The first two posts outlined the strategy to grow the protocol by focusing on prizes.
This third post ties it all together! How the POOL token can create the biggest prizes by enabling more yield sources, asset types, and blockchains. The POOL token can unlock PoolTogether’s potential to be a prize savings machine that powers the growth flywheel.
- Depositors to save in any asset
- Depositors to get rewards in any asset
- The largest possible prizes
How this POOL-based prize system works:
To have the largest prizes, we need two things 1) the largest amounts of deposits 2) yielding the highest returns. Right now, the protocol is highly limited because we only support one asset (USDC) and one yield source (Aave).
To transform the protocol into a prize savings machine we need both better yield and the ability to take in more assets. But there’s a problem… if prizes are distributed in the asset deposited, it breaks the prize machine. Each prize pool only has its own small prizes. On top of that it’s a technical nightmare.
The solution is to distribute all prizes in the POOL token.
By doing this, the protocol can easily accept any yield bearing asset (wBTC, USDC, Dai, Ethereum, Matic, etc.). Regardless of what asset you deposit, you are contributing towards one massive prize! The prize can still be displayed in dollars (as it is now) but the actual distribution will happen in POOL tokens. After claiming prizes in POOL, depositors can hold and use their POOL or swap into any other token they want.
The protocol can now scale deposits quickly with massive prizes by allowing many assets and yield sources!
- What happens to the yield?
- What happens if people don’t want POOL?
- How would different assets and yield sources be fairly balanced?
These questions are all related.
Let’s assume the market value of the POOL distributed should roughly match the value of the yield accrued. So if there is $100,000 in total yield accrued then there is approximately $100,000 of POOL distributed. We want to make sure that anyone who receives POOL can easily swap it out for any other asset they might want. We also want to make sure the protocol gets POOL back so that it can keep distributing it.
What the protocol can do is let POOL holders return POOL and get back assets the protocol holds at a discount! This discount starts 0% and then increase until the assets are gone.
By letting people get the yield at a discount it ensures there is always demand for POOL and this ensures depositors ultimately get savings rewards in ANY asset.
That answers what happens to the yield and how people can swap out of POOL. The third question is, how would pools be fairly balanced?
If the protocol supports many assets there is a problem. How do you give depositors fair chances? The chances of winning need to be weighted in accordance with the yield generated. If not, the protocol can easily be gamed.
This is an extremely difficult technical problem because it requires an “oracle” for the protocol to use.
POOL holders can stake their POOL to increase the chance to win for their favorite prize pools. It’s in POOL token holders best interest to create the most yield and therefore the biggest prizes so their incentives are aligned. They will stake their POOL on whatever assets and yield sources are creating the largest prizes. By staking their POOL they will make that prize pool have better odds thereby driving more deposits to it.
POOL becomes the fuel that powers the prize savings machine, while still serving its core function as the governance token.
By saving your money, you get POOL tokens, you can hold and use those tokens in the protocol or you can swap them for any other assets.
PoolTogether would allow users to deposit in a prize pool, receive the chance to win, and always get back their original deposit. Using POOL as prizes allows more users to deposit a variety of new assets, yield sources, and blockchains generating prizes of increasing sizes.
“POOL wars” will kick off as yield sources and asset creators want to drive usage. Imagine, FEI, Dai, MStable, Dolla, and USDC all competing to stake the most POOL and drive the most odds to their assets.
This concludes the high level strategy behind how the POOL token can improve the protocol and kick off the growth flywheel. This post serves as a primer for the topic but the devil is in the details. How this can be implemented?
If the community is aligned on the desire to pursue using the POOL token in this manner, PoolTogether Inc will propose to build out the infrastructure to support it. Let’s discuss!