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.
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!!