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Hey friends 👋
When I was 15, I got my first real job - one that came with a regular paycheck. On my first payday, my mom and I went to the bank to open a checking account so I would have a place to deposit my money. The bank teller asked if I wanted to open a savings account too, and I decided to go ahead with it.
At the time, savings accounts paid around 3% interest on your savings, which is not insignificant, assuming you don't have to pay a monthly fee for your account. And in most cases, you don't have to pay for savings accounts. But you might wonder why the bank provides you with interest for a free account.
When you deposit your money into the bank, they take it and use it to earn more money, mostly by lending it to other people at a higher interest rate than they pay you.
That year, when I was earning 3% on my savings, the bank was earning just under 5% on floating mortgages and even higher on fixed rates. Personal loans, student loans, and other unsecured debt (meaning loans given without collateral) charged even higher rates.
Well, despite all the talk about crypto being used for gambling and speculation, some of the most successful decentralized finance (DeFi) applications that have withstood multiple bear markets are lending and borrowing protocols like Aave. These DeFi applications offer lenders the opportunity to earn interest on different types of assets, while borrowers can access funds in exchange for a higher interest rate - just like at the bank.
The interest rates on these platforms fluctuate based on market demand, but because they operate in a mostly peer-to-peer manner, they are often more advantageous for both lenders and borrowers compared to traditional banks.
However, one issue still persists...
If you're a significant investor, depositing tens of thousands, hundreds of thousands, or even millions of dollars, the opportunity to earn a 3-4% return on Aave at the moment might appear quite appealing. Even a traditional bank offering a 1% interest rate may seem like a viable choice. However, as your total deposit decreases, these single-digit returns become less and less enticing. To illustrate this, let's imagine that you deposit your money with a consistent 3% interest rate:
on a $1,000,000 deposit, you'd earn $2468.74 per month
on a $100,000 deposit, you'd earn $246.87 per month
on a $10,000 deposit, you'd earn $24.69 per month
on a $1000 deposit, you'd earn $2.47 per month
on a $100 deposit, you'd earn $0.25 per month
on a $10 deposit, you'd earn just $0.02 per month
As you can see, for the whales making around $30k per year in interest, it's not so bad. However, for the small fish, these returns won't even cover the cost of getting to the bank, let alone transaction fees on a blockchain like Ethereum. This has led a lot of people to search for asymmetric returns. From stock-picking to meme-coin trading to perhaps the most prevalent and arguably insidious gamble: gambling itself. Every year, people with the least money pour hundreds or even thousands of dollars into lottery tickets where the odds of winning are so low that you could spend your entire paycheck for several lifetimes and never win.
The worst part about gambling is that if you don't win, you end up with nothing. Despite this zero-sum reality, those who never win will undoubtedly convince themselves to play again and again. The enormous success of the lottery is due to the fact that, for most people, saving money doesn't provide enough upside. They would rather risk losing it all than not have a chance to win big. But this poses the question: what if you could keep your money and still have the potential to win big?
This idea, sometimes affectionately referred to as a no-loss lottery, but officially known as a prize-linked savings account, comes from the UK where, since 1956, the government has offered what they call Premium Bonds. These bonds are a coupon equivalent to set-value deposits that can be redeemed 1:1 at any time for cash. Every calendar month that a bondholder retains their coupon without redeeming, they are eligible to win a prize.
Nowadays, versions of this, which more closely resemble a traditional savings account with an account balance rather than a bond coupon, exist at a number of private banks and credit unions. And, of course, as we'll discuss further below, it is also available on the blockchain via the PoolTogether protocol.
I knew you would ask that question, and luckily, I have already answered it. Remember earlier when I explained that when you save money, you are actually lending it to a bank, who then lends it to someone else? What the bank pays you is just a portion of what they have earned.
The same concept applies for prize-linked savings, but instead of each depositor earning a small return, all the interest is pooled together to create a set number of prizes. And these prizes can be quite substantial, even huge.
For example, imagine depositing $100 and winning $100. That would be a 100% return.
Even at $10,000 deposited, if you won $100, that would be 1%, not in a year, but in a single win.
And what if you win $5000, or even better, $50,000. It’s not impossible. As the total deposits grow, so too do the size of the prizes that can be won.
Therefore, this is a game that even wealthy individuals can participate in. In the earlier example, a $1,000,000 deposit yielded around $30,000 for the year. If that same wealthy individual won a $50,000 prize, they would already be well ahead of their expected return and still have the chance to win again in the future.
The potential for prize-savings to outperform traditional savings is very real. However, it is important to remember that this can also be seen as an alternative to playing the lottery. In this comparison, there is no contest because unlike the lottery, you get to keep your money!
So, I've explained why prize-linked savings is a brilliant concept, but I've only just started to discuss how you can give it a try yourself. After all, maybe you don't reside in the UK or near one of the banks that provide this service. Or perhaps you don't have faith in traditional banks and the legacy financial system, and you're interested in fully embracing decentralized finance. Luckily, there's an option for you.
PoolTogether has been around for years. In fact, it was the first DeFi protocol I ever wrote about, having caught my attention back in 2021 when I was still skeptical of crypto's value proposition. Unlike everything else I'd seen, I was immediately enamoured with this particular protocol; purple-pilled some might say.
At that time, the protocol was still in version 3 (v3) and while it was already changing lives for some people—especially those living in countries with little access to good opportunities for saving—it was still in need of refinement.
V4 brought big improvements to the randomness of the prizes and added measures to prevent whales from disproportionately winning. It also brought the protocol to Ethereum's Layer 2, launching on Optimism (as well as Polygon PoS and Avalanche). This meant small-scale savers, without the means to pay Ethereum's then sky-high network fees, would finally be able to benefit.
There were some limitations though. V4 only supported USDC, prize draws were not fully automated, and in general the protocol relied too much on external forces, like the PoolTogether DAO to act as stewards, and handle tweaks to the prize mechanisms.
V5, which has just launched officially is the result of a complete reenvisioning of the protocol's design. The core primitive (users deposit tokens, tokens earn yield via vaults on Aave, earned interest is pooled, collective interest is doled out to random winners as larger prizes) has not changed. But the mechanisms are now truly decentralized, and the protocol is now truly open for anyone to use.
This means prize pools (now referred to as vaults) can be created by anyone with any token on any supported chain: basically any EVM chain, though only after the initial contract deployment for that chain has taken place.
If you want to know more about the idea behind the design for PoolTogether v5, aka the Hyperstructure, check out this deep dive article I wrote earlier this year ⬇️
So now that v5 has launched, how do you use it?
Because the PoolTogether protocol is open and permissionless, anyone can create a front-end (app, web app) that offers access to deposit, withdraw, or even zap their assets into a given prize vault.
Let's take a look at all the ways that are available at the time of writing.
Note: the following tutorials require that you have already installed and familiarized yourself a browser extension wallet like Metamask. Or better yet, one of these three, user-friendly and open-source wallets: Rabby, Taho, or Rainbow. For beginners, I'd recomend getting started with Rainbow via the instructions here.
Another Note: v5 is currently only available on Optimism, but the techniques should be more or less the same in the future on other chains and with other assets.
Generations Software, the team that developed PoolTogether v5, has created a suite of open-source tools for interacting with the protocol. We'll look at some more of these tools in future articles, but for today, our focus is on app.cabana.fi which allows anyone to deposit and withdraw from the protocol.
Here's how to use it:
1️⃣ Go to app.cabana.fi
2️⃣ Connect your wallet
3️⃣ Click “Deposit to Win” or “Vaults”
4️⃣ Decide which vault you want to deposit into and click the “Deposit” button to the right of it. For this example, we'll choose be choosing USDC.
5️⃣ On the Deposit screen, enter the amount you want to deposit or tap “Max” to choose the total amount in your wallet.
6️⃣ Now you must give the protocol access to your tokens. You have two options here: “approve exact amount” or “approve unlimited.”
The benefit of the former is that it protects you in the event of an exploit to the smart contract. The benefit of the latter is that you pay this fee only once, instead of every time. It's up to you which you will choose, but I personally prefer to approve only the exact amount.
7️⃣ Click “Review Deposit” and then, having reviewed the information on the screen, click “Confirm Deposit” and then confirm the transaction in your wallet. Once the transaction finalizes, you will see a notification saying you're deposited into PoolTogether and prompting you to spread the word via your preferred social network.
8️⃣ You can review your deposits, check for prizes, and withdraw at any time from the Account page
Another option for accessing PoolTogether v5 is the community-developed PoolTime app.
Here's how to use it:
1️⃣ Go to pooltime.app
2️⃣ Connect your wallet and if necessary, change the network to Optimism
3️⃣ Here you have two options for how to deposit. You can use the widget to the left or click on the vault in the centre panel and it will open a more detailed screen.
4️⃣ Whichever option you choose, enter the amount you wish to deposit (or click “Max”) and then click “Approve.” It will default to approving only the amount of the deposit (as this is a best practice) and you can then click “Deposit For Tickets.”
5️⃣ You will see a small notification that says “Deposit Succesful” and momentarily the section to the right labeled “Your Tickets” will update to reflect your new deposit balance.
To withdraw, you simply follow the same process, only choosing “Redeem” instead of “Buy”
Thanks to the token standard used for the PoolTogether vaults (more on that here), each deposit token can be easily swapped for wherever liquidity is available.
Here's what that would look like on Uniswap
In order to do this, you will need to be familiar with adding contract addresses to uniswap (here's a tutorial I made). If you want to go this route, get the address from here and fill your boots. Just make sure you get a good swap rate (as close to 1:1 as possible).
If everything I just said sounded like gibberish, you should probably revert to the other methods above or you can try…
I've saved the best for last. With the help of Portals.fi you can easily zap from any token to the prize token of your choice. It's fast, easy, and for most people this will be the best way to get started with PoolTogether v5.
Here's how to use it:
1️⃣ Go to app.portals.fi
2️⃣ Connect your wallet and switch networks to Optimism
3️⃣ Click on the top “Select a Token” dropdown and a popout will open. Select the token you wish to sell/trade for PoolTogether deposit tokens. If you want you can use the sorting to only show tokens. You can also search the token by name.
4️⃣ Click on the bottom “Select a Token” dropdown and another popout will open. Select the token you wish to receive (the pooltogether vault deposit token, for example pUSDC.e). If you want you can use the sorting to only show Pools. You can also search the token by name or with a broad term like "pooltogether"
5️⃣ Approve the token you want to trade, then click “Review Order”
6️⃣ Confirm the Swap and then confirm the transaction in your wallet. Et voilà ! You're officially deposited into PoolTogether v5 🎉
So there you have it. Savings doesn't have to be boring, and winning prizes doesn't have to require that you gamble with your hard earned money. You can easily participate in prize-savings via PoolTogether v5 by following the above steps.
And before I leave you, I have a little treat for those of you who stuck around. Here's a free NFT that you can mint if you are a subscribe to my content here on Mirror. subscribing is the best way to see more content just like this on PoolTogether and a range of other subjects.
And until next time,
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