

We need to leverage our POOL holdings into more stable coins. Giving away reserves to POOL holders is not the path to growth.

2 Likes
19

OK, so a simple staking contract that’s mult-chain where you deposit POOL and get POOL emissions.

I guess one of the perks I liked about the POOL pool was that it was gamified a little bit albeit not really fleshed out enough.

1 Like
20

I guess one of the perks I liked about the POOL pool was that it was gamified a little bit albeit not really fleshed out enough.

I agree; and in fact my first inclination was to create a V4 POOL prize pool network. The thing is, a prize pool requires the user to actively claim and does not compound. I think a set-and-forget approach would be better for POOL token holders. But, I’m open to discussion on a V4 POOL pool. Just not a V3 prize pool :slight_smile:

3 Likes