PoolTogether: Combining Lotteries and Savings Accounts

Hey there! Welcome back to the IGIN newsletter. Thanks to the 22 new IGIN readers that have joined us this past week. That puts us at 173 people who can now impress their friends at a dinner party with their knowledge of web3, the creator economy, and the internet. Congrats. You get it now.

Take a moment to imagine two numbers.

1. The amount of money you have lost playing the lottery in the last 10 years — think about every scratch-off, every Powerball ticket, every raffle. Everything.

2. The amount of money your savings account has earned you over that same time period — remember that the national average interest rate is at 0.06% currently.

Got those numbers in mind? Let's see how these two stats relate.

Well it's reported that the average American adult spends around $285 per year on the lottery. Some surveys even say that amongst frequent lottery playing adults, the average yearly spend is $1038.

Whether or not those numbers seem reasonable to you (they did shock me a bit), the reality is that the average American is earning far less interest on their savings account on a yearly basis than they lose playing the lottery because let's face it. Nearly everyone loses the lottery. What if there was a way to fix that?

As I'm sure you guessed, there is. Web3 has found a way to rework this system.

It's called PoolTogether.

So let's talk about it:

• What is PoolTogether? 

• How does it work?

• Takeaways.

What is PoolTogether?

PoolTogether is a "no-loss prize savings account".

In essence, it is a combination of a lottery and savings account. You deposit your funds into the protocol, and use it as a place to save your money. However, rather than accruing interest on your deposited funds, you become eligible to win prize money. The user doesn't have to risk (or spend) their deposited funds in order to win.

This is not an entirely new concept. Certain financial programs and credit unions have offered similar systems before, however like many of the things we've discussed on this newsletter, web3 improves upon them. 

How does it actually work?

Think back to how a traditional savings accounts works — when you deposit your funds in a bank, the bank deploys your funds elsewhere to earn returns. Then they kick back a small percentage of this return to you in the form of interest.

PoolTogether does the same thing. The protocol takes deposited funds and deploys these assets in other decentralized finance protocols to begin earning interest. All of this is controlled through smart contracts. These contracts ensure that the deposited value is always fully liquid, meaning your funds can be withdrawn by you at any point.

The protocol has recently undergone some big changes as it migrates to it's newest version, V4. In earlier versions, the prizes and drawings were split between multiple pools with a few winners selected for each. This led to crypto whales (someone who owns a huge amount of cryptocurrency) winning nearly all of the prizes. This newest version solves a lot of those issues.

With the latest version of the protocol (V4), the mechanics of the protocol have been simplified substantially. No longer do you have to pick between a bunch of smaller pools to deposit your funds in. Now all deposits are earning interest for the same pool. This pool will also work with multiple blockchain networks (Ethereum, Polygon, or Avalanche) which provides more accessibility for users.

When you first enter the app, users are shown the current prize pool. Currently, the protocol is serving up 4096 prizes of varying amounts on a daily basis. This has been dubbed "tiered prize abundance". The values of these prizes will move up or down depending on the total value deposited in the protocol.

The newest version only accepts deposits in $USDC, a stable-coin that's value stays at $1. You can currently do this on the Ethereum, Avalanche, or Polygon network. Gas fees (transaction fees for working on the blockchain) on Ethereum might run you $60 or more. Avalanche fees will be around $0.85. Polygon fees will be around $0.03. Choose whichever network is easiest for you.

Your chances of winning are dependent on your average deposit size during the prize period. This is how PoolTogether describes this:

Currently the prize period is 24 hours. At the end of a prize pool period, a smart contract will generate random numbers that pick all of the winners.

Now with V4, the prize quantities for each pool has changed from 5 prizes in V3 to 4096 prizes in V4. So everyone has a much bigger chance to win. According to PoolTogether, every $100 deposited gets you a "1 in 59.34" chance of winning. This is subject to change as the protocol evolves.

You can even win multiple prizes in a single drawing, but this is capped at 2 to prevent whales from winning too much.  

Takeaways.

PoolTogether provides utility to the web3 ecosystem in a few key ways. First, the simple mechanics of the system provide an easy entry point for new users into the web3 ecosystem. People aren't going to dive in to all that this ecosystem has to offer without initially finding a simple, easy-to-understand system to take their first few steps.

Secondly, PoolTogether provides fun. Part of the reason people have become so content with how today's financial systems work is because they are BORING. The average person doesn't want to take the time to learn better ways of handling their finances if that involves going to banks, reading documents, etc.

This protocol is fun. You are very likely to get the satisfaction of winning a prize. Regardless of that being a $1 or the $2500 prize, it is still exciting to win something. This protocl also shows that the crypto space is not all crazy speculation and volatility. There are also smart, safe places to put your money.

Lastly, the concept of a "lossless" protocol has now been proven with PoolTogether. Now with the precedent, others may build off the concept to bring it to other ideas. Imagine lossless sports betting or even insurance. There could be a lot of power in this concept.

There already is at least one protocol, EntropyFi, that lets you make predictions on markets. If you get the predication right, you split the interest winnings with others who made that correct predication. 

The power of a fun, financially-smart product could be a game changer for many. No one should be going through the world without being financially literate, yet many people have been stuck doing just that. PoolTogether might have just the right combination of incentives to start pushing people to learn better ways to save their money and of course — bring the next wave of people into web3. 

How did you like this week's IGIN newsletter? Your feedback will help me make this great!

Loved | Great | Good | Meh | Bad

Thanks for reading! Always feel free to hit reply if you want to give me feedback or just have a conversation about any of these topics. If you liked what you saw, go ahead and give this a share. I'm willing to bet that you know at least one person who'd find this interesting. And if you reallllly liked it, go ahead and click that button below. I'll see you there😉

-Levi

I do my best to explain how it all works in these letters, but I won't be able to outline all of the risks. So if you read this and want to get involved, make sure you do your due diligence. For full transparency, I am involved in some of the tokens mentioned in the writing. This letter is not financial advise.