First Impression: PoolTogether v5

PoolTogether is a no-loss lottery app that awards winners with the yield earned by depositors. It is one of the OG DeFi apps and was an early showcase of DeFi’s potential.

A bit of a hot take here, but I’ve always felt that PoolTogether has been one of the more underachieving apps in crypto. It generated excitement very early on with a truly novel idea, but suffered from yield compression and has failed to grow through other avenues to compensate. This is a similar story to the original yEarn vaults and Alchemix self-repaying loans. PoolTogether as a concept seems so much better as a financial primitive than as an app. v5 is a big step in that direction and is one of the more exciting developments in DeFi at the moment.

v5 offers several improvements over v4:

  • Fully decentralized, censorship resistant, immutable

  • Hyperstructure architecture supports hooks

  • Compatible with any ERC-20 asset with an ERC-4626 vault

  • Streamlines entire user experience of claiming, collecting, etc

PoolTogether v5 is organized as a hyperstructure – decentralizing the stack by relying on incentivization rather than governance. v5 outsources core business tasks to 3rd parties via Dutch auctions.

  • Liquidation bots – Collecting and converting accrued yield to prize tokens in a timely manner

  • Prize claiming bots – Anyone can claim prizes on behalf of winners, earning fees for doing so. Variable rate gradual Dutch auctions serve to once the fees cover transaction costs

  • Draw auction bots – Retrieving the RNG source for draws on Ethereum Mainnet for security, and relaying to other chains via CCIP.

PoolTogether v5’s new architecture is encouraging, and I’m excited about the potential expansion of its scope in the future. There are some adjacent use cases that could potentially be supported by PoolTogether’s new hyperstructure, helping it grow past the small niche it has previously been limited to.

  • Principal-protected vaults (Vovo, Brahma, R-EARN): Principal-protected vaults are a cool concept that have struggled to gain traction. There’s definitely potential here, and PPVs are a logical continuation of the zero-loss branding

  • Parimutuel markets: Could introduce other variables outside of randomness to designate a prize winner

  • Fantasy sports (NFL, Premier League, Champions League etc): I can’t be the only one that winces at the thought of thousands of dollars sitting idly in a prize pool on ESPN or Yahoo for 8 months.

Source: PoolTogether

PT v5 features the auto-collecting and conversion of yield into the prize token, which acts as the common denominator yield vehicle and reward currency. The prize token is currently POOL, but can be any token. After my first readthrough, I’m not sold on POOL as the prize token. There doesn’t appear to be a legitimate path forward for POOL as money, so this should just result in UX annoyances for both users and token holders.

Users: Creates operational considerations for users as they have to discount the potential sell value of their tokens rather than stablecoin yield. This is an additional step that the user must complete outside of the protocol.

Token holders: There is consistent buy pressure for POOL due to the liquidation of accrued yield into prize token, but there is an equal amount of sell pressure from prize winners. It would appear the best case scenario is that these forces cancel each other out entirely, but there seems to be no room for added wealth and a high likelihood of value leakage, and no real reason to simply HODL POOL.

In the end, POOL as the prize token for a dApp that deals primarily in stablecoins looks like it creates extra steps for users and undermines the improvements to the process v5 offers elsewhere. PoolTogether is still in beta and POOL is not locked in as the prize token, and I could be wrong about the issues associated with POOL.

All things considered, PoolTogether is now firmly on my list of interesting things to keep a close eye on, and appears to be in its best spot since DeFi Summer.

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great read on an oft overlooked protocol. I am surprised pooltogether is still moving along given the negative press they had around regulatory stuff, but its impressive to see nonetheless.