PoolTogether - Disrupting the Lottery Industry
The current lottery system is not optimal for its participants. There is a very small chance for an individual to win a huge price. The chance is so small that most people will lose money in the process. Therefore, it is a very bad deal for participants. You will lose, the lottery company will win.
So why do people actually participate? Lotteries exploit a certain number of cognitive biases. Most people do not understand the underlying risk-reward mechanism. They only consider the huge potential price in their decision making, but not the relatively low chance of winning. This makes them overoptimistic and ultimately leads them to participate in lotteries and lose money.
PoolTogether tries to solve this issue with a lottery protocol that allows users to win prices, while having no loss attached to the lottery ticket.
What is PoolTogether?
PoolTogether is a no-loss lottery. You can imagine it like this: A participant buys a lottery ticket and has a chance of winning a price with it. But the initial investment in the ticket is not lost because he is always able to get his money back.
This is made possible through the decentralized lending protocol Compound. On PoolTogether all lottery tickets are deposited into Compound, which further generates interest.
This interest is used as the price pool. One lucky winner then receives the total price pool with a probability proportional to his initial investment.
Participating in PoolTogether is rather easy. You just have to buy lottery tickets using DAI or USDC. Then you have a chance to win the price pool, which is generated through Compound interest.
This concept is similar to Price-Linked Savings (PLS). This, just like PoolTogether, makes it possible to win large prices without the risk of losing all of the invested amount of money. This concept is not new at all. In fact, PLS have been around for more than 400 years. So why replicate it on Ethereum?
PLS on Ethereum are way more efficient. Because the prices are funded with decentralized stable coins, there are no borders or boundaries that limit the access. This means that every single person in the world with an internet connection is able to participate in the lottery.
There is no KYC/AML required. This creates the possibility of way bigger pools than in traditional PLS, which ultimately leads to bigger prices and a greater network effect.
On Ethereum, the smart contracts can also be viewed by everyone, which means that the whole process is transparent. This builds up trust in the community because you can make sure that everything, from price distribution to rewards creation, works in a fair way.
With PoolTogether, PLS become a programmable money lego. The decentralized no-loss lottery can now be implemented in various decentralized financial applications and can be part of a fairer, more inclusive and open ecosystem.
As of today, the target users are early adopters of the new decentralized financial system on Ethereum. They are eager to try out new exciting things on the blockchain, like playing around and gambling with their money. Pioneers.
However, this early phase will probably not last long. As long as DeFi is establishing itself in the mainstream world, the market for PoolTogether will be becoming way bigger than today.
In 2017, the total spending on lottery products was $283 billion. It can be expected that at least a portion of this money will flow into PLS.
There is no reason why this money should not flow into PLS on Ethereum one day. Therefore, the potential market and userbase of PoolTogether is quite big.
PLS have already been around for more than hundreds of years. While this is not a new concept, PLS on Ethereum will make this kind of lottery more efficient, transparent, and absolutely fair for everyone involved.
Because there are no borders, no KYC and AML attached, it can be expected that the price pools will become way bigger than with traditional PLS.
It is safe to say that PoolTogether has a chance to be part of a fairer, more inclusive and open financial ecosystem that is emerging on the Ethereum blockchain.