A data-driven look inside Pool Together

Key Takeaways

  • Pool Together is a no-loss lottery, where 1600 unique ethereum addresses have contributed $612k in this week's pool.
  • You would probabilistically earn 1.4 times more when putting money in Pool Together vs putting it in Compound.

Introduction

I recently heard about @pooltogether_ on the Laura Shin podcast, and got super interested in the inner workings of the protocol. Here is a brief data-driven write-up on the basics of Pool Together.

Pool Together is a no loss lottery, users provide liquidity to a lending pool on Compound and the interest earned is randomly allocated to a lottery winner. A user receives one lottery ticket, for every dollar contributed. PoolTogether is non-custodial, meaning users can withdraw their liquidity from the pool at any time, making it a truly lossless lottery.

There are currently 2 different Pool Together contracts, a Sai pool launched in Sep 2019 and a multi-collateral Dai pool launched in Dec 2019. Let’s take a look at how Pool Together has grown in recent months.

Weekly participants

Data sourced from https://thegraph.com/explorer/subgraph/asselstine/pooltogether

The above chart shows the total unique entrants (measured via unique ethereum addresses) on a weekly basis. The total number of entrants have been increasing exponentially after the launch of the Dai pool in the last week of December. A total of 1618 unique ethereum addresses are participating in this weeks lottery.

Weekly liquidity in the Pool

Data sourced from https://thegraph.com/explorer/subgraph/asselstine/pooltogether

The above chart shows the total amount of liquidity in the Pool Together smart contract on a weekly basis. The significant drop in liquidity during the second week of November was caused due to the launching of Multi-Collateral Dai. However, the total weekly liquidity has been increasing exponentially after the launch of the Dai Pool Together contract in the last week of December. A total of $650k worth of liquidity is contributing to this week's lottery.

At the current 7% yearly interest rate, there needs to be a total of $7.5M worth of liquidity in the pool to result in a weekly lottery of $10k.

What is better - Lending directly on Compound or participating in a Pool Together lottery?

Let us investigate where should one invest 1 Dai to get the maximum returns, the Compound protocol or the Pool Together lottery.

Earnings on compound

The current yearly interest rate for lending Dai on the Compound is 7%, this means that the weekly_interest_rate on the Compound is 0.07/52 i.e. 0.0013, so for every Dai lent on the compound protocol we will get 0.0013 Dai in interest after one week.

To earn $1k worth of Dai weekly on Compound one will have to lend $769k worth of Dai on Compound.

Earnings on Pool Together

The probabilistic earnings on the Pool Together protocol can be estimated by multiplying the lottery_prize and the winning_probability. Pool Together has the concept of winnable_tickets and sponsored_tickets, the sponsored_tickets only contribute to the interest whereas the winnable_tickets contribute to both the interest and can win the lottery. This means that sponsored_tickets increase the lottery prize without reducing the probability of winning. Currently ~$250k worth of Dai belongs to the sponsored_tickets on the Pool Together Dai contract.

On the flip side, the protocol will charge a 10% fee (not activated yet) on the final lottery winnings thereby reducing the lottery_prize.

Earnings ratio

If we calculate the ratio of earnings in compound vs Pool Together we get the following formula.

At the current situation of 0% pool_together_fees and $250k worth of sponsored tickets in a winnable_tickets worth $612k, probabilistically one would earn 1.4 times more in Pool Together protocol vs the Compound protocol.

Conclusion

When Pool Together protocol starts implementing 10% fees on the lottery, the ratio of sponsored_tickets to winnable_tickets should be at least 11.1% for the Pool Together to have a better return on investment than Compound. We can track this ratio live using our TokenAnalyst Pro data streams.

At the end of the day where one invests depends on the risk appetite of the individual. I personally have bought 10 winnable_tickets in this week's lottery 🤷🏽.

Written by: Ankit Chiplunkar, Research Lead @ TokenAnalyst