It’s time for a pool party! How do we get PoolTogether to explosive growth? PoolTogether should have explosive growth because…
- It’s a proven concept in the “real world”
- It’s universally loved in the crypto world (even Vitalik shilled it!)
- It’s one of the best on-ramps into DeFi
- It’s a compelling value proposition
PoolTogether actually has experienced explosive growth! Between February 16th and May 18th deposits into PoolTogether grew from ~$4 million to $235 million and $2.5 million in prizes were distributed! That is explosive growth! Looking back, what drove this growth?
It was the POOL token! The graph below illustrates this crazy growth kickstarted by the POOL token distribution beginning in late February.
BUT, as the graph shows, the growth did not sustain. What happened?
POOL distribution in V3 grew deposits but did not translate to a better protocol experience for most depositors. This was because of the design limitations of V3.
The issues were:
- The same whales were winning all the prizes
- Large depositors were simply farming the POOL token
- The transaction fees were too high to deposit and withdraw
In response to these issues POOL distribution was slowed by 50% in late May, again in August and completely stopped with the V4 launch in November. This stopped the ineffective POOL distribution but it also stopped our best tool to drive deposits.
Now that V4 is tried and tested, it’s time to get POOL back in the party.
Based on our experience with V3, we know how to massively grow TVL – use the POOL token! But won’t this result in the same outcome as before? No, because:
- The unbounded prize distribution means even as TVL grows, depositors can still win lots of prizes! As prizes get larger, people still win!
- Distribution parameters can limit aggressive yield farming
- The prize cap will limit the impact of whales
- The multi-chain V4 removes the gas fee barrier. As prizes get larger more and more normal people will get excited and deposit. We can finally have the growth flywheel!
On top of this, introducing further utility for POOL via staking will increase the incentives to hold and use the token rather than sell it! We can finally have the best of both worlds and kick off the growth flywheel!
Won’t this just be a short term pump of TVL? No! Because as the prizes get larger and larger, the need for POOL will be less and less.
As an example, assume we have $30 million in deposits and are getting a 5% APR, 3% of this APR is used for small prizes and 2% is used for a weekly “grand prize”. Depositors are effectively getting a 3% yield + a chance for a $11,000 weekly grand prize.
Now assume the exact same parameters but with $235 million in deposits (our old high TVL high). Depositors are now effectively getting a 3% yield + a chance for a $135,000 weekly prize. This is MUCH more compelling and the growth flywheel starts turning.
As excitement for the headline prize grows, more deposits come. At $800 million in deposits; the weekly prize is now $307,000 and all depositors are still getting the 3% APR.
The larger prizes attract organic depositors and also companies to integrate with the protocol. This is the growth flywheel. In the short term, the POOL token can help grow deposits but in the longer term the POOL token distribution can be tapered off.
Unlike the V3, the V4 protocol is ready for the growth flywheel. But, for this to work, we still need to answer a question.
- What method of POOL distribution will create the largest sustainable prizes?
There are lots of potential ways for POOL to be distributed and many variations within each method.
Instead of committing to one very specific way, our best first step is to build a system that is dynamic and supports many ways of distributing and using POOL. This gives us a way to implement POOL distribution but also flexibility to adjust and adopt as the protocol needs to.
That system is the topic of the next post.