V4 continuation and POOL tokenomics

[BRONDER]

The 15th of October, PT launched V4 with 1,000,000$ approved as incentives at launch to kickstart the USDC pool. These incentives will last 10 weeks, so that means that the 24th of December we will run out of those incentives and will have to begin giving out prizes exclusively from what the protocol earns by having funds staked on AAVE (other chains may provide incentives, but we will forget about that for now).

We are currently sitting at around 8.5m on Polygon and 1.5m on Ethereum (numbers going up each day), and those deposits are weekly producing:

Polygon

(11,24% + 1,84%) * 8,500,000$ / 365 days = 3,046$ / day

Ethereum

(3,41% + 1,38%) * 1,500,000$ / 365 days = 197$ / day

Total

3,046$ / day + 197$ / day ​= 3,243 $ / day

This is the quantity that would have to be distributed daily. If we keep our goal of having 1% chance of getting a prize per 100$ deposited we can calculate the number of prizes per period required to satisfy this:

10,000,000 / 100 * 1% = 1,000 prizes

And we can also calculate the average %APR on AAVE

Average %APR = ((11,24% + 1,84%) * 8,500,000$ + (3,41% + 1,38%) * 1,500,000$) / 10,000,000$ = 11.83%

Introducing that data in the following Excel sheet, I can play a bit with the desired prize distribution:

Prize Distribution

It would look something like this (it can be changed a bit, but I’ve done a similar distribution as what it exists nowadays for V4).

First thing to note is that the small prizes are less than 2$, which could work out in Polygon, but definitely will not be worth it on Ethereum or even L2 solutions due to gas fees. This makes me think that it would probably be better to do weekly drawings instead of daily. The drawback of this is that it would mean that people still have a 1% change of getting a prize with 100$, but unfortunately that would be weekly, so they would have to wait around 2 years to win a prize on average (which is probably too much). Therefore, if we do weekly drawings we could lower the required quantity needed for that 1% chance to 50$. If we do that, someone with a 50$ deposit would win in average once a year (approximately) and the prize distribution would look like this:

I am also a fan having 1 big prize, so I think the weekly drawings allow us to give a 7 times bigger prize (which is basically the same as daily, but it looks better on a first impression).

How often do you think prizes should be given

• Daily
• Weekly
• Other frequency

TOKENOMICS

After all these numbers, I also want to propose something that would probably attract people to retain the POOL token. Nowadays, it is a governance token, but no economic incentives are given to those that are holding the token. My idea would be to change that by introducing a 0,1% ‘fee’ on the generated interests in order to be distributed to POOL holders. This distribution could either be done via a yield bearing asset, or even a POOL pool on V4.

I also would like to introduce a 0,1% fee on the generated interests for it to be deposited on the Treasury of PT. This quantity is fairly small, but would help the protocol grow with time. Funds in the Treasury could be used for special promotions via delegations to some lucky winners on Twitter contests (or many other ways). Given that there is a wallet cap on the number of prizes, we could probably retain some of the ‘non claimable’ prizes to make this 0,1% fee less intrusive.

Do you support a fee on generated deposits to be distributed to POOL holders or to the treasury?

• I support a fee for POOL Holders
• I support a fee for the treasury
• I support both fees
• I don’t believe that we should set any fees on generated interests

This is my first post, so I’m just throwing out a bunch of ideas because I would like to know other people opinions. Thanks for reading all of it!

[Gonbatfire]

First of all, great post! The excel you provided gives a very useful insight.

Now, about prize frecuency, i voted to remain daily because i believe it contributes to the “gamifyng” of PT, and results in better engagement, i personally really like to check every day (it’s part of my routine now!) and i feel like now i’m inclined to deposit more over time, rather than just depositing X amount one single time and forget about it. And besides, a “claim all” button is being worked on, which would, to my understanding, mitigate the ETH gas situation

[Brendan]

Thank you for the analysis @BRONDER! It’s helpful to see those numbers so that we understand what kind of revenue the pools are currently bringing in.

I voted daily, and no fees. Why?

People Want Lots of Prizes

We have been iterating on PoolTogether for almost three years. We tried a single winner approach; we tried just a few winners. We did daily draws for weekly pools.

When people don’t win and see that their odds are infinitesimal, they get dejected. They become unhappy. They complain publicly. They withdraw.

When someone wins a prize, they realize the game works! They celebrate their win, no matter how big or small. They realize it’s worth putting more money in.

We need lots of prizes! However, we still need a big headline prize for those outsized rewards. That’s what seems to work: people want to win a lot, but they also want a chance to win BIG!

As our TVL grows we should increase the number of prizes so that everyone’s chance to win stays the same.. We want everyone to keep celebrating.

V4 is in Growth Mode

The #1 thing we need to do is grow. We need to grow PoolTogether into the biggest prize savings in the world.

I estimate that we’ll need, ballpark, $100m in order to make the current prizes sustainable. This means that the protocol will be spending money on prizes until we hit $100m TVL. In fact, I would argue that the protocol should keep spending money until we hit $1b TVL.

So, to me, there is no sense in taking revenue when we need to spend $ to grow. Bridging the funds is also a pain, so it’s best to let the interest feed back into the prizes. Eventually the interest will sustain all of the V4 prize pools.

The only reason that would be acceptable to take revenue, IMO, is to establish the narrative for a POOL token model. However, I don’t think we should take revenue before we define what the POOL token model looks like.

POOL Needs a Tokenomics Meme

The POOL token needs a simple token model that people can understand. Olympus’ (3, 3) is incredibly powerful for its simplicity and for its branding. There are three actions for OHM tokenomics: stake, bond, sell. People know what to do. People have a name for the idea: (3, 3).

What are the tokenomics for the POOL token? So far it’s been entirely governance. What do you do with the POOL token? Vote. Turns out people aren’t chomping at the bit to vote.

I don’t think the simple answer of “revenue” is compelling enough. We need a strategy for the token. It needs thought before flipping a revenue switch.

[AtomicNuclei]

Daily prize frequency is a must. We just need to nail the V3 to V4 migration.
That should increase our TVL handsomely.

@Brendan

As our TVL grows we should increase the number of prizes so that everyone’s chance to win stays the same. . We want everyone to keep celebrating.

I think this is critical. We have seen the community grow with new entrants finally winning. That type of engagement adds stickiness to the protocol. If depositors are winning, they’ll stay deposited. The Polygon pool has been steadily growing and that’s awesome to see. We just need to increase our V4 TVL by a magnitude or two to have sustainable prizes.

The V3 to V4 migration will undoubtedly help with this, as will the reintroduction of POOL rewards. I am excited to see how the reintroduction of POOL rewards pans out. There are awesome ways to reintroduce them in a more impactful way than what has been done before.

And finally, the integration of true L2s, namely Optimistic Rollups will undoubtedly increase our V4 TVL. Eager to see those integrated. People are just waiting to have engaging dapps on these L2s and PoolTogether is a prime example of one.

@Brendan @Leighton Does Optimism’s EVM Equivalence simplify things in terms of L2 rollouts? https://twitter.com/optimismPBC/status/1455645114269724675?s=20

Tokenomics on the other hand are tricky. It’s something we definitely need to think about deeply. It’s imperative we get it right. I do like the idea of having POOL tokens contribute to your chances of winning prizes. Now, I don’t mean having POOL increase your chances of winning, just giving you a to win the prize. I have recently faced a dilemma of deciding whether to get more POOL or contribute more to the V4 prize pool. I’ve chosen POOL. I would like it so that holding POOL gives you a crack at the V4 prizes. @Leighton I saw on the Discord that we’ll be able to deposit other tokens eventually rather than just USDC? That would be awesome for POOL.

[Tjark]

I voted for daily prizes and no on both fees.

I absolutely trust in the research and development that went into the release of V4. @Brendan’s post further confirms my beliefs in this, and I agree with his points.

The vibe that’s already going on with daily V4 draws is great, and I think there’s still a lot we can improve in terms of marketing and spreading the PoolTogether narrative.
Fees don’t fit the model of a No Loss Savings protocol in my opinion, and over-complicate things for users and especially DeFi beginners.

Having a clear and transparent road map could help idealizing and deciding about tokenomics.

[DaBoom]

Great Post @BRONDER - this spreadsheet is clear and helpful. Just with the growth from launch to now, extrapolating that out to the end of December based on the current rate of growth, we could have something like 18-22m on the polygon side alone. I can’t figure out how to adjust the # of prizes but some quick math shows about 40m being needed in deposits at that 11.83% to keep the current prize structure. If we can get to 22m, add another chain or two, the “claim all” for the ethereum, V3 to V4 migration, POOL incentive reintroduction, etc. I don’t see why we can’t get there.

With regards to the daily/weekly drawings- I love the interaction with the daily drawing! I think that a large monthly (or even yearly) drawing would be fun too- That would be an easier drawing to do the live broadcast around…maybe even do an in person big screen meeting or something like that.

I voted both yesses for the fees, but I also understand the no fee option (thanks @Brendan for the clarification with headers and everything!). I don’t know if I see the hurt in have .1% go to pool token holders-how that affects the “no-loss” portion of PT (although, is this what a ‘security’ is? I’m hazy on the legality there) . Seems like that concept leans towards the “win” portion. I like @AtomicNuclei 's part about the Pool Token giving exposure to certain drawings-I think that coincides better with PT’s concept. As far as the other fee, I kind of already thought PT was getting some of that interest generated? If not, does the protocol only obtain funds from sold tokens?

Excited to see what we come up with!

[gabor]

We should prioritise organic growth first before thinking about collecting a fee. Tokenomics can be relatively straightforward as it is also pointed out in the proposal: just collect a tiny fee.

With the current and near-term TVL, a fee to POOL holders doesnt move the needle at all. It just - even if just slightly - reduces the expected value for players, which should be avoided during the early growth phase.

At a later stage, a fee should be collected for the benefit of the treasury and not the token holders, and governance can direct treasury funds to appropriate directions.

[BRONDER]

Thanks all for the feedback. Definitely the answers have made me rethink my position.

I 100% understand that daily prizes are good for keeping people engaged. But tbh I’m still worried about gas fees not making the prizes worth it when we run out of incentives.

Regarding the fee, I definitely don’t see it as a necessity, but I believe that if you don’t give the token holders an economical incentive, the token prize will not go up. I’m holding and will keep holding POOL because I love the protocol and I want to be a part of it (hopefully one day governance will come to other networks apart from Ethereum). However, I don’t think that most people will feel the same way as I do. Either way, I honestly believe that the first priority as most of you have stated, is to grow the protocol and once we get to a good point, we may revisit some tokenomics points

Thanks again for your feedback!

[Leighton]

I just wrote this post continuing on this same theme: Scaling Prizes!