If you haven’t noticed by now, the lottery is a scam. It is a tax on the poor and those too willfully blind to recognize that they are handing over their money to the government in hopes of winning big. You literally have a better chance of getting killed by a vending machine, along with many other things, than winning the Mega Millions.

Okay, now let’s just make a slight alteration to our situation. What if all the money you plan to spend on lottery tickets was instead collected into a savings account. The interest accrued in this savings account — across all the participants — would be added to a pot which would act as the prize with multiple winners. Oh, and the principal investment you made can be withdrawn at any time. This is what PoolTogether accomplishes. A no-loss lottery.

In this article I will lay out the fundamentals of PoolTogether 4.0 and discuss ideas I believe are worth addressing surrounding this project.

PoolTogether is a prize savings account designed to encourage a healthy maintenance of money while providing users with a chance to win. A user can deposit money into the system which will generate yield behind the scenes using projects like Compound or Aave. The yield across all the participants is “pooled together” to create the prize. A prize is drawn every single day with multiple winners. At the time of writing (Dec 2, 2021), this is the projected prize tier list for the day.

Now, these prizes may seem unexceptional depending on your wealth, but remember that your money is always available for withdrawal when you need it. I prefer to view PoolTogether as a healthy alternative to gambling because it offers the same winning experience without the loss of funds. PoolTogether lets you have your cake and eat it too.

PoolTogether V4 uses an algorithm called Tsunami to generate and distribute thousands of prizes every single day. Each day the system generates a new random winning number. Participants are delegated “picks” for every draw which are analogous to a ticket in a standard lottery with a pseudo-random number.

The process by which winners are selected is best described by the PoolTogether team here. I will attempt to give a watered-down version to get the main concept across.

Let’s say the winning number is “1 2 3 4 5 6 7 8”. The largest and possibly luckiest winner would have a complete match, however with PoolTogether there are many winners. If your pick is even partially correct, you win something. For example, if your pick is “1 2 9 7 6 1 8 9” you win a tier 6 prize (8–2=6) because the first two numbers match. If the numbers had matched completely you would have won a tier 0 prize (8–8=0) which is the grand prize. The algorithm cross-references all the picks against the winning number sequentially which means that if the pick does not start with “1” — in this scenario — you win nothing, even if the rest of the pick matches perfectly.

It is also important to note that the number of picks a user can have per draw is proportionate to the size of their deposit, with limitations. Those who provide a larger amount of liquidity to the prize pool gain a better chance to win, as they should. Remember, PoolTogether thrives off of its participants so it is important that the system incentivizes high-rollers to keep playing while also making it worthwhile for smaller depositors. This naturally raises concerns that users with extremely large deposits will collect nearly all the prizes, however PoolTogether 4.0 limits the amount of tickets a single participant can have per draw. In fact, V4 actually has improved odds for smaller participants simply due to the massive amount of prizes per draw.

Previous versions of PoolTogether are disconnected and independent. Prize pools in V3 are exclusive to individual networks and different pools exist for different tokens on that respective network. For example, in the image below there are two separate pools on the Polygon chain. The first takes deposits of Tether (USDT) and the second takes USDC.

Example of Pools in V3 (12/2/21)

The latest version of PoolTogether (4.0) is capable of aggregating yield across multiple chains to create a single prize pool. At this time deposits of USDC on Ethereum, Polygon, and Avalanche are supported. **So how exactly does this help the little guy? **Well as a quick review Polygon is a scaling solution on Ethereum, meaning it groups transactions together to be handed off to the Ethereum Mainnet for confirmation. This drastically reduces gas fees which is great news for users who find it especially painful to pay upwards of $60 per transaction on Ethereum. Avalanche on the other hand is a relatively new network employing a proof-of-stake consensus mechanism that specializes in smart contracts, subnets, and many other things. It’s fees are also minimal due to the nature of proof-of-stake, but Polygon still reigns supreme. Most of the people I know would never try out PoolTogether if I told them that they’d have to pay an additional $60 just to play. No way! Polygon and Avalanche are amazing for onboarding people into DeFi because of the extremely low fees.

Beyond the financial convenience of avoiding Ethereum gas fees, V4 also allows its users to reap the rewards of those depositing on any of the supported networks since the prize pool is multi-chain. While big investors will more often than not win the larger prizes each day, smaller players will make up the largest percentage of winners by collecting the not-so-amazing prizes. However, there are some lucky few who were rewarded handsomely for simply saving their money.

The most notable risks involved with PoolTogether are ones that underlie the entirety of cryptocurrencies, web3, and decentralized finance across the board. For instance, the yield generating services (Compound, Aave, Yearn) could fail or become compromised. The networks (Ethereum, Polygon, Avalanche, etc.) on top of which protocols are built *could *fail. A point of failure specific to PoolTogether is a potential bug in the smart contract, however, the protocol actually offers a $25,000 bounty to anyone who manages to find such an exploit. The last risk worth mentioning is something that you will never hear the end of in regards to crypto, which is to protect your wallet. Nobody is going to hold your hand in this new frontier of digital money. If you lose access to your wallet or funds there is nothing that can be done. Don’t share your seed phrase. Anyone who is at all experienced in crypto is sick of hearing this but it needs to be reiterated at every opportunity. The financial revolution occurring right now is all about true ownership and full accountability.

Thanks for making it this far. I hope you learned something new and if you have any thoughts please reach out to me on Twitter (@jackw46_)! Take care.