PoolTogether

Sponsorship Split

An experiment in sponsorship splits experiment began July 15 when the USDT prize pool on Polygon was divided for users to choose between pursuing the APR drip or the prize. I thought it would be helpful to have a thread dedicated to this prize pool management option so we can analyze the pros and cons in consideration for implementation in current or future pools.

Spreadsheet: https://docs.google.com/spreadsheets/d/1EH9E9D6PoEoh3uKTOR9FkPQGra37U6ZHGXwZ7lYXCi8/edit?usp=sharing

Observations

Whales winning is down considerably

  • In the month before July 15th, 7 of the prizes were won by deposits over $1MM
  • In the time since the sponsorship split the largest depositor to win had 378k

Odds for depositors to win prizes are considerably higher

  • Depositors benefit from having the same total prize generation potential but 2/5 the competition
  • The odds to win for 1,000 deposited has gone from 1 in 5,000 to 1 in 2,000.
  • This means instead of winning once every 5 years a depositor will win once every 2 years. Or instead of every 5 months, every 2 months

Deposit size relative to prize won looks a lot better

  • See spreadsheet for the numbers. I believe the reserve was changed from 50% to 0% on July 14th so I have calculated median and average as if reserve was 0% for both time periods
  • Before the sponsor split the median prize return on deposit was .13% with an average of 34.55%
  • After the sponsor split the median prize return on deposit was 1.03% with an average of 59.33%

Our TVL for USDT on Polygon is up

  • Before the split the prize pool had roughly $5MM
  • Now the sponsor and prize pool have a combined $5.5MM
  • The increase could be attributed to increase in MATIC price, but safe to say no significant TVL was lost in the process of splitting the pools. The migration to sponsorship was largely accomplished within a week
  • MATIC price did not bottom out until July 20th and following the split there has never been a combined TVL that was noteably less than $5MM

Whales APR for sponsorship is up

  • Assuming $1 MATIC. 1000 MATIC p/day on the 5MM sponsorship pool returned 7.2% and now with with a sponsorship pool of 3.5MM returns 10.3%. Effectively whales are getting their prize streamed in the drip

As a user I do not see a downside. The total yield of Aave lending, farming, and rewards dripped remains the same. Interestingly I think this speeds up the yield for both sponsors and prize goers, but most importantly it makes the odds to win and prizes a lot more compelling.

For consideration of implementing on mainnet some concern was expressed for the cost of sponsors to migrate to a new drip-only pool. Looking at the current DAI pool, it would only take the top 3 depositors moving to sponsorship to fragment 1/3 of the total liquidity. In terms of migration cost, I do not think gas is a big factor for those with a 4.5MM deposit and mining 75 POOL per day.

For those who want both drip and prize, an effective strategy is to split the deposit in equal proportions to the two respective pools. While this is certainly an additional gas cost, I think it’s safe to assume that being in sponsorship does not make sense with less than a certain size deposit. Generally a sponsor has to expect to accrue enough dripped rewards to cover the costs of withdrawing, and potentially swapping or depositing in the pPOOL for it to be worthwhile.

I am curious what everyone else thinks. Are you involved in the USDT pool/sponsorship? Should we try this on the DAI pool on mainnet? What about new pools?

Image below highlights that since the sponsorship split on July 15th the depoists winning prizes are noticeably smaller. Much smaller fish are winning!!

winningdepositamount

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Dripping to sponsorship would really take the fun out of Pooltogether for me. I enjoy the current system of both earning on my deposit and having a chance to win. I do want to get prizes in the hands of smaller fish ,and this achieves that. That said, those that don’t win are getting no return on their investment, which I don’t like. I’ve been really happy with the way things are going and hope we don’t pursue this drastic change. I appreciate the reasoning behind doing this but I personally will never be in favour of dripping 100% to sponsorship.

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I love that the sponsorship split seems to play out exactly like we wanted and would absolutely try it out on, for example, the DAI pool on mainnet.

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I love the idea of experimentation in general but it does come at a cost.

From a users’ point of view, I would be kind of annoyed if the underlying mechanics and drips of the Pool I joined were changing too much, because it undermines my decision-making when i joined the Pool in the first place. We already play around with drip rates on the pools quite a bit and adjusting the incentive structure is about as drastic a change as we could make. Though i do also appreciate it may also be necessary, so this is a tough one.

I also think the gas costs would be irrelevant for the whale-sized sponsors. They will make the rational financial decision to go where their capital is most effective, and the gas cost will be minimal compared to the POOL rewards they would receive in even just 1 day.

Its awesome we can get some interesting data points due to the nature of the daily USDT pool though, so thanks for doing this analysis!

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Great analytical work here. thank you. I was skeptical after the first week of this switch, but my views have changed. Although I do think that a drip split between prize tickets and sponsorship tickets is the way to go. I removed my deposits from the USDT pool when the drip was removed. It doesn’t have to be a high interest rate, but i need something. i dont see the point in putting money there when i will win the prize once in maybe 2 years. its still quite a small prize. perhaps if it were larger that would be worth it. the opportunity cost is much too high without some kind of drip to prize depositors in my opinion. I’d support an 80/20 split. The assets you deposit, stablecoins, arent actually stable. they are pegged to a volatile fiat asset that is depreciating every year. their needs to be enough to at least beat that real world inflation rate in my opinion.

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Even the fed reserve cant tell us what that actually is though :sweat_smile:

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Just making sure, but I assume you mean 80% of the APR to sponsorship and 20% to the prize pool? That’s definitely the distribution I’d like to see too. I feel like it strikes a decent balance between convincing whales to move to sponsorship deposits while it can still give a decent yield to depositors.

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yes, you are correct.

I want to address the responses so far are that are for a 80% sponsorship / 20% prize pool split or no sponsorship split at all. Unfortunately I think the 80/20 split doesn’t really work, as a 1-2% APR drip ends up being a dusty disaster for most fish. Even with as much as $5,000 deposited, 2% APR is $100 for a YEAR. That doesn’t even cover the deposit and claim gas costs currently.

For those who want no split, or some variation split like 80/20, you have the ability to allocate your deposits accordingly between the two options. Why do you not consider that a viable option?

Separately, I really like the idea of potentially turning the APR drip into prizes with V4. “APR is boring”. And if that becomes popular this sponsorship split concept may become a moot point.

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For the record, I would be completely fine with moving the APR completely to sponsorship, I don’t really care for it. I participate in PoolTogether for the lottery part and, like you say, the APR I earn with it so miniscule that it may as well not exist.

I do like to consider the 80/20 option as a middle ground and compromise towards people not wanting to move the APR (fully) to sponsorship. I also like that it offers medium sized deposits (e.g., between $10k and $100k) a somewhat attractive yield on their money while still playing in the lottery, which I consider to be the main feature of PoolTogether.

I may have to reconsider, but I find splitting your deposits between sponsorship and prize pool a bit weird. On the one hand you half your chances of winning the lottery and, on the other hand, you also only earn half of the APR you can. It also doubles your gas costs, which is probably still the biggest barrier of entry for most (medium-sized) depositors. It would be interesting to see if people actually do this though.

I don’t think the 1-2% figure is correct in regards to an 80/20 split. When it was discussed in the past it was mentioned that whales makeup more than 80% of the deposited funds so with whales shifting to the sponsorship side it should somewhat balance out and maintain the same APR. I am more open to the 80/20 split than the 100% to sponsorship plan. Still like things as is but I’d consider the 80/20 route.

Edit: In regards to splitting deposits accordingly. If we went down this road to 100% to sponsorship I would not participate in the prize pool at all and would choose to be in the sponsorship side. It is important to me that I am getting some return on my investments and I’m not willing to take that opportunity loss on a gamble.

You are right it would depend on how much liquidity moved to sponsor. I have adapted an old spreadsheet to model returns on a 100% split as well as a 80/20 split. You can copy the sheet and change any numbers in blue to see potential outcomes.

The sheet shows that if 55% of USDC deposits moved to sponsorship, with an 80/20 split and 100MM total, the APR would be 2% for the prize side.

Looks like just the top 10 addresses in the USDC Pool account for 70% of the pool.

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Fantastic job digging into this Underthesea!

Being more sarcastic than serious here but a valid point for US-persons: 2% is still 200x my current US saving’s account APY of 0.01%.

That being said I completely agree for L1’s, the dust from the prize split isn’t worth it with the gas. Although for L2’s, 80/20 might be more manageable, I’m all for collecting that dust and paying the gas for it. Whether accurate or not, the dust gained on L2 feels like something you can wait and have reach a point above gas.

Right now, I totally understand that a lot of users are going to be analytical here. But if/when DeFi becomes more widely used, which appears to be the direction it’s tracking we’ll want to consider the psychology. If something feels attainable, people will want to play more. And let us not forget we’re marketing a “Prize-linked Savings”/“Prize Savings”, savings accounts comes with an APY (albeit a so low it doesn’t matter one, stateside).

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I would like to see 100% of APR towards sponsorship so whales who want yield stay in sponsorship and contribute to the prize . Small and medium depositors will have higher chance of getting a prize .

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Why not try this on DAI at least first? I really think it’d be a great success because wouldn’t basically most whales go to the sponsorship? Do we really think we’d lose important whales? And if we don’t lose important whales then obviously we should implement this (that’d mean more fish winning - one of the most important goals of PT imo)?

Maybe 90/10, so everyone would be feeling they are getting something, but does it matter? In 10 years we will have PT being advertised on TV and grandmas buying tickets without knowing anything about cryptos, blockchains, APR or whatever; they will just know: it is no-loss lottery, I can win a lot without risking anything. No one will care about APR (only people in sponsorship, which is our goal, no?).

Also, we and whales know one thing: Pool token is very high quality and not only that: it’s super undervalued. So you go in and invest in Pool sleeping pretty well at night (at least compared to investing into other crypto projects; you probably still wake up randomly during the night realizing it can all easily collapse), so 10% APR of a great quality undervalued asset is a smart and great investment especially when you have tons of money.

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Thank you for this awesome in-depth analysis @underthesea! I think it’s super important that we look back and evaluate these changes.

I agree with others that long term having a chance to win PLUS some form of guaranteed return is optimal for growth… whether that return comes via POOL tokens or other things (could just be from the underlying yield source).

I think given that we just did a POOL distribution adjustment and that the current rates are only set to run for another ~50 days and that we have V4 coming it probably makes the most sense to keep rates as is and look to make a bigger change with POOL distribution that corresponds to V4.

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