PoolTogether: A Lottery With No Losers – Niall Minihan
Imagine a lottery where if you don’t win, you get all of your money back — sounds too good to be true right? Well this is exactly what a new Decentralised Finance (DeFi) start-up have recently launched on the Ethereum blockchain called PoolTogether.
The concept is called prize-linked savings or ‘no-loss lottery’, where the prize that players have the chance to win is funded by the interest that accrues on all the money that has been deposited i.e. all of the tickets that have been purchased.
No-loss lotteries are attractive to players as they function both as a game of chance (as there is a chance of a large prize) and as a way to save (the deposit is never lost, unlike normal lotteries).
Previously limited to regulated financial institutions such as banks or credit unions, this concept is now being applied to the rapidly growing blockchain-based DeFi movement on the Ethereum blockchain.
What is DeFi?
DeFi aims to create a financial system that is open to everyone and minimises one’s need to trust and rely on central authorities.
Technologies like the internet, cryptography, and blockchain give us the tools to collectively build and control a financial system without the need for central authorities.
Traditional financial products and services such as loans, payments, derivatives, and now lotteries are being transformed into trustless and transparent protocols that run without intermediaries such as governments or banks.
Where does the prize fund come from?
To buy a ticket for the PoolTogether no-loss lottery, you need to have Dai, which is a cryptocurrency stablecoin that is pegged to the US dollar (1 Dai = $1 USD).
PoolTogther currently has a large pool of around 1 million Dai (i.e. $1 million USD). The majority of this is generated from ticket sales that go into a smart contract and stores the money in an interest earning account.
DeFi liquidity platforms such as Compound (who PoolTogether use) are offering interest rates of up to 7.5%, meaning that interest generated from the PoolTogether Dai pool currently generates about $1,600 per week, which is the prize fund of the weekly draw.
The PoolTogether Dai pool has been generated from the deposits of around 2,500 unique people (ETH addresses) whose chance of winning the weekly cash prize is directly proportional to how much money they have deposited. So if a player deposits 100 Dai they would have a 1 in 10,000 chance of winning.
Although in its relevant infancy, DeFi is breaking down the traditional walls of centralised finance and enabling a whole host of new decentralised products and services such as PoolTogether.
A no-loss lottery is a big idea, as it turns the most popular money losing game in the world into a savings game. This big idea has the potential to disrupt the traditional lottery format and become a future standard.
As the old saying goes,‘if you are not in, you can’t win’ and in the case of PoolTogether you also can’t lose.
Twitter: @BlockSoundBites
Published at Mon, 17 Feb 2020 15:04:26 +0000
