The wonders of Decentralized Finance (DeFi) give creative developers an entirely new set of building blocks to experiment with. The aim of the DeFi movement is to create an entirely new, open-source, permissionless, and transparent financial service ecosystem.
DeFi is at such an early stage of maturity that entirely new types of applications burst into existence regularly. One of the early examples of this explosion is PoolTogETHer, a lottery built on Ethereum where no one loses. What is Pool Together meaning, how does it work, and are there any downsides? Let’s find out.
Pool TogETHer Meaning
PoolTogETHer is an Ethereum application that turns saving money into a game. It does this by combining the power of blockchain technology, smart contracts, and Decentralized Applications (Dapps). It is basically a savings game that gives you a potentially huge upside and minimal downside.
Players can join the game by buying saving tickets, each giving them a chance to win a prize. At the end of each week, a few winners get the pool prizes and their tickets back. What makes this game unique, however, is that players who don’t win also get their tickets back – everyone involved keeps their money. And to fund the pool prizes, PoolTogETHer uses the interest earned on purchased tickets.
How Does PoolTogETHer Work?
Players deposit stablecoins or another crypto into a smart contract (the pool) to buy tickets. Each ticket costs 1 token and each pool has a different prize based on the total value deposited by the players. Each player can buy as many tickets as they want and withdraw their money at any point.
At the end of the week, winners are chosen at random. The winning addresses get the interest earned by the pool and their tickets back. Non-winning addresses get their tickets back, and the game restarts. Everything is automated by smart contracts, so players don’t need to buy tickets again. As long as they don’t withdraw, they will be part of the lottery draws every week.
PoolTogETHer is often referred to as a no-loss lottery, and now we understand why – none of the players can ever lose their funds. It’s also worth mentioning that the smart contracts that select the winner each week are completely automated. As the code is open-source, you can view it yourself on GitHub.
How PoolTogETHer V4 Works
With PoolTogETHer V4, the protocol has taken a multi-chain approach to their prize pool design. The protocol uses a Prize Pool Network, which allows users across chains with different assets or different yield sources to combine their interest into a single prize pool. At the moment, only USDC prize pools are active on PoolTogether V4.
With PoolTogETHer V4, there are three main processes:
1. Interest is generated and captured by the prize pools on the network;
2. Prize distributions are determined across the network. This process determines how the interest will be distributed based on who wins a prize on each chain;
3. Once the distribution has been determined, prize liquidity is ensured across the different chains. This enables users to claim prizes on the chain where they have deposited funds in PoolTogETHer V4.
How To Deposit On PoolTogETHer V4?
Depositing to PoolTogETHer V4 is simple:
1. Head to the PoolTogETHer website.
2. Click on the App button in the top right-hand corner of the page.
3. Now that you’re in the dApp, you can see the banner at the top that says “A New PoolTogETHer V4!”. Click on the Deposit Now button.
4. You will see the following screen below with the highlighted options in the image.
5. You will connect your wallet to the PoolTogETHer V4 dApp. V4 supports a variety of different wallets.
6. Once your wallet is connected, you can select the amount of USDC you would like to deposit.
7. Once you have selected the amount of USDC to deposit, you will execute an approval transaction to allow the V4 dApp to interact with the USDC in your wallet.
8. After that transaction is complete, you will be prompted to deposit your USDC into PoolTogETHer V4. Once this is done, you will receive PtUSDC.
PtUSDC is an ERC-20 token that represents your deposit in PoolTogETHer V4. Once you have PtUSDC in your wallet, you now have an active deposit in PoolTogether V4 and are eligible to win prizes for each drawing.
What Is PoolTogETHer Token?
In February 2021, PoolTogETHer launched its native token called POOL. The token was created solely to govern the PoolTogether protocol, which makes it a governance token. Any changes or updates made to the protocol will be proposed and voted on by POOL token holders.
As we can see in the POOL token contract, the max supply is set to 10,000,000 POOL. According to the PoolTogETHer blog post, the POOL token is being distributed to the community and contributors based on the following scheme:
- 14% to all depositors up until January 14th, 2021 (17,072 unique addresses).
- 12.44% to early core team contributors (locked for one year).
- 7.52% to PoolTogETHer Inc investors (locked for one year).
- 5% to a 14-week distribution to PoolTogETHer depositors (so that new users can get POOL governance tokens).
- 2.5% to onboarding and education of new users.
- 1% to addresses that voted in the first two snapshot governance votes AND held a PoolTogETHer deposit at the time of voting.
The initial distribution accounts for 42.46% of the total supply. The remaining 57.54% is currently in the POOL Token Treasury, which will be used and distributed according to the token holders' proposals.
The Downsides To PoolTogETHer
Favors The Wealthy
A counterargument against this game could be that statistically, it’s making the rich richer. By design, a player who buys 1000 tickets will always have a higher chance of winning than one who buys only 10 tickets. In this case, the “richer” player essentially leverages its advantage by earning interest on not just their own, but the “poorer” player’s funds. As such, players who never win ultimately would have been better off if they sent their funds to a lending platform themselves.
Still, the game mechanisms can always be improved based on token holders’ proposals and votes. For instance, the early version of the game featured only 1 winner per week, but the community voted for a change, and now the game has multiple winners per pool.
High Transaction Fees
Another issue that users are currently facing is the high price paid for transaction fees. When the ETHereum network is too busy, transaction fees skyrocket. And they are particularly higher when making deposits or withdrawals on PoolTogether due to multiple smart contract interactions.
Smart Contract Risks
As of February 2021, there were no security issues on PoolTogETHer. According to the team, the smart contract powering the game has been audited by multiple independent auditing firms. Even so, it’s always worth considering that smart contracts are relatively new and experimental technology that is prone to bugs and vulnerabilities.
Locking your funds in a smart contract is always riskier than keeping them in your own wallet, for example. You are at your own responsibility when entering PoolTogETHer.
Closing Thoughts
PoolTogETHer is a promising early example of what can be achieved with an open, permissionless financial system enabled by the power of blockchain. The idea of a lottery where even losing players get their entry price back is an entirely new concept that couldn’t exist otherwise.
Taking this idea further and bringing it to serve other types of use cases could also create compelling results. Locking up funds in an interest-earning pool could be useful for charity, crowdfunding, or other use cases that no one has thought of yet. The Decentralized Finance (DeFi) movement is just getting started, and PoolTogETHer is an early taste of the power that it can unleash.
Now that you’ve learnt the pool togETHer meaning, how it works, and how to get started, would you be giving the game a shot?
